Potential rate increases ahead

[tpurcell4]

Hello Everyone,

Just a heads up that rates are expected to go up (potentially by another quarter percent) very soon. This comes with an announcement by the fed that they have capped CMHC to being able to fund (Insure) a total of $350 million new mortgages this month. Please see related article (http://business.financialpost.com/2013/08/06/cmhc-crackdown-housing/).

With the news we have lost the 30 day quick close at 3.19%, now 3.24% and further increases are expected to follow.

We will provide further updates as we receive them from our lenders.

Sincerely,

JoAnne & Todd Purcell

[SJW]

So stay with a variable then.

[CapnCrunch]

Originally posted by SJW
So stay with a variable then.

Because variables never go up?

[lint]

because variable beats fixed 80% of the time.

This is very good analysis of fixed vs variable for 1950-2000, which includes the period of the early 80's when mortgage rates skyrocketed.

http://www.ifid.ca/pdf_workingpapers/WP2001A.pdf


Executive Summary
I provide detailed evidence that Canadian consumers are better off, on average, financing a mortgage with a short-term floating (prime) interest rate, compared to a longterm fixed rate. This conclusion, on its own, is not original, since most financial commentators have argued this for quite a while. The contribution of this report is to rigorously quantify the benefit of the floating strategy by introducing and developing the concept of the Maturity Value of Savings (MVS) and the Total Months Saved (TMS). More specifically, I show that during the period 1950 to 2000, Canadians would have saved approximately $22,000 in interest payments -- on a $100,000 mortgage amortized over 15 years -- by borrowing at prime versus the five year rate. The probability of success from borrowing at prime, versus the 5-year rate, ranged from 75% to 90%.

[CapnCrunch]

Originally posted by lint
because variable beats fixed 80% of the time

When rates are going up you get fixed.

When rates are going down or are stagnant you get variable.

We obviously are disagreeing on where we think the rates will go over the next few years.

[BigMass]

Originally posted by CapnCrunch


When rates are going up you get fixed.

When rates are going down or are stagnant you get variable.

We obviously are disagreeing on where we think the rates will go over the next few years.

the US gov along with us banks cant afford a rise in rates. Not even %1. They would have to default and go bankrupt. The Fed won't let this happen so they'll keep rates low indefinitely out of necessity. It's impossible to unwind at this point. All the central banks around the world follow the Fed's due to the dollar being the reserve currency and their economies being closely tied to the US. China and Japan won't want a US default due to the amount of us treasuries they hold. So they wont push for a rate increase. We're stuck in a low rate environment at this point pretty much until the apocalypse or a total global economic collapse. So bottom line is, one thing you cant bet on is low rates.

edit: mortgage rates can increase though as the lending requirements tighten and the risk is passed back onto the banks as opposed to the tax payer. Then they will have to increase their rates to account for the increased risk in carrying mortgages at the current totally inflated prices

[lint]

Originally posted by CapnCrunch
When rates are going up you get fixed.

When rates are going down or are stagnant you get variable.

We obviously are disagreeing on where we think the rates will go over the next few years.

Buy low, sell high. So easy, everyone should do it.

[CapnCrunch]

Originally posted by BigMass


the US gov along with us banks cant afford a rise in rates. Not even %1. They would have to default and go bankrupt. The Fed won't let this happen so they'll keep rates low indefinitely out of necessity. It's impossible to unwind at this point. All the central banks around the world follow the Fed's due to the dollar being the reserve currency and their economies being closely tied to the US. China and Japan won't want a US default due to the amount of us treasuries they hold. So they wont push for a rate increase. We're stuck in a low rate environment at this point pretty much until the apocalypse or a total global economic collapse. So bottom line is, one thing you cant bet on is low rates.

edit: mortgage rates can increase though as the lending requirements tighten and the risk is passed back onto the banks as opposed to the tax payer. Then they will have to increase their rates to account for the increased risk in carrying mortgages at the current totally inflated prices

So low rates are here to stay but rates can still go up? Thanks. :rofl:

[CapnCrunch]

Originally posted by lint


Buy low, sell high. So easy, everyone should do it.

Lol, for sure.

All I'm saying is that the point spread between a fixed and variable is not really worth gambling on any more. If it was around 1% I'd agree with you, but at .4-.6% I wouldn't bother.

If you look at a 2 year fixed the spread is only .15%, so a single .25% hike puts you behind.

I don't mind risk, but on my mortgage the upside to a variable is around $5000 savings over 5 years assuming rates stay the same. If they go up I don't have to worry for 5 years.

[Xtrema]

Originally posted by CapnCrunch


So low rates are here to stay but rates can still go up? Thanks. :rofl:

Low rates are here to stay. But CMHC is securing less loans so rates should go up.

IMO, I have said it before and again. CMHC should not cover anything over $500K if they really want to cool the market.

[lint]

The same talk has been happening for the past 5 years. Depends on if you think you can time it or not, and what your risk profile is. P - 0.3% worked for me for the last 5 years and I just renewed for P - 0.4% for the next 5. Variable also tends to give you better payment flexibility and my mortgage doesn't max me out, so I can weather a .25% hike. It's not just about the rate, but to each their own.

[BigMass]

Originally posted by CapnCrunch


So low rates are here to stay but rates can still go up? Thanks. :rofl:

central bank lending rates and the rates banks charge for mortgages are not necessarily related. The central banks can keep rates low but mortgage rates can go up due to tightening lending standards and increased risk to the banks. Variable rates are usually tied into central bank rates so it's better to be on a variable and count on a low prime lending rate than to lock into a much higher fixed. I really didn't think i'd need to explain that but i'm glad you found it funny

[BigMass]

Originally posted by Xtrema


Low rates are here to stay. But CMHC is securing less loans so rates should go up.

IMO, I have said it before and again. CMHC should not cover anything over $500K if they really want to cool the market.

i'll do you one better. CMHC should not even exist and banks should assume %100 of their lending risk. CMHC is nothing more than a tax payer funded bailout insurance for big banksters. Private gains, socialize losses. No thanks. Housing bubbles wouldn't even exist if banks were forced to assume %100 of their risk.

[CapnCrunch]

Originally posted by BigMass


i'll do you one better. CMHC should not even exist and banks should assume %100 of their lending risk. CMHC is nothing more than a tax payer funded bailout insurance for big banksters. Private gains, socialize losses. No thanks. Housing bubbles wouldn't even exist if banks were forced to assume %100 of their risk.

CMHC makes a lot of money for the government each year. I'm not sure why you have such a skewed view of them.

[Xtrema]

Originally posted by CapnCrunch


CMHC makes a lot of money for the government each year. I'm not sure why you have such a skewed view of them.

Making $ off a housing bubble but will lose more than what you gain when bubble burst.

We can't take it away now, that will burst the bubble is a very bad way. But we should deflate it.

[CapnCrunch]

Originally posted by Xtrema


Making $ off a housing bubble but will lose more than what you gain when bubble burst.

We can't take it away now, that will burst the bubble is a very bad way. But we should deflate it.

They've been around and making money since the 50's. You're making it sound like they just popped up in the last 10 years to take advantage of the housing boom.