Canadas Life Insurance Issue: So Many Options

If you are like most Canadians, the prospect of buying life insurance is anything but apparent and understandable. Why do we buy life insurance at any rate? We want to care for our loved ones. Right?

It is perceived that life insurance is for those with big debt loads, young families, and young careers who want to protect their families. They are being intelligent and protecting their family incase of a tragedy.

But what about people who are in a later season in life, when the debt load is lower and the kids start flying the coop? Thinking they are making a fiscally sound choice, many people stop purchasing life insurance. While they may have saved a few dollars, they have put security for their family at risk.

If you think life insurance is costly, it may not be what you think. Life insurance rates have dramatically dropped in the last ten years. The ten million Canadians who are in their forties and fifties can buy life insurance at very low rates.

The older you get, you can take advantage of the different policies to protect your loved ones and your wallet. Term life insurance is going to be smarter, safer, and cheaper in the short term. But a permanent life insurance option will be best for the long term where you can choose traditional whole life, universal whole life, and variable whole life insurance.

If you want to save money and still keep your loved ones secure, these options will help prepare the future.

You are given the most guarantees with traditional whole life insurance. The certainties include minimum cash value and death benefits as well as yearly premiums. Most traditional whole life policies are participating, meaning the surplus they earn can be used to increase cash value or death benefits.

If you prefer premium flexibility early in the insurance plan, universal life insurance is for you. Universal life gives you maximum guaranteed premiums and minimum guaranteed cash value and death benefits. As an alternative to dividends, universal life policies earn interest at a determined rate every year.

For the more well-informed and risky investor, there is variable life. Variable life has the fewest guarantees and because of that, it offers the best potential for cash value increases. There are mandatory guaranteed annual premiums and guaranteed death benefits.

It can be very beneficial for you familys future to get life insurance regardless of how difficult it can be. To receive professional council and great deals on life insurance, go to www.infoprimes.com

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Is an Adjustable Rate Mortgage for You?

Our parents may have had the same mortgage (and the same home) for 25 years, but times have changed drastically, and most mortgages now are no longer fixed rate, long term, but rather ARMs (Adjustable Rate Mortgages) this is by far better.

An even newer development has come about that allows buyers to be able to choose the index their ARM is based on, giving them a more reliable control over the rate.

Some of these indices react rapidly to changing market conditions and others lag behind these changes. Used properly, the potential borrower can time his mortgage adjustment to his advantage. Lagging indices let the borrower know the bottom has been reached as rates move up, and he can make his move, this will be a total benefit for you. Some index structured ARMs include:

The six month CD ARM- Reacts quickly to changes in interest rate markets and that is because it is priced every six months.

The twelve month spot ARM- This rate will change only 2% every twelve months. This will react more slowly than the CD ARM.

The six month Treasury Average ARM- This indicator changes more quickly since it is six months, but treasury bills so not move quickly, so it is a slowly adjusting rate.

The twelve Month Treasury Average ARM- Reacts slowly to market moves, even more slowly than the six month Treasury Average ARM, since it changes every twelve months.

You need to undertstand the basic differences of mortgages before you buy adjustable rate mortgage or fixed rates if not you could be falling in a big mistake.

Our goal is to give you the steps so you can find the best calculation for your ARMs when it gets to the different types of rates and one important step is know where to find these steps.

Using the Internet you may find the best Canadian mortgage insurance, if you search the proper information you could find exactly what you were looking for and all this without leaving the house.

You may do all this from home by checking the information on the Internet as sometimes you will end up finding better quotes than with a personal broker by analyzing the options.

You will need to decide between adjustable rate mortgage or a fixed rate and this information depends on how well you really understand about ARMs.

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How to Understand the Lock in Period for Your Mortgage

When you make an application for a mortgage, the rate you are quoted will be the rate for that day. Usually, you don?t close on the same day you are inquiring about rates, so you will have to take the risk that the rate will go up.

But lenders today frequently offer their clients a lock in period for their mortgage at the time of application. It is only practical to realize that there will be a delay between when the loan is applied for and the home is closed on. And since most people figure how much mortgage they can afford based the interest rate, they realize borrowers want to maintain that rate. So a lock in period can be negotiated with your lender, which will keep the rate the same for a certain period of time. Both interest rates and points can be locked in.

The lock in rate can be fixed at the application point, the processing stage or the approval stage of the home loan.

Perhaps you have a chance to lock in 5.5% interest with one point for 30 days. Even if you close in a month, and rates have increased, you will still get the 5.5% rate on the mortgage. This is a normal lock in period, and a lot of lenders offer it to attract customers, and are willing to take the risk for a short period of time. However, if you prefer a longer term, you may have to pay since lenders do not want to take such a risk for a longer time without getting something in return.

Remember that the lock in period can go against you if rates go down instead of up, unless your agreement permits you to break the agreement. This has to be done when you sign up for the lock in rate.

Once the 30 day period is over, your agreement expires and you will be given whatever the new market rate is. If there have been no significant movements in rates, the bank may be willing to renew.

There are combinations in terms of lock in periods.

Rate is locked, points are locked. In other words, the bank will maintain both the interest rate and number of points for 30 days.

Locked Interest Rate with Floating Points. The basic rate is fixed for the period, but the bank retains the right to increase the points. In order to maintain the original rate, you may have to pay extra points.

In a volatile interest rate environment, it is very wise to choose a lock in period, and maybe even pay a slightly higher interest rate for a longer period.

What are Mortgage Points? Should I Pay Them?

Many people don?t really know what ?points? are when it comes to negotiating their mortgage. The concept is fairly simple: you pay points up front to decrease the interest rate on your loan over the entire period. each point represents a percentage point of the whole loan value. A $100,000 would require a $1,000 payment for one point.

Basically, such points lower the stated rate on the mortgage. There are different ways of calculating the benefit of a point, depending on the lender, but an example would be to pay 1.5 points to reduce your mortgage from the posted rate of 6.25% to 5.875%, or to 5.375% if you paid 2 ? points.

The important thing to consider when you are deciding upon paying points is how long you plan on living in this house, and whether or not you can afford the points upfront. If you need to borrow to pay the points, you will most likely lose any advantage since you will have the additional interest. First time home buyers usually will not find it advantageous to pay points, since many do not stay in their first home for long.

Points are likean investment in the loan. Let?s say you?re thinking about paying 1.5 points to get a reduction in your home loan rate from 6.00% to 5.50%. In essence, you are paying some of the interest in advance, so if you are only going to have the home loan a short while, you have paid that advance interest for nothing.

There are many calculators on the internet that can help you calculate how much you can save in monthly hhome loan payments by paying upfront points, based on the length of the loan or you can take the easy way out and contact a mortgage professional to do it for you.

The $100,000 loan we were talking about would require $1,500 in points to reduce the rate to 5%. How do you find the breakeven point in this scenario, based on the different rates? For a $100,000 mortgage, the monthly payment is $599.55 for a 15 year mortgage. The cost of a $100,000, 30 year loan at 6% would be $567.79 a month.

The points paid then save you $31.76 a month, but you had to give the bank $1,500 in order to get this savings. If you divide your investment of $1,500 by your savings of $31.76, you will see that it will take 47.23 months for you to recoup the investment. In other words, if you don?t think you?ll be in the home for about 4 years, you get nothing by paying the points.

However, once the 47.23 months have passed, each month payment is a savings. Let us now suppose (this doesn?t happen very often today) that you actually stayed in your home for the thirty years; you would save that $31.76 over the course of 30 years, a big savings of $9,933.58!

Learn About Interest Rate Only Mortgages Before You Borrow

When you pay your monthly mortgage payment, you may have noticed that a part of it (however small) reduces the mortgage and the rest of it pays the interest. This was how all mortgages were until now. Some banks have now introduced a new type of loan to attract more borrowers by keeping the monthly payment as low as possible by only paying the interest.

This means that if you choose an interest only option, every month you pay your mortgage, the loan balance stays just the same; it never goes down. Even with more conventional mortgages, you could pay extra on your mortgage to pay down the principal balance faster, but the idea of this loan is to keep the monthly payment down.

Interest only loans were based on the theory that it did not matter that the principal was never reduced, because when the home was sold, the increased value would allow the borrower to pay off the loan. Equity was increased by a combination of mortgage paydown and increased home values.

Today?s falling home prices means that homeowners can no longer count on an automatic increase in their home value. The only reason that one would want to have an interest only loan is to keep the monthly mortgage as low as possible. Today, it would actually only work if it were used as a stop gap measure.

A good example would be if one partner to the mortgage was attending school and the other was employed. Theoretically, once the other partner finishes school and starts a job, the mortgage payments can be increased to start to reduce the loan.

Another example may be where the homeowner has income that varies greatly from month to month. Perhaps someone who worked on large projects and was only paid at the completion of them might have such a situation. It would be in his best interest to keep his mortgage payments low during the periods of no income and raise them when the large income was received.

In the current housing environment, not building equity by reducing the loan could be a dangerous situation. As mentioned, with ?old fashioned? home loans, the mortgage was paid down eventually because part of the monthly payment went towards principal, so the owner had some equity even if the value of the house did not go up. If no equity has been paid down, the owner will have to raise additional money to pay off the mortgage when home values have not sufficiently increased.

What are Interest Rates Up to? Should I Purchase a Home?

If you are considering buying a home or refinancing your present one, you probably are wondering if this is the right time. If you think interest rates are going up, you will want to lock in a lower rate now, but if you think rates may still fall considerably, you will want to wait before you commit to a mortgage.

What determines interest rates depends on many factors, so knowing what they are as well as how they operate can help you make your decision. The price of money is interest rates, so if you understand what will affect the price of money, you will understand what affects interest rates, which includes your mortgage rate.

The first factor to examine in terms of interest rates is the inflation rate. The inflation rate has two primary indicators. They are the PPI and the CPI, the producer price index and the consumer price index.

PPI or Producer Price Index is a measure of the change in prices at the level of production. If the prices of raw products increase, you can be sure prices in general will go up.

CPI is the benchmark of the change in prices at the consumer level, measured as a group of goods. This is a very important signal of inflation since this is what we will all pay for our goods. Certain segments of CPI can ?skew? the results, so analysts frequently remove changes in food and oil prices, which can be too volatile. This permits them to look at the core inflation rate to understand better where overall prices, and therefore inflation, are heading.

GDP is another relatively good predictor of inflation as well as interest rates. The Federal Reserve Bank attempts to keep the economy growing at a ideal rate; too slow and production will lag, causing a recession; too fast and the economy will overheat. The Fed has some tools to influence interest rates and will use them to increase rates when it needs to slow the economy down and decrease them when it needs to help the economy to pick up.

Another important indicator is the unemployment rate. Low unemployment tends to lead to inflation, since it will lead to higher wages which will lead to higher prices. High unemployment usually leads to lower interest rates over time since employers can keep wages lower since there are so many candidates for each job. In other words, higher wages lead to a wage price spiral and decreased wages bring prices down.

It can be very beneficial to a prospective homebuyer to keep on top of these kinds of economic indicators to know what is happening in the interest rate arena. In general, a slow economy, with high unemployment, means that interest rates will be coming down, and you should hold off on your loan for a while. Higher GDP with low to no unemployment signals a road to higher interest rates.

Learn The Truth About ARMs

As if there were not enough decisions to make when you are purchasing a house and getting a mortgage, lenders now have such a wide rang of ARMs (adjustable rate mortgages) and the borrower even has to choose the index upon which the ARM will be based!

When we speak of the “index”, we are speaking of the base financial instrument that the changing rates will be based on. Today, banks use various indices, such as the rate on government bonds, or the Fed Fund rate or the London Interbank Offer Rate(LIBOR).

The basic concept of an ARM is that the interest on the loan is adjusted up or down, on a periodic basis, based on a chosen signal interest rate that is indicative of interest rates in general. If your ARM is tied to the CD rate, and the bank’s CD rate goes up, your interest rate will likewise go up. Adjustable rate mortgages have adjustment caps, which says that the interest rate can only be adjusted at certain periods, even if the underlying interest rate goes up more often; this can be an advantage if you just readjusted and then rates move up. But be aw are, however, that if you just readjusted at an increased rate, and your index rate falls, you are stuck with the increased rate until the next adjustment period.

There are a large number of ARM indices, and they include the CDs, LIBOR and government bonds mentioned. Another index that is frequently used is the Federal Funds Rate. Many of the international banks will employ the LIBOR as the index rate for loans.

How you decide upon the correct index is dependent upon your particular circumstances and how you believe interest rates will change. CD ARMs change every six months, for example, and therefore react more readily to interest rate changes. On the other hand, if your ARM is based on T Bills, it will react more slowly. One of the fastest indices to change is the LIBOR, so if you want your interest rate to move often, because you think rates are going to decrease, this is a good choice.

As we said, new products are introduced each day, and one of the newest it the option ARM, which allows the borrower to pick how much he wants to pay on his mortgage each month. The mechanism behind these loans is that they are interest interest only loans, so you have to pay that minimum, and then you have the choice to pay more. One of the big issues with an option mortgage is that you can end up with an increasing instead of decreasing mortgage; this is also known as negative amortization.

This is a lot of information for the home buyer to digest, and the best solution is to talk to a professional mortgage broker who can explain it all and recommend the best course for you.