Bank of Canada: Prime Rate 2.50%

As predicted, the Bank of Canada lowered their overnight rate to 0.5% on March 3rd, which brings prime rate down to 2.50% from 3.00%. Based on a recent article from TD Bank, one of the main reasons for the cut was due to tight credit. A proposed framework for easing future credit is expected to be released in April. However, a new policy alone will not be the only solution. The report indicates that external factors affecting Canada, such as the US recession (in particular, mention of the auto and housing industry) will plague us and until there is a form of “stabilization of global financial markets around the world” we will take time to recover.

On the rate front: a further 25bps decrease making the overnight rate 0.25% is anticipated (prime rate = 2.25%) and these rates wouldn’t be expected to rise again until the latter half of 2010.

How does this information affect you if you are currently looking into a mortgage?

Banks continue to offer variable products at prime plus 0.8%/5 years. One particular credit union associated with TMG The Mortgage Group is offering the full savings at prime rate (2.50%) although payments are based on 5.4%. The good news is that you are instantly building equity and paying down a large portion of your principal while enjoying the added benefit of being capped at 5.4%. Should prime rate increase to 7,8,9% (it’s anyone’s guess these days) your payments would be capped at 5.4%. Alternatively, 5 year fixed rates are historically low (4.39%/5 years) and for comfort and peace of mind, this is a guaranteed low rate.

Leah Plaizier

TMG The Mortgage Group

What A Mortgage Really Is…

We had some questions regarding mortgages, and wanted to explain exactly what a mortgage is…

The most important thing you must realize about a mortgage is that what you believe it to be is actually wrong. Often referred to as a mortgage home loan, they are not a loan in the traditional meaning of the word. The mortgage is a legal contract between the mortgagor who is buying the property and the mortgagee, the person supplying the finance and security against the property. However, it is easier to explain it as a legally binding document where the lender is protected from loss by using the property as security for the debt.

Mortgages have in fact changed the face of house buying because they provide the facility for the purchase without the buyer paying the full cost upfront. The way this process works is presented in brief detail during the rest of this article. Being the financier, the mortgagee is the person who lends funds to the mortgagor or borrower. The document itself produces a lien on your property which is not cleared until the debt is paid.

The property you are buying does in fact become collateral for the finance that has been sought to pay for it and is the protection a mortgagee needs if he is going to continue financing house purchases. Records of this are normally kept in the public records section of the county courthouse or a similar establishment. While the property is owned now by the mortgagor, the lien cannot be reversed until the amount specified in the debt is paid off. So how this works is that the mortgagor (you) owns the property completely even though the mortgagee has possession of the mortgage but not the title.

The only right the mortgagee has over the property now is if payments are missed and the property needs to be sold so the mortgagee can recoup his funds. If in the unfortunate event this happens, the process whereby the funds are reclaimed is called foreclosure. This is done in order for it to be considered legal; this type of foreclosure is referred to as a judicial foreclosure. This is the subject in brief and while there is a great deal more to it, perhaps this will help to clear up any ambiguities you may have previously experienced.