In order to pick the correct mortgage strategy that will save you the most money, you have to understand the factors that interest interest rates increases and decreases - taux hypothecaire.
This is a very complex subject, the topic of innumerable books and business school dissertations. We are going to try to keep it basic here by discussing how the Bank of Canada’s fiscal and monetary policy along with the movements of the debt markets have an impact on rates - taux hypothecaire.
A borrower may think that it is the bank that is controlling what his interest rate on his home loan will be. The bank is really only reacting to the influences in the economic arena that determine mortgage interest rates:
-Variable rates are determined by the prime rate - taux hypothecaire.
-Fixed rates are determined by the bond market.
The Bank of Canada sets a base rate that determines the prime rate that the major Canadian banks will use. The prime rate is then used by these banks and other mortgage lenders to fix variable mortgage rates.
VARIABLE RATES:
Many people only consider the variable rate. They are excited when they feel they can get a 5 year variable mortgage at 4.75%, when the 5 year fixed mortgage rate is 5.4%. This is short sighted, since variable rate mortgages rise and fall with the prime rate. If the prime rate is, for example, 5.5%, the borrower with the 4.75% rate actually has a rate which is prime less .75%. When the prime rate increases, his variable mortgage rate will increase with it - taux hypothecaire.
The prime rate is established at fixed intervals eight times per year. This is when the Bank of Canada sets a new rate that may increase, decrease or remain the same in comparison to the old one. It stays at this new rate until the next adjustment period.
The Bank of Canada uses the prime rate to manage growth and inflation. The governors of the Bank of Canada will monitor the inflation rate, as measured by the CPI (Consumer Price Index), and the GDP (Gross Domestic Product). (taux hypothecaire)
Strong increases in the CPI (2% or above) signal inflation and the Bank will tend to increase rates to forestall inflationary tendencies. GDP measures the country’s economic activity and is also influenced by inflation, so it is a factor that the Bank of Canada keeps an eye on to determine rates.
A weak economy with reduced inflation will usually push the Bank of Canada to lower rates; a strong economy and higher inflation rates will induce it to raise rates. (pret hypothecaire)
FIXED RATES:
Fixed rates are set by each lender and are also determined by many factors, the most critical of which are the lender’s portfolio earnings and its cost of funds.
Lenders such as banks and mortgage companies buy and sell the mortgages they originate on a secondary market. They do this fairly constantly to balance their portfolios and try to get the best return for them.
The investors the banks sell these mortgages to also invest in the bond market, so the secondary mortgage market has to compete with the bond market. If the rates in the bond market go up, the banks will have to offer higher rates on their mortgage portfolios by raising the rates on the mortgages they write. When the rates on the bond markets decrease, the fixed mortgage rates can come down to be in line with them. (pret hypothecaire)
There are a lot of factors going into the determination of interest rates, both variable and fixed. (And this was just the simple version!) When you realize that banks, other lenders, bond market investors, the Bank of Canada, the CPI and the GDP are all influencing your mortgage rate, you can see that it is a complexly linked area of study - pret hypothecaire.
The solution for the non-expert is to find a reliable mortgage counselor to help him through this maze of information and can help him determine how these factors can or should influence his mortgage decisions. Working with a bona fide mortgage counselor will let you find the best strategy with the best rate in your particular situation. (pret hypothecaire)
Article Source: http://www.orbitaloc.com/
Gregory is an Accredited Mortgage Professional (AMP). To get more information on mortgage rate - taux hypothecaire, visit: Hypotheque - Get a mortgage
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