Friday, May 20, 2005

How can you guard against rising interest rates?

Open Variable Rate Mortgages have proven to deliver significant cost savings in recent years but, as interest rates begin to creep upwards what can be done to guard against rate spikes?

If your Open mortgage allows you to pre-pay any amount anytime without penalty, now is the time to consider a hedge strategy that will allow you to enjoy the lower interest benefits of a variable rate, and protect against rising rates in the future.

Most banks will give you a pre-approved fixed rate mortgage guarantee for between 90 and 120 days, assuring you the pre-approved rate regardless of what happens to mortgage rates over the next 3- 4 months.

To protect yourself from looming interest rate hikes, visit your bank’s competitor and ask for a pre-approval on a 5-year fixed rate mortgage. Then, keep a close eye on the Prime Rate and the bond market. If rates increase tomorrow, you can exercise the fixed rate option and move your mortgage across the street, at yesterday’s rate. If rates don't move up the way you thought, do nothing and start the process over in a few months to guarantee you are covered in the case of interest rate hikes.

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