Variable, or fixed?

[A790]

Someone please educate me a little here. Buying a condo ASAP (like, possibly tomorrow) and have preapproval in place for a variable mortgage. However, a few people are telling me to lock in at 4.06%.

Insights from anyone?

[benyl]

In the past, people on Variable have always done better (paid less interest). It all depends on your risk tolerance.

[JordanAndrew]

Rates are coming up and more than likely will keep going up slowly, so like what Benyl mentioned, it depends what your risk tolerance is like. Have you ever tried talking to a broker about a mix of fixed/variable rate? It might be something you want to check out.

If you're buying a condo and you want to put an offer to it, just pay the down payment with conditions that you get your papers all worked out. If it's brand new I think you also have 10 days so you still have some time to shop around for the best mortgage for you.

[eblend]

you could always go variable and then convert to fixed, my buddy at TD bank can hook you up. PM me for details

[A790]

I'm using Todd Purcell from www.purcellmortgageteam.com. He recommended that I stay variable and that the rates are likely to climb to around 4% over the next while. His mortgage is a variable so I guess that says something...

I'm not risk adverse, so I think I'll stick with variable. A 1.75% interest rate is rockin, even if it's short term...

[bignerd]

They do say historically over a 25 year mortgage a variable rate and a closed rate average to be very close, with a variable mortgage having a slight edge over a closed.

I have been in a variable rate for the last 8 years and do not plan on converting anytime soon.

[Z_Fan]

The problem is currently interest rates can not go any lower for variable rate mortgages. The reason the variable rate mortgage has traditionally outperformed a fixed rate mortgages is because the rate could go down.

However, right now the only direction a variable rate mortgage can go is UP. And you can rest assured - it will go up - very soon. You can read about it, and listen to the Bank say they won't change it until July, but then you will hear about them reverting on that promise too!

IMO, now may be one of the few times a fixed rate mortgage will win over a variable.

All these people (including myself) who have variable rate mortgages that were signed in the last couple years are laughing. But that is because the bank gave us prime less 0.75 basis points. Of course, in 2011 or 2012 when those sweet fucking mortgages are expiring, all those who are laughing NOW will be CRYING when they have to renew at 5.5%. But back to Prime LESS variable mortgages. Near as I can tell, you can not get this anymore from anyone anywhere. They aren't doing that anymore - and most banks that I have spoken to recently are now offering only prime PLUS 0.6 basis points.

So, if you have a 2.85% mortgage rate NOW on a variable rate, and the central bank raises the rates by 1% in June or July (and they will, you watch and see! - Hey, it might just be 0.5, but I bet the take the whole 1.0) Either way, if it is 0.5 then you are suddenly at 3.35% and if they take the whole 1.0 then you are at 3.85% right out of the gate.

If you are able to get a 3.5x fixed rate mortgage now (could be tough) - probably going to get a 4.0x+% fixed rate - I've got a sneaky feeling that you're going to do well if you can lock that rate for 4 or 5 years.

One thing is for certain - variable rate mortgages IMO are more dangerous right now than they have ever been in the past. Simply because they can not go down - only up - and it's going to get crazy when they do. I think this is why so many people are trying to get their shit sorted out NOW because they know change is coming. It's easy for me to believe that the prime lending rate could be back up to 4.5 or 5.0 by the end of 2012 or early 2013. Which puts your variable +0.6% mortgage rate at 5.6% in just 2 years. At which point you'll be wishing to heck you'd locked in at 4.0% for 5 years and you're laughing all the way until 2015.

Time will tell. But right now I'd bet on a fix rate mortgage - not variable. First time I've ever even considered a fixed rate. I thought that was just for crazy people. :-)

[Rarasaurus]

Banks are offering prime - 0.25 not prime plus.... Also the gap is huge between 2% variable and the 4.5% for a 5 year fixed. Prime will have to come up substantially in the next two years to get to where fixed is now. Variable has and will always win over fixed because the banks try to predict what will happen with rates. Banks would not offer fixed mortgage they think they will lose on....

Banks are making a killing on people locking in because of fear of rates coming up. For sure they will come up the question is how fast. At the end of 5 years to average out to 4.5% the prime would have to be about 7% from the 2% we are at now(Given equal increases)

This is the same as investing in stocks vs putting money into a savings account. Those that like piece of mind pay for it with less returns. In the case of mortgages they pay for it with more money paid towards interest.

[broken_legs]

Originally posted by Rarasaurus
Banks are offering prime - 0.25 not prime plus.... Also the gap is huge between 2% variable and the 4.5% for a 5 year fixed. Prime will have to come up substantially in the next two years to get to where fixed is now. Variable has and will always win over fixed because the banks try to predict what will happen with rates. Banks would not offer fixed mortgage they think they will lose on....


For anyone who think prime is going to have to move up "Substantially" look at a chart of the prime lending rate. It dropped "substantially in a few months"

It dropped like a rock. What exactly is stopping it from rising like a rocket?

[kaput]

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[bcylau]

i love how interest rates look like a giant middle finger.

to contribute to the thread,

I ran some numbers for you, comparing 5 year interest rate terms.

We are going to assume that you pay $450/ $100k of mortgage

@4.5%, you are going to pay $21,964 of interest in the 5 years

@1.75%, you are going to pay $9132 of interest
but it is unrealistic to assume a constant interest rate, so I assumed that interest rate going increasing 1% per year until year 5, so year1 = 1.75 year2= 2.75 year 3=3.75 year4= 4.75 and year5 = 5.75

the interest you would pay in this case is $18,658, so you would be still ahead. Under this scenario, if your variable is higher than 2.688% then you would better off with a fixed, or if you think interest rates are going up higher than 1% per year.

[A790]

Okay, heres' where I'm at.

I have until Monday to decide: variable at 1.65% (dropped 0.10%), or lock in at 3.84% for 5 years.

Very, very torn. Was thinking variable all the way, but a 3.84% lock-in rate is very appealing.

I do not have the education to speculate where the market will go. Some will say prime will hit 5% in five years, others are saying higher, and even more are saying lower.

I can afford both, and my risk level is pretty good. I have room in my budget to go up.

What would YOU do?

[Rarasaurus]

With Variable at 1.65% i would definitely go that route, especially if you can handle the rise in prime. Variable winning over fixed most the time in the past is a very good reason alone to go variable. Now there is also a large spread between variable and fixed.

Where are you getting 1.65%? I will be signing a new mortgage soon too, and at 1.65% i would not hesitate to take variable if you can handle the risk

[austic]

Originally posted by A790
Okay, heres' where I'm at.

I have until Monday to decide: variable at 1.65% (dropped 0.10%), or lock in at 3.84% for 5 years.

Very, very torn. Was thinking variable all the way, but a 3.84% lock-in rate is very appealing.

I do not have the education to speculate where the market will go. Some will say prime will hit 5% in five years, others are saying higher, and even more are saying lower.

I can afford both, and my risk level is pretty good. I have room in my budget to go up.

What would YOU do?

I would take the 3.84%.
I tend to follow historical data in that a 5%+ prime in a matter of a couple years is reasonable.

[Pacman]

What about doing 1/2 your mortgage on the variable and the other half at the 5 year fixed?

I'm in the exact same situation as you right now, but my 5 year fixed rate is 4%. I'm probably going to just lock in at the 5 year fixed rate as I tend to be risk adverse when it comes to mortgages. To me, the current fixed rates are very reasonable

[A790]

Originally posted by Rarasaurus
With Variable at 1.65% i would definitely go that route, especially if you can handle the rise in prime. Variable winning over fixed most the time in the past is a very good reason alone to go variable. Now there is also a large spread between variable and fixed.

Where are you getting 1.65%? I will be signing a new mortgage soon too, and at 1.65% i would not hesitate to take variable if you can handle the risk
Using Todd Purcell from http://www.purcellmortgageteam.com

[2000_SI]

Originally posted by A790
Okay, heres' where I'm at.

I have until Monday to decide: variable at 1.65% (dropped 0.10%), or lock in at 3.84% for 5 years.

Very, very torn. Was thinking variable all the way, but a 3.84% lock-in rate is very appealing.

I do not have the education to speculate where the market will go. Some will say prime will hit 5% in five years, others are saying higher, and even more are saying lower.

I can afford both, and my risk level is pretty good. I have room in my budget to go up.

What would YOU do?

3.84% is a fantastic 5yr rate, and I'm assuming it's a closed term mortgage. Are there any prepayment terms?

I'm variable with my mortgage, and a lot of my clients are as well. However, what i am getting a lot of them to do is base their payments on 5% interest instead of the 1.69% that they are actually paying, and the difference is payed as a pre-payment. I do this for a few reasons:

1)It allows my clients to do some long term budgeting. I would NEVER recommend variable for someone who doesn't have the cash flow to support it, nor to someone who might be having some major lifestyle changes in the next few years (kids, going back to school, ect). That being said if you are basing your payments on 5% and bank prime goes from 2.25% to 4%, all that happens is the prepayment portion of each payment is less, but the total payment made stays the same.
2) With interest rates as low as they are, a lot of people are eager to just take the lower payments and spend the excess cash on other stuff. However, basing the payments on a higher interest rate is going to shorten your amortization so that when interest rates rise, and they will, due to the declining balance that interest is based on, more of your payments are going to principle.


I hope that makes sense, as i am used to drawing it out on a piece of paper :rofl:

[freshprince1]

Originally posted by A790
Okay, heres' where I'm at.

I have until Monday to decide: variable at 1.65% (dropped 0.10%), or lock in at 3.84% for 5 years.

Very, very torn. Was thinking variable all the way, but a 3.84% lock-in rate is very appealing.

I do not have the education to speculate where the market will go. Some will say prime will hit 5% in five years, others are saying higher, and even more are saying lower.

I can afford both, and my risk level is pretty good. I have room in my budget to go up.

What would YOU do?

CM, That's good situation to be in.

We bought 2 years ago and went variable. we were at Prime minus 0.6%, it was nice, interest rates hit the floor and we continued to pay the same amount, paying off more principal along the way.

A few months ago i started hearing rumours about interest rates going up. Now you can sweat and stress over it as much as you want, but eventually, rates will go back up. I switched to a locked in rate of 3.89 for another five years...was able to do so with no fees because I stayed with the same company. While I could have paid off extra principal for probably another year or so, I balanced that with locked in rates also increasing and decided the security of a locked in rate while things are changing is what I need right now.

Locking in for 5 years anywhere around 4% is a great deal historically. No shame there. It is all risk tolerance. I switched from variable to locked in because I was getting uneasy with the interest rates.

Based on your situation, I would pick a threshold and then go with variable. So...say you would not want to lock in any higher than 5.5%. Go variable and check in on rates every month. If locked in rates started getting higher than your threshhold rate...think about locking in. This is exactly what I did. 4% was my threshold and I decided to lock in when it got to 3.89%. I'm happy.

Good Luck.

DP.

P.S. one of my best friends was a mortgage broker and helped me make my decisions, and set me up with my mortgage and I am super happy with it. He is now an energy trader at TransAlta but still does mortgages on the side for fun...he doesn't need the money. If you want to talk to him I can get you together. His paycheck does not depend on what you decide so his advice would not have any ulterior motives.

[Kloubek]

I dunno cam... that's a pretty good fixed rate.

The way I see it, it really depends how much risk you wish to take. Personally, we played it safe and went with a 3-year 3.4% rate. It is true that the rate would have to increase substantially to make it more worthwhile than going with a variable. But as it has been said - this CAN happen. Traditionally, mortgage rates are usually much higher than we are seeing right now.

We are also already seeing and hearing about a trend of rates going up. The only question is: How high will they go, and how quickly? If the rates only CREEP up for the next few years, then one would guess that the variable would be the best choice. If they were to jump up, then maybe not.

One of the reasons we played it safe is because of the current markets. Over the last couple of years, they have been up and down, and it seems everything economically is very uncertain. I am not sure what it would take for rates to skyrocket, but we were willing to pay more to have the security of knowing we would not be screwed. (At least for 3 years)

Congrats on the new place!

[rinny]

I know some have said in this thread that they can see rates 5% plus, but in reality wouldnt that halt/slow growth to a point where it will create economic instability?

With the decline in markets just recently as well as the considerable declines in the last few years, I cant see BOC wanting to shock the system by bumping up rates past 5%-6% in 5 years.

Now comparing variable vs fixed, If you have a prime- 0.5% it'll take a good few years, estimating 1% per year increase from BOC, to erase/match gains that would otherwise be made from a variable rate should you choose a variable. This comparing a prime-0.5% to say, locking in now at 5yr 3.85% fixed.

I guess we'll see in the coming months what we have to work with after BOC raises the bar.

[QuasarCav]

I see that fear is alive and well in this thread. The banks will be happy to know that.

+1 for variable

[Sorath]

3.84 is nothing, go variable. i signed at .9below prime, working out so far :thumbsup:

[msommers]

Likely next year when I graduate I'll be looking to get into a place, probably a condo as that is all I'll get approved for.

For a fresh grad just starting a new job, would going variable still be wise? Reason I ask is because my mother and I sat down and talk about mortgages last night and she was REALLY against variable when you're first starting out. But that is a considerably lower rate that what we were using on the RBC site at 4.59% for fixed.

I'm not entirely sure how it works so correct me if I'm wrong. But hypothetically lets say:

I have 1000/month dollars to spend towards a new condo. My variable payment ends up being 700 but I choose to put down a 1000 each money. Even if the interest rate goes up, it would be less each month towards the principle. The only issue I would see is that if it went past 1000 to something like 1500. Is that how it usually works? Sorry for the highjack.

[kaput]

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[AE92_TreunoSC]

I just took 4.5% @ 5 years. I like security, and not worrying.

[bimmere92]

so what are your thoughts on variable or fixed now?

.25% increase this week with another increase rumored...

[WrongWheelDrive]

Originally posted by Pacman
I'm in the exact same situation as you right now, but my 5 year fixed rate is 4%. I'm probably going to just lock in at the 5 year fixed rate as I tend to be risk adverse when it comes to mortgages. To me, the current fixed rates are very reasonable

That's exactly what I just locked in at. 4% fixed over 5 years. It's only going to go up from here, and I just felt it to be much easier and "stress free" so to speak.

It's up to you though. Like everyone has been doing already, just crunch some numbers in your scenario and see where you stand from present to the 5 year mark.

Good luck :thumbsup: it's definitely a good time to buy.

[DRKM]

It is far to early to assume that credit rates will increase exponentially over night. Japan has been running 0.25% for years now.

Inflation is not the only consequence of massive stimulus. Deflation is a serious concern as well.

[WrongWheelDrive]

Oh totally true, if you don't mind the risk at all than by all means. It's just one of those "you never know" type of things IMO.

I just like the stability I suppose, and I mean 4%, to me, was low. So I just went with it after A LOT of thought, so I know what the OP is going through haha.

[HuMz]

I take possession on my first house in just under a month and decided to lock in at 3.84% over 5 years.

Varible was tempting but I knew it would go up and given im going to be pretty cash strapped to start out I didn't want to have to worry about the rates jumping above 4% in the next few years. (which it very well could)

[canadian_hustla]

Originally posted by Pacman
What about doing 1/2 your mortgage on the variable and the other half at the 5 year fixed?

I'm in the exact same situation as you right now, but my 5 year fixed rate is 4%. I'm probably going to just lock in at the 5 year fixed rate as I tend to be risk adverse when it comes to mortgages. To me, the current fixed rates are very reasonable

i am surprised that no one commented on this option as it is clearly the best of both worlds. Heck, I locked in at 5 year 3.39% but if I could do it over again I would do 1/2 fixed 1/2 variable

[A790]

Originally posted by msommers
Likely next year when I graduate I'll be looking to get into a place, probably a condo as that is all I'll get approved for.

For a fresh grad just starting a new job, would going variable still be wise? Reason I ask is because my mother and I sat down and talk about mortgages last night and she was REALLY against variable when you're first starting out. But that is a considerably lower rate that what we were using on the RBC site at 4.59% for fixed.

I'm not entirely sure how it works so correct me if I'm wrong. But hypothetically lets say:

I have 1000/month dollars to spend towards a new condo. My variable payment ends up being 700 but I choose to put down a 1000 each money. Even if the interest rate goes up, it would be less each month towards the principle. The only issue I would see is that if it went past 1000 to something like 1500. Is that how it usually works? Sorry for the highjack.
Your mortgage payment is never your real payment. If you buy a condo, you have to factor in condo fees, as well as property tax, etc.

For example: at 3.84%, my mortgage is $1,080/mo. Then there's $225 for condo fees, and $125 for property tax, as well as $38 insurance. For a variable mortgage, from what I've heard it's best to make payments as if you're paying the fixed rate payment. You'll wind up paying the principle down faster.

[Redlyne_mr2]

Peace of mind is worth a lot to me, fixed is where it's at.

[JordanAndrew]

Originally posted by canadian_hustla


i am surprised that no one commented on this option as it is clearly the best of both worlds. Heck, I locked in at 5 year 3.39% but if I could do it over again I would do 1/2 fixed 1/2 variable


Originally posted by JordanAndrew
Rates are coming up and more than likely will keep going up slowly, so like what Benyl mentioned, it depends what your risk tolerance is like. Have you ever tried talking to a broker about a mix of fixed/variable rate? It might be something you want to check out.

If you're buying a condo and you want to put an offer to it, just pay the down payment with conditions that you get your papers all worked out. If it's brand new I think you also have 10 days so you still have some time to shop around for the best mortgage for you.

It was the third post in the thread as an option. :D

[lint]

if you want piece of mind, get a mortgage that you can afford at 8%

[autosm]

For the first time I am going variable. The BOC/ FED cannot let the prime rate go above 6% in Canada or the US. If so, no one will be able to afford a 1600$ + per month interest only on a 350k starter house.

If it happens you will be able to buy homes for less than 1/2 of todays price's.

We are addicted to cheap money our economy will implode if rates get even close to 3% (Prime).

[kaput]

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[ExtraSlow]

Prime absolutely will go over 3% and 6% too. Take a look at historical rates, and you'll see that 3-6% is on the low side of average.

[B20EF]

Originally posted by ExtraSlow
Prime absolutely will go over 3% and 6% too. Take a look at historical rates, and you'll see that 3-6% is on the low side of average.

Prime hasnt been above 6% in 15 years. Maybe that means its due or maybe it will be another 15 years before it goes up there again.

I like variable. I was even thinking about an interest only mortgage and bet the savings in stocks.

[kaput]

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[autosm]

Originally posted by kaput
^That logic is as one sided as every argument in the Israel thread. You are looking at it from the perspective that only upper extremes are bad (not to imply that 3% is by any means an extreme, but I digress). The economy will also implode if rates stay close to zero, the lower extreme, and one that has never been seen before too I might add. If the economy implodes when rates hit 3%, there never was any real recovery to speak of in the first place. The Greek crisis is an excellent example of what happens when people get addicted to cheap money.

You can't compare Greece to Canada, Canada to Australia maybe. To many other factors in that country that did not and will never happen in Canada.

Your argument based on what is going on in Greece is poor.

So if the prime rate goes to 3-6% in the next 1-3 years we will be better off than if rates stay at 1/2%. It will never happen but the housing market will fall faster then it went up. Our current economy is fueled by low rates.

Low interest rates and low down payments caused the price of houses to go up. When rates were higher houses cost less than 1/2 of what they do today in Canada.

All I am saying is.

I am going variable because I feel the prime rate cannot and will not go up more than 1-3 % in the next 5 years. Even if it does the average interest applied to my mortgage in 5 years will be less than today's 5 year rates. I will also be doubling up every second payment with these low interest rates.

I was tempted by an offer by my bank to renew early with a pay out. When I thought about the numbers prime would have to go up more than 2%+ higher than today for me to be paying more than the RBC early rate. Not to mention the pay out.

If it takes 3 years to reach a prime rate of 3.5% I will be better off than locking in.

[Bisklimpkit]

I currently have a HELOC at prime +1%. This week I am getting out of the HELOC, going to a 5-year closed variable mortgage at prime - 0.2%.

[rinny]

Originally posted by Bisklimpkit
I currently have a HELOC at prime +1%. This week I am getting out of the HELOC, going to a 5-year closed variable mortgage at prime - 0.2%.

I'd recommend you push for a better rate than -0.2%.

I was offered -0.5% on first mortgage as well a friend renewing his mortgage was offered -0.3% which I told him to negotiate that rate and he received the -0.5% as I was offered.

[aypi]

looking for a mortgage broker right now that can help me. PM me if you know one that can give me a good rate. my renewal is coming up soon so I'm looking for options right now.

I'm with CIBC right now on BTP variable rate if that helps.

thanks.

[Bisklimpkit]

Originally posted by rinny


I'd recommend you push for a better rate than -0.2%.

I was offered -0.5% on first mortgage as well a friend renewing his mortgage was offered -0.3% which I told him to negotiate that rate and he received the -0.5% as I was offered.

Just had my broker tell me he can get me 3-year closed variable at prime -0.65%, or 5-year closed variable at prime -0.5%. Thanks for telling me to dig, rinny!

[Strider]

Originally posted by aypi
looking for a mortgage broker right now that can help me. PM me if you know one that can give me a good rate. my renewal is coming up soon so I'm looking for options right now.

I'm with CIBC right now on BTP variable rate if that helps.

thanks.

Robert McLister
Mortgage Architects / CMT
Toll Free Direct: (800) 280-2460 ext. 203
www.MyVirtualMortgageBroker.com

Yes, I realize his website is super ghetto... but he runs Canada's top mortgage blog and he got me P-0.6% last month before anybody else could.