The document discusses the advantages of maintaining a variable rate mortgage over locking into a fixed rate, highlighting that many economists advocating for locking in may have conflicts of interest due to their affiliation with profit-driven banks. It emphasizes the potential for severe penalties related to fixed rate mortgages and the advantages of staying variable, especially considering rising interest rates. The author, a mortgage agent, shares insights from their experience, encouraging readers to consider the full financial implications of their mortgage choices.

1. FixedVsVariable - ToLock In or Not?
Thisinformationapplies100%if you are takinga new mortgage,whetherapurchase,refinance,or
renewal. Due tocurrentrate discountsthe variable isthe bestchoice.
But whatabout all the economistsandmedia sayingif youare ina variable rate mortgage currentlythen
'lock in'? You should lookat whotheyworkfor andask what isin itfor theircompanyif youfollowtheir
advice andlock in.
Many of those 'economists'are employedbyprofitdrivenshareholderowned bankingandfinancial
institutionsthatdirectlybenefitfromyoulocking-in. Theirprofits increase immediately byinstantly
havingyoulockin at a rate higherthanyour variable rate forhigher profitmargins forthem. Theyalso
lockyou intomassivelyhigher(upto900% higher) prepaymentpenaltiesthat2/3 mortgage holderswill
trigger. That’sright 66% of mortgage holderswill breaktheirmortgage term.
Yes theyare a bitbiasedasthere issomethinghuge initforthemand theircompany. PROFITS!
They alsotendto be generalists,andnotspecialists. Aseconomicgeneralists,theyare typicallyunaware
of manynuancesof mortgage products.
But whatabout independentreal estate experts?
While these real estate expertsmayhave theirfingeronthe pulse of manyfacetsof the economyand
real estate market,manyremaintotallyunaware of how exactlymortgage prepaymentpenaltiesare
calculated,andhowlikelyyouare totriggerthem before yourmortgage termisup. You deserve to
knowthe full consequencesif youlock-in.
So whydoesitmatter to me?
My visionisthat'Everyone Shall Live aLife of Abundance'andI hope thatthisinformationhelpsyou
achieve this. I don't profitfromyourlockingin,or fromyour stayingvariable withyourcurrent
mortgage. If however, afterreadingthisyoudecide youneedme tohelpyouwithyourmortgage thenI
getcompensatedbythe lenderforbringingthembusiness.
I'm a Mortgage Agentoffering myopinion.Anopinionthatreflectsmypersonal policy,basedonmy
yearsof experience andknowledge asareal estate investorandmortgage agent.

2. I've seena fewthings,mortgage specificthingsthatyououghtto know.
Yes 2/3's of youwill breakyourmortgagesandtriggerpenalties.Almosteverysingle one of themasmall
and relativelypainlesspenaltythankstostayingvariable.Whataboutpenaltiesonfixedrates? Well
fixedratesare subjecttoInterestRate differential (IRD) penalties. The bigbanksuse a discountedrate
formulatocalculate thisthat endsupcostingyou thousandsinpenalties. Checkoutthe storyon‘CBC
Market Place’onthisverytopic.
What happenswhenwe have these risingrates?
If you are currentlyina Prime -.65%to Prime -1.00% variable thentolock-inwouldbe toinflictan
immediate rate hike onyourself. Basedonstatementsfromthe governmentitself mighttake them
another12-18 monthsto make those increase at.25% at a time...if theydoinfact do it. Soyou would
immediatelybe payingmore interestandfeedingthe profitsof the lenderbylockinginnow andlosing
all of the advantagesof the lowervariable rate.
There are twokeyreasonto stay variable.
#1) InterestExposure
You endup payingmore interestimmediatelyandtake awayanyadvantage of payingdownyour
mortgage quickerif youlock-in. If youare concernedaboutyour monthlybudgetyoushouldconsider
settingyourpaymentequal towhatthe fixedpaymentwouldbe andkeepthe variable rate. Thisway
youwon't feel the increasesonyourbudget. Irecommendthistoall myvariable client's.
#2) InterestRate Differential PenaltyExposure
You have likelyseenthe storiesabouttheseoutrageouspenaltiesinthe 10's of thousandsof dollarson
showssuchas CBC Market Place. The bankscharge outrageouspenaltiestothose thatdecide tobreak
theirfixedmortgage usingacalculationthatinvolvesamortgage rate discountthattheyofferedyouat
the beginningfromtheirinflatedpostedrate. Atthe time of breakingthe mortgage theynow use this
discountagainstyou. Thisdoesnot happenwithavariable rate.

3. If you are ina Prime -.50% or shallowermortgage,we shoulddiscussrestructuringthatintoat leasta
Prime -1.00% mortgage andreducingyourrate by .50% or more. The resultwill be lowerpayments,less
interestpaidandmore foryou fromeach paycheque.
If the national GDPand inflationsupportitthenyes,perhapsanothertwoorthree 0.25% hikesthrough
2019, butat that pointthe oddsfavour(heavily) aneconomiccontractionthatwill inturntriggera
correspondingreductionininterestrates. We alsohave a federal electionwhichalsotendstoputthe
brakeson interestrate hikes.
It ismy belief,andthatof otherswiththeirfingeronthe economicpulse of Canadamore thanI,that the
fedmay be pushingratesupaggressivelyaheadof aneconomiccontraction,sothattheyhave the tool
of 'reducinginterestrates'backintheirtoolbox whenthe rainydayscome.We are overdue forstormy
economictimesandAlbertahasnotcome out of ityetsince 2014/15.
In short,moneyinyourpocketis betterthanmoneyinthe bankspocket. Stay variable - andkeepitin
yours.
Thank you.
KeithUthe
Mortgage Agent
Mortgage Alliance EnrichMortgage Group.
keith@enrichmortgage.ca