Friday, May 29, 2009

5 year "Value Mortgage" pricing increases

A popular "value mortgage" product had a price increase last night due to pressure on rates from shrinking margins in the bond market.

The product offers no lump sum prepayment option and was priced at 3.54% for a five year term. With the majority of Canadian mortgage holders unable to or not taking advantage of prepayments, it was becoming a popular choice. Giving up an unused feature to get a lower price is not something new in the big picture however it is seldom seen in the mortgage world.

At midnight, the rate increased to 3.79% which is the same as other discounted mortgage rates available to mortgage brokers for a five year term product WITH a prepayment feature.

Some lenders have increased their 5 year offerings to 3.84% or higher in reaction to thinner spreads due to bond market pressure this week.

This news comes at a time when the variance over prime of the "adjustable rate" or "variable rate" mortgage pricing has come down to prime plus .4% (OAC). Although pricing for this product is all over the map with some lenders offering as much as prime plus 1.0% or artificially increasing their prime to 2.50% (the majority of banks are at 2.25%) while offering prime plus .8%, by consulting a licensed mortgage broker you'll avoid worrying whether you're getting access to the best rate available.

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