Calgary Sun – June 19, 2005

Page: H21
Section: Homes
 
In Calgary's booming real estate market, mortgage interest rates can cause a lot of panic attacks if you don't understand the intricacies.

So we decided to ask the experts: What do I need to know about interest rates before I decide to invest in real estate?

The key to understanding interest rates as a whole is distinguishing between fixed rates and variable rates, says Invis mortgage agent Trish Hart.

"Fixed-rate mortgages are not immediately affected as they are influenced more directly by the bond market and not the Bank of Canada's rate. That can mean more peace of mind for those who cannot assume more risk. A variable interest rate, however, is announced by the Bank of Canada every six weeks."

A fear of bouncing interest rates often leads to a rush for fixed interest rates even though, they may actually work against the investor in the long run.

"It really depends on your situation. Do you want the stability of the fixed rate or are you financially able to deal with the risks of a variable rate? Often a variable could mean a lot more savings to you," says Hart.

Still confused?  Simply put, a variable rate mortgage can allow the borrower to take advantage of the lower rates because the interest rate is based on prime (the base rate for a bank's best customers) plus a set percentage.

The key to succeeding with a variable rate mortgage is to choose one with a locked-in option, says Don Campbell, president of the Real Estate Investment Network and author of Real Estate Investing in Canada.

"There can be a huge gap between the fixed and variable interest rate. With a fixed rate, there is that sense of stability because it keeps the rate the same throughout the lifespan of the mortgage but you could miss out on the discounts of a variable rate. The key is to choose one that you can lock in if the market starts to sway at all."

If you are thinking of buying new property with hopes of renting it out to make a profit, a high interest market holds more promise than that of the low interest, says Campbell.

"Most people assume that a low interest market is the best time to invest. That can be true but if you are planning on renting it out, a low interest market can make it a lot easier for renters to turn around and buy a home, rather than rent. So it all depends on your goal."

For media comments and inquiries, please contact:

Steven Moyes
604-879-0228
E: Steven Moyes