Today the Bank of Canada announced that once again (for the 13^th consecutive time over the past 19 months) that there will be no change to the overnight lending rate.  This pleases variable rate mortgage holders since there are no alterations to the bank’s Prime lending rate and therefore no increase to their own mortgage rate and monthly mortgage payments.

The Canadian economy is exceeding the Bank’s expectations from January.  The U.S. has contributed to the overall healthier economic picture in Canada since their own recovery has been more pronounced in recent months and their financial conditions have improved as well. An improvement in Canadian consumer confidence has unfortunately increased the level of household debt, which remains the greatest domestic risk in Canada.  Net exports are forecasted to remain weak due to increased competition, a diminishing global demand and the strength of the Canadian dollar.

A full update of the Bank’s economic and inflationary outlook will be published tomorrow and the next meeting to discuss changes to the overnight lending rate is scheduled for June 5^th, 2012.

The Bank of Canada (BOC) announced today (March 8th, 2012) that the overnight lending rate will remain unchanged for the 12^th consecutive time over the last 18 months.  The last time the BOC made a change to the overnight lending rate was back in September of 2010 with an increase of 25 basis points.

The overnight rate currently lingers at 1 per cent.  The bank rate is at 1.25 per cent and the prime lending rate also remains at 3 per cent.

What the Experts are Saying

C.D. Howe Institute’s Monetary Policy Council (MPC) met earlier this week to discuss their ideas around a possible rate change and all 9 members had anticipated that there would be no change.  This is consistent with the message coming from the RateSupermarket.ca Mortgage Rate Outlook Panel members.  Interestingly enough, all members of the C.D. Howe are also forecasting no changes for the BOC’s meeting next month on the 17^th of April.

The 6 and 12 month opinions are mixed due to clashing philosophies as to where the state of the global and domestic economies will be as well as concerns about maintaining a domestic inflation rate around the target of 2 per cent; however the majority currently anticipate no adjustments will be made to the overnight rate over the next year.

The problem with raising rates too soon is the negative impact that it would have on the Canadian dollar and net exports, could our trading partners afford this increase?  Everyone hopes the worst is over in the United States since they have been reporting some healthier numbers, however policy changes are going to continue to happen throughout 2013 and no one is holding their breath.  There have also been signs of slowing growth in China, India, Brazil and Russia; now it’s the BOC’s turn to make a move and they’ve decided to hold steady.

It will be interesting to see how Canada maintains the moderate growth that it has been experiencing vs. how the rest of the world is keeping up. 

At first glance, getting a second mortgage may seem like adding insult to injury. If you already find it hard enough to meet your monthly (or bi-weekly) payments on your first mortgage, why would you want a second one?!? The fact is that a second mortgage is really a secured line of credit (secured against the value of your house), so financial institutions will offer you a much lower interest rate than, say, credit card companies. As a result, a second mortgage can either save you money in the long run (if you’re looking to consolidate various high-interest debts) or enable you to undertake home renovations you otherwise wouldn’t be able to consider for the long term.

How do I Qualify

You can get a second mortgage for up to 80 percent of the value of your home. But you can only qualify for the amount that you already “own” in equity. In other words, if your home is worth $500,000 today, you could qualify for up to $400,000 in a second mortgage. But if your first mortgage still has a balance for $250,000, the bank will only give you a $150,000 second mortgage ($400,000 minus $250,000).

To find out what your house is currently worth, you’ll need an independent appraisal of the value of your home. A professional appraiser will visit the house to take notes of the size of the property, the number of rooms, the building’s age, and the condition it’s in, among other details, then compare it to similar homes that have recently sold in the immediate area.

You’ll also need to go through a similar process to when you applied for your first mortgage, providing the lender with the appropriate mortgage documents, identification, employment and tax records, bank statements, and a tally of your monthly expenses.

How it Works

Once you’ve been approved, the bank will set you up with an account you can access like any other – in person at a branch, at an ATM, online, or using cheques connected to the account. You are free to use the funds for whatever you want (renovations, a vacation, a car loan, your kids education). Then, every month you either have to make a minimum payment, or the bank with automatically withdraw the minimum from an account you have linked to the line of credit.

Fees and Other Costs

As with your primary mortgage, there are fees, or “closing costs” associated with a second mortgage. The appraisal costs a few hundred dollars, though some lending institutions will cover the cost of the appraisal provided you start using the associated secured line of credit and maintain a minimum balance on it if for a set period of time. You’ll also need your real estate lawyer to review and update your mortgage documents, though this is less detailed (and therefore less money) than it is for processing a first mortgage.

The biggest difference to be aware – and beware – of between a first mortgage and a second mortgage is that there’s no such thing as a fixed rate line of credit mortgage. The interest rates charged are tied to the bank’s posted rate. As interest rates creep up, so will the cost of your loan. So, like all other forms of debt, it’s important to keep the amount borrowed on your second mortgage at a manageable level.

There are a handful of clever financial moves out there that you can pull to work existing banking and tax rules. Using your RRSPs to pay down your mortgage is one of them.

It’s known as a self-directed mortgage. It’s not a commonly used trick, but one that might suit you if you’ve got more socked away in retirement savings than you have left on your mortgage.

Secondly, you’ve got to have a great financial team at your bank who will lead you through this somewhat complex manoeuvre. Said team should run the numbers carefully to make sure it makes financial sense for you.

What is a self-directed mortgage?

The RRSP mortgage is often called the self-directed mortgage. The premise is somewhat simple: you take your RRSP money, pay off your mortgage, and then gradually put money back into your RRSPs. Instead of merely borrowing from the bank to pay for a house, you borrow from your own RRSP savings to do the job.

That means you’re paying interest to yourself, not the bank. This is the appeal of the move.

The Costs

To do a self-directed mortgage, which takes some help from the bank and legal professionals, there are additional costs. Banks usually charge a one-time fee to set up the mortgage of $250 to $300 and annual fees of around $250. As well, there are legal fees of around $1,000 at the start.

This new mortgage must be insured by the Canadian Mortgage and Housing Corporation (CMHC), the idea being that you don’t want to lose all your retirement savings if there’s a problem, so you need coverage. That will run you about 0.5% of the entire mortgage amount.

The Rules

This is a strictly organized move, and your bank or financial planner can inform you of all the regulations. One is that you must pay the going interest rate to yourself as you pay back your RRSP.

The Upsides

Since you are paying off your RRSP mortgage regularly, with interest, you are guaranteed a good rate of return on your retirement savings. Even if the markets go up and down, you’re paying interest every month — and that’s the mortgage rate, not the very low interest rates that savings account or money market funds pay out.

The Downsides

Mainly, it’s the sea of charges I mentioned earlier. As well, you are locked into this program long term — you can’t liquidate your money or change your mind all of a sudden. Also, some critics note that this move works better in higher interest rate climates: so you’re making a higher fixed rate on your RRSP investment. (However, the market volatility of today might negate this situation: no one is assured of their investment returns on the market right now.)

Get Advice

Like many of these complex financial moves, this is not something to embark on lightly. You need a great financial advisor or bank representative to help you truly understand how this works and to crunch the numbers specific to your situation to be sure it really makes sense for you.

Despite what all the real estate market pessimists might say in my opinion there is no condominium bubble in Canada.  All signs point to Canada’s real estate market remaining strong for this year and well into the rest of the decade. But that doesn’t mean home prices are falling. In most major urban centers the average resale price is at historic highs.  This indicates an even greater need for condominiums, which are often seen as a more cost effective alternative to single family homes. The dense makeup of multi family dwellings also allows more people to live in the core of Canada’s biggest cities.

Here are the major reasons that debunk any theory that Canadian condominium prices are bubbling.

Higher costs

The average cost of a resale home in Canada was $363,900 in 2011. Economists at the Canada Housing and Mortgage Corporation, estimate that cost will rise to $368,200 this year.

These costs are much higher in bigger centers like Toronto and Calgary. Where home prices on average are more than $400,000.   In Vancouver the average cost of a resale home is expected to climb above $800,000 this year.

This is drawing more attention to smaller family dwellings like condominiums. Especially for the homeowner who’s main factors are location and affordability.  For example, the average price of a condominium in Toronto is $234,680. Condominiums create a good alternative for anyone looking for a more cost affective alternative to a single-family home.

In its latest Housing Outlook the Canadian Housing and Mortgage Corporation says, “demand for denser house types, particularly condominiums, will reflect demographic trends such as an aging population. There are also affordability concerns and transportation considerations, as condominiums tend to be priced lower than single-detached homes, are located near major transportation routes, and can require less home maintenance.”

Immigration

According to Canada Citizenship and Immigration Canada more than 280,000 people immigrated to Canada in 2010 alone. Many of these people went to major centers such as Toronto, Vancouver and Calgary because of better job prospects and family connections.

There is an influx of a quarter of million people every year that need to find a place to live. For many new immigrants starting a new life in Canada a condominium is the first place they could land because of the affordability factor.

Low rental vacancy and ownership affordability

Rental vacancies in Canada are extremely low.  The average rental apartment vacancy rate in Canada’s 35 major centers decreased slightly to 2.2 per cent in October 2011, from 2.6 per cent in October 2010, according to a recent Rental Market Survey by CMHC. In Toronto vacancy rates are at a mind blowing 1.4 per cent.

In the meantime, mortgage rates remain near historic lows, making home ownership possible for more people.

CMHC says in its forecast for 2012 that more affordable condominium projects are now competing with the resale market and enticing some renters to move into new condominium units. It adds in 2012 demand is expected to improve with rising incomes and new household formation.

Final thoughts and observations

Anyone driving down the main highways in Canada’s major cities can see lines of cranes indicating more buildings are coming up. The forecast is that despite the high level of construction, inventory levels will remain in check, as units are absorbed quickly in both the rental and condominium markets.

As long as immigration rates and interest rates remain where they are, and every indication says they will, the notion that Canada’s condominium market is in a bubble is simply fear mongering.

Although real estate has been on a bull run for the better part of the last decade, prices are not inflated as they were in the U.S before the housing crash. As well, Canadians are still carrying significant equity in homes giving options if interest rates were to rise to sell their home and downsize.

Don’t expect to make a quick profit by buying a condominium today to sell next year, but as a homeowner planning to live in the dwelling those homes in the sky are still a valuable alternative to higher home prices on the ground.

It’s the time of year when we shake off the old year and look ahead to guess what the new one will bring. 2011 was a mixed bag of economic drama: real estate, stock market, jobs and other indicators seemed down as often as they were up. It was an uncertain year money wise.

What about 2012? The verdict is mixed, the debt crisis in Europe being the pivotal factor. If these nations can get a grip on their monetary problems, the rest of the world should see gradual growth. If things slip into meltdown, we could be looking at a global double-dip recession.

In Canada, the numbers over the last month or so look promising and predictors seem to be leaning towards the former, more positive, scenario — with the debt crisis worsening in early 2012 but improving by mid-year. Here’s what’s up for the year:

Economic Growth

Our economy is going to grow this year, but not by leaps and bounds. Expect about 1.9% growth in GDP, according to the Bank of Canada. RBC is forecasting as much as 2.5% growth.

At the end of 2011, the BOC had expected GDP growth in Canada for Q3 to hit 2.0%.  Actual growth turned out to be 3.5%. And in Q4 they expect 0.8% growth, while most analysts think Q4 growth in Canada was about 2%.

Only time will tell if we will once again surpass the forecasts.  And if so, for how long can  it go on?

Interest Rates

Low, low, low! With all this uncertainty, and inflation numbers looking very low, there are few plans here or south of the border to raise rates. Some are saying we won’t see a rise in the overnight rate of 1% until 2013.

Until the worldwide economy has truly stabilized, you’ll be able to get those dirt-cheap mortgage rates and loans, so enjoy them a little longer.  Experts predict that once rates start to raise at the end of 2012 or in 2013, the increase will be slow and steady, going up 1-3% by the end of 2013.

To keep on top of interest rate changes, check out the Mortgage Rate Outlook Panel for a monthly prediction on whether or not rates will go up, down or stay the same in the short term.

Real estate

The predictions, of course, depend on where you live. Experts are saying the high-flying Vancouver and Toronto markets are overvalued and we should see a correction. But with high gas prices and job growth focusing on cities, there’s still a lot of interest in living in our biggest centres.

One thing the experts seem to agree on is the oversupply of condos in these cities. They’re expecting a dip in prices and buyers getting pickier about location, square footage and outdoor space.

Check out Melanie’s post from yesterday to find out more about what’s in store for Canadian’s when it come to home prices, home sales and housing starts in 2012.

Currency

With ongoing problems in the US and overseas, economists are predicting weakness in the US dollar and the Euro throughout the year. As a result, the Canadian dollar is expected to stay high in 2012.

Employment

The jobs story has been much worse in the US than it has been here. Already in late 2011 the US jobless rate moved down and is around 8.6% right now. Experts are predicting a modest descent through 2013 to around 8%.

Here, our situation is better, and we’re hovering around 7.4% unemployment right now. It’s predicted Canada will see a jobless rate of about 6.9% by mid 2013. Better news still: those experts think wages will start to rise and skills shortages will make looking for a well-paying job easier for some.

Regions

The prairies are so hot right now. Alberta and Saskatchewan have low employment rates and high growth, and those are expected to continue into 2012.

All in all, I’d say it’s not quite time to break out the champagne over the economy. 2012 promises to be another roller coaster ride of ups and downs, but those who can manage their money wisely and keep their debt to income levels in check, will come out on top.

It’s the beginning of a new year and everyone’s dying to know; how will the real estate market fare in 2012? Will home prices continue to escalate? Will housing starts continue to rise, or will they slow this year? And what will home sales be like this year?

To answer these questions, I’ve done extensive research, gathered the thoughts of some of Canada’s top economists and compiled them here. Please feel free to share your thoughts on our real estate market for the upcoming year in the comment space provided at the bottom.

Home Prices

As of November 2011, the average selling price of a Canadian home sat at $360,396, a 4.6% increase from November 2010. Canadian home prices might be currently overvalued by as much as 15 per cent, says CIBC economist Avery Shenfield. He doesn’t expect to see a major correction this year, though, especially since Canada’s economy and the job market both remain fairly strong.

“The catalyst for correction just isn’t there,” he says. “We’ve largely lent to those who have the income and ability to pay.”

It is said that home prices are rising much faster than income. Shenfield hopes to see zero growth in 2012. Zero growth could effectively give the market an opportunity to let off a little steam, allowing incomes to catch up to overinflated prices.

Low mortgage rates, employment opportunities and immigration will continue to support Canada’s housing market. But It is expected that home prices will stabilize in 2012.

Housing Starts

Last year, housing starts (the number of new homes being built) showed an annualized reading of approximately 190,000 units, says the Globe and Mail. CIBC World Markets economists Emanuella Enenajor says, “Analysts in recent months had been expecting housing construction to slow, led by weaker multiples construction – with the heated condo market losing its affordability edge over detached properties.”

CMHC also expects housing starts to decrease this year. They estimate that new housing starts will fall to 186,750 units from an estimated 191,000 in 2011 – a 2.2 per cent decline.

Some cities, such as Montreal, Regina and Saskatoon, already have a high inventory of new homes, which will definitely limit new starts there. In Manitoba, however, housing demand continues to be fuelled by strong levels of migration, according to one report.

Home Sales

The Globe and Mail reports that economists think that the Canadian housing market will lose steam overall in 2012. Although they don’t predict a bust, they do predict that valuations will be a main concern. In particular, TD predicts that both B.C. and Ontario could see real estate troubles over the coming years.

According to senior analyst Jacques Marcil, B.C. could have it worse. He says that the Vancouver housing market likely reached its peak, and predicts that they will probably see “a significant correction” this year.

The TD report suggests that home resales in B.C. will fall by 3.7 per cent, and prices will decline by 3.5 per cent. In B.C. last year, sales rose by 5.9 per cent from 2010. This December, sales were down by 12.7 per cent. Prices, on the other hand, were up by 7.6 per cent – but still down from June’s highs.

Thanks to an overabundant supply of condos, buyer confidence and an unstable economy, Ontario’s housing market is expected to be sluggish as well, especially where Toronto’s condo market is concerned.

In a separate report, Sal Guatieri of BMO Nesbitt Burns says, “Outside of Toronto and Saskatchewan, home sales have moderated since new mortgage rules were introduced in March (for the third time in four years).”

“Markets are balanced in over half the country,” he continues, “But sellers still rule in Toronto, Saskatchewan and Manitoba.”

Guatieri projections: “’Modest gains’ in Canadian home sales this year, steady prices, a dip in housing starts and a moderation in mortgage growth from its pace of almost 8 per cent.”

Meanwhile, the Canadian Mortgage and Housing Corporation predicts slight gains in 2012. “Sales of existing homes will edge up to 458,500 in 2012 from an estimated 450,100 this year, a 1.9% gain, while the average price is forecast to rise by a moderate 1.2% to $368,200 in 2012 from $363,900 in 2011.”

It is their belief that buyers will likely continue to be encouraged by record low interest rates.

In conclusion

Overall, many economists see Canada’s real estate market stabilizing in 2012, especially due to slow job growth, waning consumer confidence and tighter mortgage rules. As Canadian households rack up record high debt, the allure of low interest rates is thought to be waning. For these reasons, we can expect a cooler pace in real estate this year.

More than ever in 2011 Canadians were faced with choices when picking a reward option on their credit card, from free groceries, to gas station points to travel reward miles, there was something for everyone.

Cash is King

The card that grew the most in popularity in 2011 was definitely the cash back reward credit card. Card companies including MBNA, Desjardin, HSBC along with Canada’s big five banks, all offer their version of a cash back card with refund rewards ranging from 1-5%. Here customers get a monetary reward for each dollar they spend on their credit cards.

MBNA, for example, offers 5% cash back on qualifying net retail gas and grocery purchases for the first 6 months and 3% after that. It also gives 1% cash back on all other qualifying net retail purchases. Recently we did a bit of research and found that the average Canadian household can save $562 in the first year by using a cash back credit card for their purchases. Over 5 years, that savings builds to $2,382. (Check out our handy Cash Is King Infographic)

Changing Rules for Credit Card Providers

Looking back this year, the credit card landscape has changed dramatically. Particularly since late 2010 when new credit card rules fully came into affect.

The new rules attempt to make the credit card industry more transparent by mandating that a minimum 21-day interest-free grace period be given on all new credit card purchases when a customer pays the outstanding balance in full. Also, credit card providers have to provide information on the cardholder’s monthly statement on the time it would take to fully repay the balance, if only the minimum payment is made every month. For example, a balance of $1,000 on a credit card that charges 18% could take more than 10 years to pay off. And companies must give customers more notice if their interest rate will be rising.

Also, during the application process companies must provide a summary box on credit contracts and application forms that sets out key features, such as interest rates and fees. All these rule are good for a consumer who is conscious of their financially situation.

But there is still mounting evidence that Canadians are getting into more debt than they can handle.

Consumer Debt Levels Soar

A new Statistics Canada survey shows as Canadians struggle in these tough economic times they are taking on more debt. The latest survey released in December 2011 shows the average household debt in Canada hit a new record high of almost 153% of disposable income in the third quarter, a sizable jump from 150.7% the previous quarter.

According to Stats Can, the ratio of household credit-market debt – which includes mortgages, consumer credit and loans – to personal disposable income has climbed to 153% in the third quarter from 147% in the first quarter. That’s the highest level since Statscan started gathering figures in this category in 1990. Economists predict the number for the Q4 could be even higher as Canadians have shown no sign they are paying debt off.

A Plea for 2012

Rewards are great but at what cost? One of the bi-products of these attractive credit cards is Canadians are more likely to put more purchases on them.  This coupled with lower interest rates is creating the perfect storm for debt addicted Canadians.  Going into 2012 it’s important to understand the rewards being offered on our cards and if they are worth it.

The best way to tackle our debt problems is to start paying off our loans.  Start with the highest interest loans, like credit cards and store cards. Work your way down to the line of credit and your mortgage.  Its a simple message that we have all heard before.

Also, Canadians have to stop spending. This week skip the Boxing Day sales, focus on how you’re going to tackle your debt in 2012, make a financial plan or a budget and start putting it to work right away.  Make a small commitment to yourself to save money, such as I’m going to take my lunch to work, I’ll take the bus rather than drive or instead of that luxury Caribbean holiday this year the family is taking a road trip somewhere in Canada. The beauty of getting yourself on the path to financial freedom is you can start right now.

This was a tough year for me.

I was laid off abruptly in April 2011 from a job that I thought was solid and found myself in a situation I had never been in before. I was worried I hadn’t saved for a rainy day and all I had was my RRSP that I was unable to dip into without paying a huge penalty.

After a few months of soul searching (which I recommend to anyone that has been laid off), I decided the right thing to do was to get back to what I was best at, financial journalism. I also realized that once I started making money I would have to put more away to plan for the next rainy day that came into my life.

Like a religious promise, I’ve been putting 10% of my after tax income away into a long-term savings account, this is not my retirement saving or my holiday fund. This is money that I will be able to rely on if my financial situation goes south again. I realized this year that although I have set myself up very well for later in life, I own investment properties that will be paid off when I turn 55 and I have a sizable amount in my RRSP, but I have nothing for the emergency situations that can happen at any time.

My New Year’s promise is to increase the amount of after tax income I put away from 10% to 15%.

The World Has Changed a lot in 2011

If I learned anything from this year, it’s that anything is possible.  Just look at how the world has changed in the last 365 days.

The debt problems in Europe are worse.  Whereas last year we thought it was a few countries dealing with their debt crisis now the future of the Euro is in peril.

The Occupy Movements proved a large proportion of people around the globe are frustrated with the economy and their own financial situations.

The Bank of Canada did not budge the interest rate all year, scared out of its mind that it would bring Canada’s economy to a standstill. Subsequently our household debt continues to rise and hit new record levels.

But the most surprising is that for the first time in history the debt rating of what everyone thought was the world’s most powerful economy the United States of America, was downgraded and remains lower even today.

My Promise for 2012

Here is my take away for 2011 and what I want to do different in 2012. Nothing is forever, always plan for when times may not be as good as they are right now. Save more money and if you’re in debt pay it off before you do anything else.  Don’t live your life a slave to your debt payments. Also take a good holistic look at what you spend your money on annually. Add up how much you spent on clothes, going out for dinner and vacations this year and see if that number makes you nervous.

If you’re spending more than 40% of your after tax income to service your debt you need to take a hard look at how to get those numbers lower. For example if you make $3000 a month but your minimum variable rate mortgage payment is $1,200 a month  you’re over extending yourself and are vulnerable to financial problems when interest rates start to rise.

Ask yourself if you could live with one less car, or are you wasting money by throwing away food that goes bad in the fridge or do you really need to go the spa every second week?

I don’t believe saving money means cutting out all the joy in your life, but it means putting the way we spend money into perspective.

I’m an optimist and I believe we all have the ability to make a change to save more and pay off more debt. Make 2012 the year you get yourself on the track to financial freedom and by this time next year you will see how it’s paying off.

Happy New Year!

For a while now we’ve been reading headlines about how interest rates are at “historic lows.” Which is great news for anyone with a variable-rate mortgage, line of credit debt, or who is looking to negotiate for things like car loans or fixed-rate mortgages.

But what’s the other extreme? How high have – and could – interest rates go, and what would it mean to your savings if they did?

Here’s a quick walk through the history of interest rates in Canada and abroad.

Interest Rates – High Times

If you’re not old enough to remember the recession of the early 1980s, your parents certainly will. In 1981, mortgage rates peaked at more than 20 percent. (That’s not a typo.)

Many people whose mortgages were up for renewal during that period found themselves signing up for mortgage rates that were twice as high as they were just five years prior. Some resorted to paying hefty upfront fees to get private lenders to offer them rates in the mid-teens.

The rates stayed in the double digits until the mid-1990s, when they began their gradual, more or less downward decent to today’s posted rates. (You can take a look at the history of how Bank of Canada’s trend-setting Bank Rate has risen and fallen here.)

Sounds bad, doesn’t it. Well it was. Here’s how those numbers add up in terms of monthly payments. Let’s say you have $200,000 outstanding on your mortgage, and you’ve opted for a five-fixed rate, payable once a month. Look how significantly your payments increase as the interest rate escalates.

• Based on a 5.29 percent mortgage (which is the 5 year fixed posted rate for most of the big banks) you’re looking at $1,196.45/month.
• Double that to 10.5 percent and you’ll pay $1,856.66/month.
• Double-down again to an interest rate of 21 percent, the high back in 1981, and your monthly payment jumps to $3,378.97.

Although it’s unlikely that rates will hit the likes of 15-20 percent again, we may very well see 5-7 percent in the long run.  That type of a jump may still be 2-3 times higher than your current mortgage rate.  Do you think you could afford paying nearly three times as much as you do today for your mortgage, and still afford those other essentials like heat and groceries?

What to do Today?

First off, don’t stretch yourself too thin. If you are house shopping, don’t forgot that mortgages are long-term commitments and lots of things can change over the duration.

While we can all hope and pray mortgage rates don’t climb into double-digits again, it’s a safe bet they will rise at least a few percentage points above where they are right now. So factor that in when calculating all your carrying costs so you don’t find yourself facing an eviction notice soon after your policy comes up for renewal.

Many mortgage professionals are now advising that people signing up or renewing mortgages today should opt for the fixed rate products. The logic being that since the Bank of Canada’s prime rate (that the other banks base their mortgage rates on) is pretty much guaranteed to rise, it may push variable rates much higher than the best fixed rates currently available.

Ultimately, that’s a call for you to make based on your guess on how high the rates could climb and your comfort level with risk. Truly risk-averse borrowers may even want to lock in to a 10-year term (there are some currently posted 10-year rates below 5 percent) and buy themselves a decade of stability.

Regardless of the type of product you choose, here are two ways to minimize your risk, and the total cost of borrowing over the life of the mortgage.

1. Make bi-weekly instead of monthly payments. Instead of paying $1,196.45 once a month as in the scenario above, change your payment schedule to a bi-weekly payment of $552.21 and save yourself thousands of dollars in interest over the life of the mortgage. (The bi-weekly payment is slightly less than half of a monthly payment, but you end up making an extra payment each year – 26 bi-weekly payments version 12 month ones – so you’re paying down the principal sooner.)
2. Make lump-sum overpayments. Most (though not all) mortgages allow you to overpay up to 20 percent of the original mortgage amount every year. This money is applied directly to the principal (unlike your monthly payments which are divided between paying interest and principal). So taking your bonus or some other unexpected windfall and applying it to your mortgage can lead to significant long-term savings and help you pay off the mortgage earlier.

Interest Rates – Around the World

Think moving out of country would help? Not likely. While you may find cheaper digs in some of the more rural parts of the U.S. or U.K. – both of which offer interest rates comparable to our own, urban centres like New York, San Francisco, and London have some of the highest real estate prices and cost of living in the world.

Head down under to Australia and you’re looking at posted rates around 7 to 8 percent, which seems downright cheap compared to the 11 to 13 percent going rates in South Africa.

And while Hong Kong’s 2 to 3 percent mortgage rates might seem enticing, you have to remember that you’d be buying in a city where real estate can cost up to $10,000 a square foot. (Again, not a typo.)