So did you take a 5.69% mortgage two years ago and are now kicking yourself? A lot of us did. However, we can’t kick ourselves. You make the best decision you can with the information available to you at that point in time.
This video blog talks about imperfect information, and dealing with the “what if” of mortgage planning.
Transcript of Video Blog:
Hi everybody. I want to talk today about something that’s come up several times. I alluded to it recently in a blog post, but I want to talk about making decisions on imperfect information.
At any point in time when we’re, as brokers, selling you an interest rate. We do so with the same economic news that everybody else has, the same economic fundamentals. Things change. Prior to September 11th, none of us knew what was going to happen. We didn’t know the economy was going to go into an immediate dive, thereafter None of us knew that Lehman Brothers were going to go down.
In hindsight, looking at the financial practices of some of those financial institutions that went down in the United States, maybe some of us should have seen it coming, but we didn’t. When I say “we, ” I mean the overall financial institutions sector, the financial sector, and particularly the mortgage lending sector.
Now, why am I bringing this all up? Well I, myself, got into a rate that was well over 5% a few years ago. At the time, it was a fantastic rate. It was a promotion. I had to quick close in a very short period of time to get it.
The reality was when I got it, it was the best deal in town. It couldn’t be matched anywhere. I got it for as many clients as I possibly could. Those same clients, a few years later, are now looking, going “That 5.25 rate, which while fantastic at the time, is looking God-awful right now.”
There’s very little you can do about that. You can absorb the penalty and refinance down, presuming you have the equity or the ability to pay the penalty off in cash. Maybe you can get a bit of a cash-back offer from the new lender. You probably have to pay a slightly higher rate to do it, though. It may make it not worthwhile.
When you’re looking at yourself, if you are kicking yourself, thinking “Wow, I took a product. I took a variable rate when variable rates were prime plus a half. Now they are prime minus a quarter, ” or “I took a five-year when they were 5.50, and now they are 3.79.” If you are in that situation, do not be beating yourself up about it. You made the best decision you could at the time. If it was a good deal when you got it, it’s still a good deal today.
Frankly, any time I see interest rates below 5% to borrow money, that’s pretty darn good in my books. You think back even just eight years ago, ten years ago, at what interest rates people were paying, happily, compared to what they are paying now and you’d be shocked.
You may say, “It’s a totally different market. This is an entirely new paradigm in lending. What applied before no longer applies.”
I would argue that the lending practices that have stood the test of time and the interest rate averages that we all have seen are very accurate. The fact that we are well below those average should suggest there isn’t a lot of downward room but that there should be some upward motion.
When? That’s the question that’s worth a billion dollars. I can’t answer it but I can guide you with some of the recent economic news. If you would like further information or you would like to write a comment, please do so. Otherwise, I’m Rowan Smith for the Mortgage Centre.
