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(Mark Blinch/Mark Blinch/REUTERS)
(Mark Blinch/Mark Blinch/REUTERS)

Earlier discussion

How to negotiate your first mortgage Add to ...

Jacqueline from Whitby, Ontario asks: When I got my first mortgage, my bank pitched me this great option - a home equity line of credit (HELOC). A fixed rate for the mortgage and then prime on the revolving portion. Because it was at prime, I used the revolving portion to consolidate my loans, do some home renovations, etc. My bank recently advised me that the revolving portion of the HELOC is no longer at prime, but prime plus one. I feel a bit cheated. They advised me there was a $3,000 fee for breaking the HELOC agreement.

I know there is always fine print in a contract. But the prime rate was the agreement. It was on this basis that they sold it to me. I really had wanted a long term fixed rate. I didn't know what a HELOC was before they explained to me what a great deal it was to borrow at prime. I tried to reason with them; all they kept saying was that they "understood" how I felt. My alternative, and the one I am considering, is paying the fee and moving the mortgage. Is there anything I can do?

Doug Melville, Banking Ombudsman: Jacqueline, I understand your frustration. I strongly suspect that the documentation you signed for the HELOC permitted your bank to adjust the rate on that portion of your loan (not on the fixed mortgage). Please check that to make sure. My suggestion is for you to raise the issue with your bank again. Also know that you can escalate a complaint to more senior levels at your bank, including to your bank's internal Ombudsman. Your bank may be willing to discuss other options with you. It never hurts to ask.

Failing that, you have the option of paying the "break-fee" and paying out or refinancing the amount you drew down on your HELOC. Make sure you get clear information on the pay-down amount from your bank as the amount can vary over time as market interest rates change. You can also wait until the maturity of your current mortgage loan to change your current arrangement.

Matt Kingston asks: At what point does it become a really good idea to lock in to a fixed mortgage from a variable, adding a couple of years to your term? I'm saving big on interest now (prime - 0.6) but I'd like to lock into low interest fixed rate for a longer term so that I can escape (some) of the wrath of higher interest rates that seem to be on the horizon a couple of years from now.

Doug Melville, Banking Ombudsman: Matt, A tough one. I wish I could accurately predict interest rates. I would have played the market and be retired by now at a sunny island somewhere with great scuba diving.

The choice between fixed and floating is a personal one based on your personal comfort level and expectations of the market. Lenders offer both fixed and floating to cater to customer preferences and needs. There are even some products which allow you to float and then lock-in later if you wish.

You might wish to do some on-line searching as I have had several bankers tell me that there has been research done indicating that people who are comfortable going with floating rates do better over the long-term but they do run the risk of having their rates rise with the markets. I remember well the mortgage rates of the early 1980's which were in the 20% range for a short while. Sorry I can not be of more assistance on this one...a personal call for you to make. I suggest you discuss your preferences and needs with your lender.

Anthony wants to know: Mr. Melville, My fiancée and I are planning to move to Calgary next year where she will finish her medical residency in family medicine. By next year we will have a combined student dept of $100,000. Should we even consider getting a mortgage if our move to Calgary is for two-three years? I'm just finishing teachers college and assuming that we'll both be working, our combined total income (before taxes) will be around $90,000 for those first two years. However with the recent drop in home prices across the country, it would be a great time to buy instead of paying rent every month. What do you think?

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