Tuesday, December 8, 2009

Mortgage Rates Hold

Good news for all Canadian variable mortgage holders, the Bank of Canada rate is staying the same. This morning's announcement is the last one of the year.

I've already put next year's announcement dates in my new day timer. Never in my life have I tracked BoC rates until this year!

As an FYI, I used my bank's online mortgage calculator to find out how my amortization would be affected should my mortgage rate rise from the current 1.35% to 4.50% (where it was 2 years ago when we bought the house).

The amortization would increase by 7 months, assuming our current payment stays the same.

Our payment wouldn't stay the same. I have one of those mortgages whose payments will increase with the rate such that your amortization will be the same.

On the other hand, should rates fall, as we have lived through in the last 2 years, our payment falls and our amortization lengthens if you do nothing about it.

We did something about it. We raised our payments so that our amortization stayed the same and then boosted it higher.

The caveat is, we are not allowed to lower the payment once it has been increased. Should mortgage rates go up in the future as people are predicting they will start to, our payments will continue to creep up.

This phenomenon is as close to the type of mortgages we hear about in the US where you start out small in payment and after a year it leaps up etc.

We are prepared to handle increases should they happen in the next 3 years. Our current amortization for the house mortgage is 5 yrs 10 months. The ski condo is at 4 yrs 9 months.

Our goal is to get them to 3 yrs and 3 yrs 8 months respectively by utilizing the allowable yearly mortgage prepayment.

In 3 yrs and 3 yrs 8 months is when we would normally be renewing. I do not want to renew. If there is a small balance left, we will pay it out with cash or a line of credit.


  1. The US mortgages you hear about are called ARMs, or Adjustable Rate Mortgages. You get a guaranteed rate for a certain time, and then it adjusts afterward. Some unscrupulous lenders were enticing borrowers with low teaser rates, but the borrowers didn't understand that those rates wouldn't last. Not a good situation for anyone involved.

  2. No kidding, that would be a huge shock for people who didn't realize what was supposed to happen. Are these mortgages still available?

  3. Yep, but a lot of banks that offered them aren't. :)