Fixed or Variable? Best Mortgage for Right Now

[cdnsir]

It's finally time for me to pick a better mortgage. Considering BoC won't move prime until next June at the earliest, I'm leaning towards the 5 year fixed to play it safe for the remaining 4.5 years. What would you guys choose?

1. 5 year fixed
- 4%
2. 3 year fixed
- 3.15%
3. 5 yr Open variable
- prime + 0.60
4. 5yr Close variable
- prime + 0.30

[KrisYYC]

I just took a 5 year variable with lock-in option.

Fixed payments based on 4.7% but rate at the moment is 1.875%!! So I'm getting some good money down on the principal this year.

I'm watching it like a hawk though.

[Cos]

no where to go but up from here. I am getting a 5 year fixed when I do mine.

[Dr_Funk]

Get the 5 year for the security.

I lucked out, 2 years ago I signed a 5 year variable at prime - 0.5, and with prime at around 2ish the last few months, I have been paying 1.75% on my mortgage. I doubt this will last the entire 5 years though.

[cdnsir]

Wow, almost an even split between the 5 year Fixed vs. the 2 Variable options!

This is a bit interesting, prime right now is 2.25%. So looks like some of you are saying I am potentially overpaying for the first few years before prime goes back up by 1-1.5%, which will then bring the Variable options back up to the 4% that the Fixed is offering.

The thing I'm trying to consider is the trend for prime, I'm thinking there will be minimal changes during 2010... maybe a 20pts increase at the most. Then as the recovery starts, I think there will be slight increases every quarter from 2011 onwards. If this is the case, I'll overpay for the first 2 years, break even at around the end of year 4, then enjoy a little bit of savings on the final year of the term.

I don't know, is my view of how the economy will recover for the next little while too optimistic?

[Chandler_Racing]

Anyone who has suggested variable has a short-term focus.

[lint]

you can use this calculator to compare
http://www.yourmortgage.com.au/calcu...ixed_variable/

[lint]

Originally posted by Chandler_Racing
Anyone who has suggested variable has a short-term focus.

Maximum term is 5 years. Do you consider 5 years a long term focus?

[PearlTSX]

Originally posted by KrisYYC
I just took a 5 year variable with lock-in option.

Fixed payments based on 4.7% but rate at the moment is 1.875%!! So I'm getting some good money down on the principal this year.

I'm watching it like a hawk though.

How are you getting prime minus right now on a variable mortgage?

[broken_legs]

Just a thought:

If the stock market hits the crapper again (good chance of that me thinks!) there will be a flight to safety again and bond yields may drop bringing down the 5 year rate.

[benyl]

Originally posted by Chandler_Racing
Anyone who has suggested variable has a short-term focus.

Historically, people who have done a variable rate mortgage have done better.

[cdnsir]

Originally posted by benyl

Historically, people who have done a variable rate mortgage have done better.

This is very truth. If your terms are short and you keep renewing at a newer rate, the chance of you outperforming a fixed rate is pretty high.

Originally posted by lint
you can use this calculator to compare
http://www.yourmortgage.com.au/calcu...ixed_variable/

Thanks, nice fine man! I searched a bit more and found this other tool as well. It bit more user friendly cuz everything is done in one table.

http://www.loansense.com.au/calculat..._vs_fixed.html

So I plugged in 4% Fixed vs 2.55% Variable (2.25+0.30 for closed) for a go. Using assumption of 10pt increase on prime every month (ie. 30pts every quarter), starting 8 months from today (a bit more conservative just to be safe...). I'm seeing that I'll actually pay about $1500 more towards my actual mortgage every year if I chose Vari over Fixed! Man, I hope I'm using this tool correctly, cuz it sure looks like Variable is still the way to go for the next 5 years...

Time Principle Paid
Year 1 $1,560.19
Year 2 $2,941.48
Year 3 $4,147.32
Year 4 $5,181.37
Year 5 $6,047.47

[whodiman]

When the govt says they are "committed" to keeping rates low you have to take that at face value. Last summer the BOC announced rates were going up and were going to be much higher by year end. Rates went up one month and then dropped like a rock. So I never trust the govt. They can't guarantee what's going to happen because they can't predict the economic future either.

The other thing you have to consider is when historically variable has done better, historically rates haven't been this low for such a long time. Rates can really only go up from here (very little room to fall). It's like shorting the stock market when it's almost at zero, you've almost hit the end of the spectrum. Not saying that it has to go up but the chances of going up from here are much higher than going lower.

I am by no means the best at predicting things but this is just more info for you to digest.

[benyl]

Yes, but until it goes up, you are paying less interest and more principal.

[lint]

Originally posted by whodiman
The other thing you have to consider is when historically variable has done better, historically rates haven't been this low for such a long time. Rates can really only go up from here (very little room to fall). It's like shorting the stock market when it's almost at zero, you've almost hit the end of the spectrum. Not saying that it has to go up but the chances of going up from here are much higher than going lower.

I am by no means the best at predicting things but this is just more info for you to digest.

I don't think anyone is arguing that rates have any where to go but up. But interest rates have to rise so that the average interest rate paid on the variable mortgage must exceed 4% before the fixed rate is more beneficial for the term.

[kenny]

Fixed rate mortgages are for people that have a very low risk tolerance. Risk averse people like stability, and for this stability you end up paying more interest. If you find that you are someone that likes to have budgets for everything, stick to a fixed rate mortgage.

I'm on a variable rate mortgage but I asked the bank to keep my monthly payments the same instead of dropping every few weeks when the BoC kept slashing the rates. This way I don't get used to the low payments and worry about cutting my spending if the rate starts climbing again.

Everyone has a different risk tolerance, and the poll shows that.

[sputnik]

Originally posted by kenny
I'm on a variable rate mortgage but I asked the bank to keep my monthly payments the same instead of dropping every few weeks when the BoC kept slashing the rates. This way I don't get used to the low payments and worry about cutting my spending if the rate starts climbing again.

I am doing the same think.

My payments are what they would be for a 5.15% interest rate but my current rate is only 1.65% so I am paying off quite a bit of principle every month.

[black_2.5RS]

Originally posted by cdnsir
It's finally time for me to pick a better mortgage. Considering BoC won't move prime until next June at the earliest, I'm leaning towards the 5 year fixed to play it safe for the remaining 4.5 years. What would you guys choose?

1. 5 year fixed
- 4%
2. 3 year fixed
- 3.15%
3. 5 yr Open variable
- prime + 0.60
4. 5yr Close variable
- prime + 0.30

Where did you get your 4% 5 year closed from by chance? I'm seeing 4.19% as the low so far.

[cdnsir]

^^
Hmm... It might be against forum rules because I think there's a sponsoring broker on here. But, I guess I can be pretty vague about this subject, and just say it is from one of the big 5. Given the right financial numbers, it is something that we can get.

[kenny]

Originally posted by sputnik


I am doing the same think.

My payments are what they would be for a 5.15% interest rate but my current rate is only 1.65% so I am paying off quite a bit of principle every month.

My numbers are identical