The seasonally adjusted annual rate of housing starts decreased by 5,700 units from June to July, the 
CMHC reported Tuesday, but the organization’s chief economist remained optimistic that the housing market is stabilizing.
“The slight decline in July’s housing starts is mostly attributable to the volatile multiple starts segment,” said Bob Dugan, Chief Economist at CMHC’s Market Analysis Centre (urban multiple starts decreased nationally by nine per cent). “Although July registered a decline, housing starts are expected to improve throughout 2009.”
CMHC also forecast that housing starts will gradually become more aligned with demographic demand, currently about 175,000 units per year. Several housing industry players have also conveyed optimism about the Canadian housing market. The Globe and Mail reported five signs for a housing recovery following the housing starts report, including the increase in home sales in July, low mortgage rates and a jump in building permits.
Statistics Canada reported Tuesday that building permits rose one per cent in June.
John’s Wednesday Words of Wisdom
A fixed rate is an interest rate that does not change throughout the course of your mortgage term. With the same interest rate, you have a regular interest payment and you know the exact amount your payments will be each month. This can make personal budgeting easier. Having a fixed rate makes it possible for you to figure out how much of your mortgage you will have paid off by the end of the year.
“Some people like fixed rate because if they fix the rate for three years, they know exactly what their mortgage payment will be for three years, and in three years’ time their interest rate will not have changed. It gives them peace of mind”
A variable rate is an interest rate that fluctuates with the market during your mortgage period. They provide a lot of flexibility and are especially appealing when interest rates are on their way down. Although your mortgage payment typically remains constant, the ratio between your principal and interest rate fluctuates. If interest rates go down, more money goes toward repaying your principal, helping you pay off your mortgage faster. If interest rates go up, you pay more interest and less principal. If they rise substantially, the original payment may not cover both the interest and the principal. The portion that is not paid is owed, and you could be asked by your lender to increase your monthly payment. Historically however, it is the variable product that has saved people the most amount of money. Please click on the following graph:
“Remember… not all mortgages are created equally. Variable rate products vary from lender to lender. Making sure that your variable rate mortgage has the ability to convert to floor rates of the day is only one of the benefits of having a mortgage professional in your corner.”
Some customers follow interest rates closely and will call their lender to switch from variable to fixed, but many customers do not. And if you’re not following interest rates regularly, you may miss out on opportunities to save money. This is where a competent mortgage broker comes in handy. They can alert you when rates are on the move, and their reasons for doing so.
As of July 2009, a five-year variable mortgage can be had for about 2.5% to 2.85% and a five-year fixed mortgage for about 4.09%, so there is a definite difference between the two at this point in time. But given the current challenging economic climate, some people still prefer the stability of fixed mortgages. The premium of over a percent is justified with the peace of mind borrowers get from having a fixed rate. Historically, a fixed-rate mortgage of less than 5% doesn’t happen very often, so perhaps this is as good as it gets or as close as it gets in terms of fixed-rate mortgages?
Either way, I am here to answer any and all of your questions. I can direct you in making the correct decision between fixed or variable. Each of them has their pros and cons. Once we have spoken, it will become evident what type of client you are. You will leave with the satisfaction of having a complete understanding of both fixed and variable rate mortgages.
