Low rates not the only factor

Financial Planning

Helen Morris, Financial Post  As mortgage rates remain low, homeowners looking to renew their mortgages can get some great deals. However, those people who are hoping to secure a good rate are also likely to be assessing their own wider financial well-being, what with increasing job losses, stock-market routs and the recession.

"If you [are] in a market sector that may be subject to layoffs or you believe that your employer may have issues and may not be there for you tomorrow," says Peter Veselinovich, vice-president, banking and mortgage operations at Investors Group, "you may want to adjust the amount of your payments to reflect what a reduced cash flow or revenue flow into your home might look like."

This could mean looking at a longer amortization period.

Mr. Veselinovich says it is crucial not to look at your mortgage in isolation but as part of your overall financial plan. Mortgage professionals suggest shopping for rates well before your renewal date.

"I would consult with a mortgage broker 120 days prior to your renewal date because we can hold a rate for you," says Heather Paterson, mortgage specialist with Invis in Toronto, an independent mortgage brokerage. "If rates go down, we can get you a lower rate; if rates go up, then we've got you protected at today's rate."

The sub-prime fiasco aside, there are many products and lenders operating in what's known as the conventional mortgage market in Canada. These are the lenders who provide mortgages for individuals with regular jobs and decent credit ratings.

"The overall mortgage rate environment in Canada is exceedingly good. You can get a five-year fixed mortgage for less than 5% ... there have been increases in the variable rate product -- it used to be there was a discount up to 1%," says Jim Murphy, president and CEO of the Canadian Association of Accredited Mortgage Professionals (CAAMP). "Today the best you can do is probably prime plus 0.6%."

This means that as the prime rate has fallen, variable customers could be looking at a rate as low as 3.6%.

"The difference in those rates is really the insurance premium for peace of mind you're going to get by locking in your rate," Mr. Veselinovich says. "I like to call it the insomnia factor ... if you're going to be concerned that ... any material movement in interest rates could reflect a payment that you could no longer afford ... then you should be looking at a fixed-rate mortgage."

Many economists expect rates to continue to decline.

"Going into the second half of this year, we will start to see a lower mortgage rate," says James Marple, economist in economic forecasting at TD Economics. "Going into 2010, we're starting to see signs of an economic recovery ... We start to see inflation picking up and we will see short-term interest rates rise."

Mr. Murphy says it is crucial to ask lots of questions and not only about the rate. If you are thinking of moving house in the near future, check whether your mortgage is portable without penalty if, for example, you move to another province. Most national lenders will be happy to do this but some smaller regional institutions may not be able to. Each mortgage deal has many varied aspects, so analyzing it in detail is crucial. For example, many have penalties associated with early repayment or early exit from the deal.

"If you're not satisfied with the answers you're getting, go to somebody else," Mr. Murphy says. "The rate environment itself is low and going lower. I think the lenders are trying to provide the best products they can in uncertain times."