WWBD for Mortgage: 2023 Q4 edition

[sabad66]

Things have obviously changed big time since the last mortgage advice thread and I remember seeing a few people mention they were up for renewal soon so thought I’d kick off an updated discussion.

I have my renewal coming up in December and here is what my current lender offered me back in September:

3y fixed - 6.34%
4y fixed - 6.19%
5y fixed - 5.59%
5y variable - prime minus 0.95% which would be 6.25% at current prime rate

I spoke to a broker and he confirmed that this renewal offer is quite competitive and would be tough to beat especially with the variable (may be able to get an extra 10 or 20 points off the 5y fixed)

I’ve been hearing talk of a recession and rates being lowered soon so I’ve been leaning towards the variable.

Interestingly, the renewal guy reached out to me again and asked where I’m at, and I mentioned I’m 50/50 between the 5y fixed and the variable. He just got back to me this morning at said he was able to improve the variable to prime minus 1.1% which would put it at 6.1%

At face value it sounds good, but I can’t help but wonder why they would make this move to essentially push me over the edge to go with variable. I’m probably way overthinking it but here’s what’s going through my mind:
- do they know something I don’t? Did they offer me too good of a deal for a 5y fixed back in September?
- are they just simply trying to reduce overall risk by not having too many fixed mortgages on their books?


All that said, what would beyond do if you were signing up for a new / renewing an existing mortgage in the next month or two? Added a poll

[ExtraSlow]

First question is pretty personal, but in my mind very important. If rates went up, would a change in payments cause you significant financial stress? If the answer is yes, I reccomend fixed.

Second question is, how likely are you to move in next 5 years?

I don't see a huge upside to variable right now, as a "pause" seems most likely for the next few years. Aggressive cuts seem unlikely, as do aggressive hikes.

And with fixed and variable so close to each other, it's a pretty minor delta either way.

[Disoblige]

I just renewed variable. I'm taking the risk as being stuck on a fixed rate if they do cut later would really piss me off. As mentioned, the risk of rates rising is low. I am not looking for aggressive cuts but even some cuts would already make the decision worthwhile.

[ExtraSlow]

I am looking forward to the day I can respond to these threads with "what's a mortgage lol". Still a few years away from that though.

[lasimmon]

I just locked in 3 years fixed at 5.9% starting in January. Best move? Doubt it but I can live with it for now.

[msommers]

Those rates are pretty good. I had a meeting with the bank on Friday and his advice was to wait a bit as they're seeing bond yields trending down slightly, so fixed could come down. Right now things are in an inverted situation where 5 year fixed is less than 5 year variable, this is abnormal.

Your risk tolerance will play a big role here but 5.59% isn't crazy. The days of getting into the 2-3% range are probably gone for awhile.

[ExtraSlow]

Are you meeting to find out the rates? Have I ever mentioned I hate banks?

[GT.....O?]

Tim (Kardia mortgage) through here was able to get me 4.89% 4y fixed in July.... didnt see the benefit of variable at the time.

Hard to say what will happen, i have heard lots of brokers are renewing people and extending the amortization period out to 50 years to keep people in the same payments. (even rumors of allowing 80 years which is mind boggling)
RBC wanted to put me back on a 25 year (5years into current house) and I had to argue with them to get quotes for a 20year. Didnt end up going through them.

the fact they keep increasing the variable discount makes me think they see 1-2 more small increases left and then a period of stagnation.... imo if they saw interest rates dropping why would they increase the discount?

[Disoblige]

Back in 2020 when fixed and variable were similar but under 2%, it was easy to lock in fixed. But with higher rates now and fixed/variable being similar again, variable edged out the win only because it provided more flexibility for me and I am hoping for a small drop over the next 5 years.

[Darkane]

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Those rates are pretty good. I had a meeting with the bank on Friday and his advice was to wait a bit as they're seeing bond yields trending down slightly, so fixed could come down. Right now things are in an inverted situation where 5 year fixed is less than 5 year variable, this is abnormal.

Your risk tolerance will play a big role here but 5.59% isn't crazy. The days of getting into the 2-3% range are probably gone for awhile.

Bank is right. Rates comes down very soon.

https://www.canadianmortgagetrends.c...yields-plunge/

[G-ZUS]

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I am looking forward to the day I can respond to these threads with "what's a mortgage lol". Still a few years away from that though.

Never had a mortgage, never will ��.♂️

[suntan]

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Bank is right. Rates comes down very soon.

https://www.canadianmortgagetrends.c...yields-plunge/

That's actually a pretty good analysis. Mortgage rates won't come down substantially if at all because now they have to take into account default risk.

[Brent.ff]

As someone who both lived the highlife with variable and then took it on the chin (and i think averaged out over the 5 year term.. should calculate it out), i just got into a 3 year fixed at 5.6% in September. I'll suffer the higher rate then the past 10 years and hope for the best.

[suntan]

I wouldn't feel bad at all. I renew in three years, I'm considering just paying off the rest but if I do re-up I'm fairly certain it's going to be 5%. 4% if I'm being optimistic.

[Sugarphreak]

I agree with the poll results. Variable makes the most sense. There isn't a high risk of interest rates going much higher, but long term they will likely fall off.

With that said, I'd probably be looking at shorter fixed terms as an option as well. It looks like we are tipping into a recession by next spring, and it could be a totally different market for mortgages by this time next year

[msommers]

Is switching lenders pretty straightforward? We'll see what the conversation looks like mid-January but I've never had to bother changing lenders and want to prep myself to genuinely be ready to walk if I need to.

[pheoxs]

Either way I'd wait another 3 weeks to evaluate.

Canada's next inflation update is Nov 21st, and the prior October 2022 had a rise of 0.7% which is the largest still in the rolling window so it's almost certain our inflation rate will fall quite steeply. In fact if we manage a negative shift, like last month was, we could see sub 3% inflation which would shift the markets a lot more heavily towards eyeing up rate drops next year. Then the bond markets would likely react and drop a bit more and at the least you might get a 0.5% savings on the posted fixed rates.

[suntan]

Man you guys are really hopeful. 5% is a fairly normal rate. We may never see even 3% for the rest of our lives.

[Pacman]

This may be a dumb question but, if you are torn on what to do, could you do 50% fixed and 50% on variable and hedge your bets?

[ercchry]

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At face value it sounds good, but I can’t help but wonder why they would make this move to essentially push me over the edge to go with variable. I’m probably way overthinking it but here’s what’s going through my mind:
- do they know something I don’t? Did they offer me too good of a deal for a 5y fixed back in September?
- are they just simply trying to reduce overall risk by not having too many fixed mortgages on their books?

The answer is no.

The banks do not have a magic eight ball, and the employees you’re dealing with most certainly knows very little about the over night rate or bond yield that drives market rates for mortgages.

If the loan is actually sitting on their books (highly unlikely unless it’s uninsurable) or if it’s being sold off to the secondary market, it doesn’t really matter. Rates are set based on the lender’s cost of capital as of today. Term length, is term length. This is the metric that they will use to adjust their risk exposure, with making some terms more attractive than others to align renewals with the balance they want. Not with variable vs fixed