Most variable-rate mortgages are still at prime + 0.60% to prime + 0.80%. That rate premium is part of the reason people aren’t as jazzed up about variables anymore. Many think prime is going up in the next year as well.
If you’re one of these people, and don’t want to commit to locking in a 5-year variable at those high premiums, Merix offers a solution: a 21-month fixed-rate promotion at 2.90%!
This secures you a great variable-equivalent rate for 1.75 years. At that point, you can then hopefully move into a variable at prime (or even prime minus if the mortgage gods allow). It’s also convertible any time into a 5-year fixed at discounted broker rates.
This product is not perfect for everyone, but it’s a solid choice for variable-lovers in the crowd.
The fine print:
- Only available for high ratio CMHC-insured financing (i.e., those with less than 20% down payments)
- No pre-approvals or switches
- Must close by May 29, 2009 (That means applications should be submitted by next week to allow 10 days after approval to close.)
Other conditions apply. Speak with any mortgage planner for complete information.
This product may be a bit scary. Where are rates going to be in 21 months. I would think long and hard before proceeding with this option.
Cool. This seems a lot better than a variable mortgage because you are sure to keep the rate 1 3/4 years. I think the BoC made a promise it can’t keep and wouldn’t be surprised if prime rate goes up sooner than a year. In that case I’d rather be in this than see prime rise on me 1/2 to 1%.
Does anyone know what the prepayments are??
If you read the BoC’s statement, it says the Bank will hold rates steady “conditional on the outlook for inflation”.
It’s true that rates have nowhere to go but up, but you’ve got to be pretty bullish on the economy to think that prime is going to skyrocket in the short-term.
2.9% is good but with low rates available on 3,4 and 5 year rates it may be wiser to lock in for those periods of time.
Rob, I would love your thoughts on where rates could be in 2011 when this Merix product comes up for renewal.
Hi Adam,
Thanks for the note. This product is for a specific type of borrower: someone who desires, and is financial suited to, a variable-rate mortgage.
That particular individual may have every plan to lock in at some point, and will benefit from a guaranteed set interest rate (equivalent to prime + .65% today) while he/she is waiting to do that.
Where rates go in 3-5 years is anyone’s guess but I’ll join the rest of the sheep in suggesting they’ll be higher than today’s record low rates.
Personally speaking, I’d lean towards a 3-year at 3.05% or a 5-year at 3.69%. But I’m a scaredy cat because I don’t like risk. Moreover, rates aren’t going much lower and timing a rate-lock and dealing with conversion rates is always a wildcard.
Cheers,
-rob
There seem to be a lot of these very client specific products out there today. Similar to their no frills 5 yr fixed @ 3.59%. Not sure if I’m sold yet.
5 year fixed with today’s rates, still seems like a sound choice.
There are hundreds of mortgages out there. There isn’t one mortgage for every person, which is why there are hundreds of mortgages out there.
You don’t have to be sold. Just pick one that works for you.
By the way, Merix doesn’t have a no frills right now. You’re thinking of MCAP.