Financial Update

Markets soar as Americans embrace change

· TSX +395.42 pts to 10.116.48 (Reuters) its highest close in two weeks as resource issues surged with rising commodity prices, and on relief that the uncertainty of the U.S. presidential election would be over later in the day.
· Dow +305.48pts U.S. stocks rose in the biggest election day rally ever
· Dollar +2.19c to $86.87US.
· Oil +6.62to $70.53US per barrel in the final hours of a 2-year U.S. presidential campaign, mirroring global stock markets that strengthened from Asia to Europe.
· Gold +30.50to $757.50US per ounce Gold led the climb, rising 11.5%
Analysts saw more optimism on the Street, in part because the election was finally at hand.
"Markets don't like uncertainty. (They) can handle bad news, and they like good news - but it's the uncertainty (that causes volatility)," said Paul Vaillancourt, director of asset allocation at Franklin Templeton Managed Solutions in Calgary. The uncertainty will be removed and you'll have a new Treasury Secretary and a new economic team no matter who gets elected and that's a positive because it'll restore confidence”
Don't balk, a case can be made for variable-rate mortgages

ROB CARRICK Globe and Mail November 4, 2008

Once the darling of savvy homeowners, the variable-rate mortgage has become a nasty piece of business lately.

Rates for these mortgages are vastly more expensive than they used to be, and some lenders are charging a fair bit more than others. It's probably best to avoid variable-rate mortgages altogether for the time being, right?

Not so fast. There's a case to be made for variable-rate mortgages right now, even if homeowners are shunning them.

Before the global financial crisis gummed up bank lending, you could get a variable-rate mortgage at the prime lending rate at major financial institutions minus a discount of up to 0.9 of a point or so. Today, variable-rate mortgages are going for prime plus a full percentage point in many cases.

The net effect is that variable-rate mortgages as of yesterday ranged from 4.75 per cent or less at some mortgage brokers to 5.5 per cent. In a normal financial environment, we would see variable-rate mortgages starting at 4 per cent and ending up as low as 3.1 per cent after aggressive discounting. Why go with one of these mortgages when the pricing is so out of whack?

"Right now, the math for variable-rate mortgages is still better," said Kim Arnold, a mortgage consultant with Dreyer Group Mortgages in Vancouver.

Ms. Arnold's firm yesterday posted a rate on its website of 5.29 per cent for a five-year fixed rate mortgage, which is what most people go with if they want the certainty of a steady interest rate. A good deal for variable-rate mortgages is 5 per cent or less.

Variable-rate mortgages are pegged to the major banks' prime rate, which is in turn influenced by the Bank of Canada. If the central bank lowers rates to help shore up the economy, then variable-rate mortgages will go lower, too, so long as the big banks pass on the savings by lowering their prime rates. Ms. Arnold notes that five-year mortgage rates could also fall in the months ahead.

Like variable-rate mortgage, fixed-term loans are being doled out with extra-high interest rates right now. If bank lending loosens up in the months ahead and five-year rates fall, you could convert your variable-rate mortgage into a five-year fixed rate loan at no cost.

"I'd pick variable because of the option to lock in, and then keep a close eye on the [five-year] fixed-rate mortgage," Ms. Arnold said. "I think we might see some changes there."

Another way to give yourself some flexibility to benefit from a mortgage rate easing is to take out a one-year mortgage. In an unusual twist, maybe the best deal around is being offered by a big bank, Bank of Nova Scotia, which is promoting a one-year rate of 4.35 per cent on its website (good through Nov. 15).

Vince Gaetano, senior mortgage consultant at Monster Mortgage in Toronto, said the rationale for taking a one-year mortgage right now is that it allows time for financial markets to calm down and for rates to move lower. Ideally, both variable-rate mortgage and five-year mortgages would both be cheaper.

"With a one-year mortgage, you can wait until everything blows over and you have a little more control," Mr. Gaetano said. "That's what we're recommending right now."

Mr. Gaetano said he's seen forecasts that variable-rate mortgages will come back down to prime or maybe prime plus a bit in the next year or so. He said he's not comfortable recommending clients take a variable-rate mortgage today, when the pricing is so inflated.

Still, a variable-rate mortgage is a cheaper option than a five-year mortgage right now, and it could get cheaper still if the economy weakens and interest rates are cut even further.

If you decide to go variable with the intention of locking into a five-year mortgage at a future date, then be sure to negotiate the rate discount you would get in such a situation. "I make sure that every variable-rate mortgage I put a client into is one where the discount is predetermined," Ms. Arnold said.

Ideally, you would have a discount spelled out in your mortgage contract, as in the posted rate minus 1.5 percentage points. Don't settle for the promise of simply "a discount."