Hey Hey!

I've been loving variable for the past five years and am up for renewal. I'm definitely gonna take variable again at prime - .65 But was wondering what the general thoughts are on rates? Anyone think they'll go up any time soon? Still another five years?

Anyone actually locking in?

Thanks!

Matt

I have a blog post on our website, essentially arguing rates will NOT go up for at least 20 years. In a nutshell: demographics. Proof: With 10 years bonds in the US and Canada sub 1.5%, and US 30 year bonds sub 3%, and US mortgage rates for 30 years sub 3.5% there is no reason to believe interest rates will go up for quite some time.

You will always, ALWAYS, be better off with a variable rate.

The critical issue is not only the rate, but also the mortgage payout penalty that differs widely from bank to bank if you abort a mortgage prematurely (i.e. read the fine print !!). The best rate is usually a 2 year variable rate, i.e. you renew every two years.

2.5% is 25% more than 2.0%, 3.0% is 50% more expensive than 2.0%. The only winner of fixed rates are banks, and that is why they are so profitable. Be informed.

Rates will go up in the next 20 years! That is just ridiculous. The question is when will rates go up and by how much.
The Fed's Janice Yellen: http://www.bbc.com/news/business-32854996

Bonds can simply adjust their prices based on new interest rates. It doesn't matter how low interest rates are right now. It is dangerous for banks to keep rates this low long term because it eliminates an important tool that can be used in a future recession.

Argument of magnitude:

"2.5% is 25% more than 2.0%, 3.0% is 50% more expensive than 2.0%"

Take a $300,000, 25 year mortgage:
1. Interest rates at 2%: monthly payments are $1,270
2. Interest rates at 2.5%: monthly payments are $1,344
Difference of $74 or 5.8%....not 50%. That is an error of scale. A roof isn't 50% more expensive to frame and build because I build it at a pitch of 6/12 instead of 4/12.

Fixed rates have advantages. Variable rates have disadvantages. Depends on the investor and your tolerance for risk.

On a $400,000 loan a 0.5% difference is $2000/year or $10,000 in 5. Not huge, but sizable. I'll take a free $10,000 over a guaranteed overpayment any day.

Fixed rates provide insurance. Everyone needs to understand that they have to pay for this insurance. The question is: is this a reasonable insurance premium ?

Rates will stay low. Due to demographics and already locked in 10 or 30 year bonds. Read the blog if you want, or believe that rates will rise. They might rise 0.25% or 0.5%, but chances are as good, or greater, that they will drop that much, like in Switzerland, Japan or Germany where they are essentially 0, far FAR below Canada's !

Once oil is $100/barrel interest rates might rise in Canada, say 0.5%. And that is likely quite some time out. So, buy unnecessary insurance at 25 to 50% of the cost of your product or buy the product as is, uninsured. Your call.

Thanks Thomas. I have been trying to re-mortgage the property under my wife and I's name but since 70% of our income is commission, I can't do it at this time.

I'll renew and go with the 2-year and try again at that time. The 5-year closed variable is slightly better with Scotia.

5-year closed variable = 2.25% (I grinded them down a little)
2-year closed variable = 2.36%

In the end, hardly a difference. Have never done a 2-year but can't see it being any more "risky" than a 5-year.

Is this smart? or in this case, would you opt for the 5-year. I'm told after 2.5 years, you can refinance without penalty (or at least change the term). Not sure with the 2-year.

Thanks

Matt

I also just renewed a mortgage on one of my houses at P-0.65 i.e. 2.2%, for 5 years. Watch out for early discharge penalties as that is where banks make A LOT of money these days. My understanding it is 3 months interest with a variable rate, with Scotiabank anyway.

A friend/mortgage broker just told me one of his institutions he deals with (First National I believe) would consider our commission salary as well.... so I may go with a 6-month open until I find out (painful at 4.5 % but wouldn't be for long)

However, Is their any benefit or negative to switching to First National over Scotia? Or is it all the same....

Money is one of the most fungible commodities, similar to gasoline. Get a mortgage that suits your needs best, and a low rate is one of the most critical aspects of money, if not the most.

Both their rates are similar. 2.15 - 2.25% ...... But I've never gone with a non-big5 so I'm wondering if theres much difference. If I switch, the only reason is to swap my parents of the mortgage for my wife, other wise I'll just sign a 2-year and do the re-qualify in a year and a half. The other bank is RMG.

0.1% doesn't matter indeed. 0.25%+ does usually .. money is very fungible

I ended up deciding to go with the 2-year closed HOWEVER, Scotia just told me that this is a fixed rate at 2.36%... Not variable. Almost as good as variable but it is actually fixed as they don't do 2-year variables....

I can't decide. My objective is to get my parents off the title at some point and have it as my wife and I, instead of myself and my parents. Can't do that at the moment.

So, it's either

- 5 Year Variable at prime - .65 (2.25% current)
- 2 year closed (2.36%)

With 2 year closed, I can change mortgage in 1.5 years. With 5 year, I can change without penalty in 2.5 years.

Whats your thoughts?

Millions said:

So, it's either
- 5 Year Variable at prime - .65 (2.25% current)
- 2 year closed (2.36%)
With 2 year closed, I can change mortgage in 1.5 years. With 5 year, I can change without penalty in 2.5 years.
Whats your thoughts?

Click to expand...

What is the goal here ? Obvisouly the rates are sufficiently close that the rate difference is immaterial.

I expect prime to go down from 0.75% to 0.5% later this summer or fall, so the P-0.65% is just a hair above 2%. Prime might even go lower still after that if oil stays well below $55 for 2017, which is a possibility.

(see here http://business.financialpost.com/n...on-the-table-after-gdp-shocker-economists-say )

A low interest rate benefits all Canadian exporters, be they oil/gas/forest/wheat/potash producers or car/plane/bus manufacturers.

I'd go variable, unless you envision selling the asset before 2.5 years.

My goal is to get my parents off the mortgage and have it in my wifes and I name - just to clear my parents from the responsibility should anything ever happen. I suppose its not a huge deal but would be nice.

However, I confused scotia's offer. Here it is.

2 year fixed 2.36 : I can renew / change in 1.5 years without penalty.

5 year closed variable 2.25% currently : I would have to wait 4.5 years before changing it except for changing to fixed but who wanta to so that.

Still think 5 year variable? Im leaning towards 2 year but i see your point. Maybe in 2 years, the variable offers wont be as good ?

Millions said:

.. have it in my wifes and I name ..

Click to expand...

You got multiple wives ? Of your wife's name ?

Millions said:

... I would have to wait 4.5 years before changing it except for changing to fixed but who wanta to so that.

Still think 5 year variable? Im leaning towards 2 year but i see your point.

Click to expand...

Well, if you sell before year 4.5 then obviously it is not so beneficial due to mortgage penalty. How likely is that you sell before year 4.5 ?

Millions said:

... Maybe in 2 years, the variable offers wont be as good ?

Click to expand...

or better. Prime will stay low low LOW for a long long LONG time ..

Haha Sorry for the bad english. I was typing from the phone.

I doubt I will be selling the place. I was mainly looking to get my parent off the mortgage and add my wife (or no one) instead. Even just having it in my own name would be fine. Just wanted to free them from it. Not a huge deal I suppose.

I think prime can drop too. I meant maybe Scotia won't be offering prime - .6 ...maybe they will offer something worse.

I guess the difference between the 2 year closed and the 5 year variable is pretty close anyhow so maybe I am overthinking this.

Was just so close to getting them off the mortgage this time around - thought I'd maybe try again in 1.5 years instead of 4.5