Tuesday, January 20, 2009

Part of the Problem?

The news is out. The Bank of Canada just dropped it's lending rate by 50 points. Of course I am ecstatic and will be even more so if the major banks follow suit. They haven't all done that lately.

As I revel in the prospect of an even lower mortgage rate, it occurred to me that I may be part of the "problem".

You see, I have 2 sub-prime mortgages. They are both variable rate. The main one (for our main home) is at prime minus 0.90 and the tiny one (for the ski condo, taken from the equity of the main house) is at prime minus 0.75.

Right this minute, pre-(hopefully) rate decrease, they are costing us 2.60% and 2.75% respectively. Potentially, they can get as low as 2.10% and 2.25% with 3yrs 3 months and 4 yrs 4 months left on their current terms respectively. My extra bonus goal is to not have to renew either mortgage at all.

So getting back to my realization. Canadians used to (I say used to because times are changing) believe that we were immune to the sub prime mortgage crisis in the States, that our banking system is different, that we are so much more conservative.

We may not have the type of mortgage products where payments double or triple within 3 years but we did start getting into 40 year, 0% down mortgages. Now, they've changed things so that the maximum length of time is 35 years with 5% down. And quietly, people like me have signed up for mortgages at rates below prime not really putting 2 and 2 together.

I realize that I am qualified to take out a mortgage for the amounts I got and that I fit into the banks traditional lending ratios and if I lost my job, D can cover. But, I have to wonder if my mortgages had been packaged up and sold to investors who have gone belly up?

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