What Drives Fixed and Variable Mortgage Rates?

While many people think the Bank of Canada rate directly affects all mortgage rates, the truth is that variable and fixed rates are influenced by different factors.


Fixed rates are affected by the yields of government bonds. Since these bonds are considered safer investments than stocks, when there’s economic turmoil, investors move away from stocks to bonds. This increased demand for bonds increases their price which acts to decrease their yield or rate of return. If the price of five year bonds goes up, the resulting decrease in yield acts to lower the borrowing costs for mortgage lenders who can then reduce their five year fixed mortgage rate.

Unfortunately, these potentially lower rates are currently being offset by the liquidity crisis. Banks around the world are hesitant to lend to each other which results in higher borrowing costs for mortgage lenders, who then pass them on as higher fixed mortgage rates.

Generally, the Bank of Canada plays a bigger role in determining variable mortgage rates. By setting the Bank Rate, it controls the average rate for loans between financial institutions. Since institutions use this rate to set their prime rate, if the Bank Rate drops by 0.5%, the lenders’ prime rate usually drops by 0.5% too.

However, here again the liquidity crisis has discouraged institutions from lending to each other. As a result, lending rates between institutions have increased which means a Bank Rate decrease of 0.5% may only result in a lenders’ prime rate being reduced by 0.25%.

In such unusual times, it’s difficult to forecast mortgage rates. However, with the liquidity crisis beginning to ease and the Bank of Canada suggesting it may reduce the Bank Rate a little farther, most experts predict slightly lower rates, with variable rates declining a bit more than fixed rates.

Still have questions? For more detailed, personalized mortgage advice, give me call at (905) 529-1199


Lisette Amalfi, AMP
Mortgage Agent/Owner
OAC Mortgages Inc.
(905) 529-1199

Who Else Is Suffering From Christmas Debt Hangover?

According to a recent Bank of Montreal poll, 24% of the Canadians who carry over a balance on their credit cards after Christmas said it would take them at least six months to pay off their holiday debt. Yes, red truly is a Christmas color. So much for more and more Canadians living paycheck to paycheck. Now they need more paychecks to pay off that gift giving debt.

If the Christmas season put your credit card debt into dangerous territory, here’s a way to get your finances back on track. Chances are you’re paying anywhere from 10-20% interest on your credit cards. Meanwhile, you may have enough equity in your home to refinance your mortgage, consolidate your credit card debts, and end up paying mortgage interest in the 5-7% range!

The first step is talking to your mortgage advisor. I can help determine how much equity is available and advise whether debt consolidation might be right for you. Even if you have to pay a penalty to break out of your existing mortgage, that cost is usually more than covered by the interest savings of debt consolidation. I’ll do the math and show you how much you can save.

The goal of refinancing should be to save interest and get out of debt faster. It’s important to understand that you’re going to have to change your spending habits—at Christmas and year-round—or you’ll be refinancing again before you know it. The best strategy is to use the money you save from consolidation to start a saving plan or to invest in an asset that will generate a return, such as revenue property.


Lisette Amalfi, AMP
Mortgage Agent/Owner
OAC Mortgages Inc.
(905) 529-1199

Good Debt vs. Bad Debt

More and more people are getting swallowed up by debt. I'm sure you've read and heard many of the statistics and stories in the news. One of the keys to financial independence is to get rid of your bad debt and acquire good debt.

Bad debt is debt that makes you poor, such as credit card debt, car loans, school loans - this is consumer debt.
Good debt is debt you acquire that actually works for you. The best example of good debt is a mortgage loan on a rental property that throws off positive cash flow every month. Good debt is money that you borrow to purchase assets that put money in your pocket.


5 Steps to Eliminate Your Bad Debt and Acquire More Good Debt

Step 1 - Stop accumulating bad debt. Whatever you purchase via credit cards must be paid off in full at the end of each month. No exceptions.

Step 2 - Make a list of all your consumer (bad) debts. This includes each credit card, car loans, school loans, and any other bad debts you have acquired.

Step 3 - Refinance your mortgage to consolidate your high interest debts. Chances are you’ve built up enough equity in your home to pay off your high interest credit cards and consumer loans. Your mortgage advisor can help determine how much equity is available and how much you can save by increasing your mortgage balance to pay off bad debts at lower interest rates.

Step 4 - Explore the option of using additional equity in your home to increase cash flow. After you consolidate your bad debts you may still have equity left over to invest in a secure cash flow producing asset. For example, the equity could be invested in a First Mortgage Fund that earns 9% interest. With a home mortgage interest of 5% the net return on this investment would be 4%. That return can be left to compound or withdrawn every month.

Step 5 - Pay yourself first. Put aside a set percentage from each paycheck or each payment you receive from other sources. Deposit that money into an investment savings account. Once your money goes into the account, NEVER take it out, until you are ready to invest it. Now - instead of just paying creditors – you’re paying yourself for only one type of purchase: assets that give you positive cash flow each month. By adopting this as a consistent habit you will be out of the Rat Race faster than you ever dreamed!