Mortgage Rates Rise; Financial Literacy Rates Unchanged

A number of Canadian banks have today raised their mortgage rates, with posted five year closed mortgages jumping from 5.25% to 5.85%. Here are some comments made by mortgage consumers below the Financial Post article, 29 Mar 2010. Thanks to metalhead at RE Talks for pointing them out. -

anonymous 29 Mar 2010 1:02 pm – “I still think its crazy to get a locked in mortgage. There aren’t many signs outside of Canada that things are back to normal. In fact its far from it. Right now I have a variable rate of 2.05%. How much could rates really go up with so much uncertainty. If they go up too fast our dollar will sky rocket and cause its own problems. I would get a variable rate which could save you hundreds of dollars per month compared to 5.86%, save the money you would have spent at the higher rate and then if interest rates climb you have a buffer to help you but if they don’t rise beyond the 5.86% then you have a lot of extra cash.”

anonymous 29 Mar 2010 12:41 pm – “I think a lot of the confusion comes when banks close your mortgage for 5 years on a fixed or variable rate, but they automatically amortize it over 25 years. So people think their house will be paid off in 5 years, when it’s just locking in a rate. That is what happened to me when I was 24 years old. I bought my first home, locked in the rate for 5 years only to find out in 5 years that I had put $15K against the principle and I still owed $200K! Then I went to renew, and finally when I asked them, they were amortizing the mortgage over 25 years again. So in total I would be paying off the mortgage over 30 years! I finally got smart and put a short amortization of 10 years and also started making annual payments on top of my mortgage, until I paid off the house 7 years later.”

And relevant confirmation from older discussion at the G&M:

ruthmatthews 14 Jan 2010 3:58 pm – “Most Canadians do not seem to know that in Canada every mortgage is open after five years and their interest rate can increase at that time UNLESS they have been able to lock in for say, seven, or ten years with specific mortgagees. The amortization period is just used to create a monthly payment to suit the financial ability of the mortgagor. I have spoken to a lot of home buyers who seem to think that if they have a 35 year amortiation with a monthly payment of $650, that this amount will be payable for 35 years.”