Mortgage Rates
- Thread starter arroy
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- Aug 30, 2007
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- 124
QUOTE (arroy @ May 27 2008, 04:24 PM) When should I lock in my variable rate and for how long?
Tuesday, and for the whole day.
The correct answer is whenever it makes you comfortable. They predict the prime rate may drop again by a quarter point, but it is only a prediction. If you are concerned rates will be skyrocketing then lock in, if you have enough cash flow in your properties you can sustain them going up a bit then wait, if you are losing sleep every night worrying about it then rush down after work today and go get them locked in.
Variable rates over the long term will provide you with an overall lower total interest payment, but the risk is always up to the individual whose name is on title.
Tuesday, and for the whole day.
The correct answer is whenever it makes you comfortable. They predict the prime rate may drop again by a quarter point, but it is only a prediction. If you are concerned rates will be skyrocketing then lock in, if you have enough cash flow in your properties you can sustain them going up a bit then wait, if you are losing sleep every night worrying about it then rush down after work today and go get them locked in.
Variable rates over the long term will provide you with an overall lower total interest payment, but the risk is always up to the individual whose name is on title.
- Joined
- Dec 5, 2007
- Messages
- 2,880
A basic rule in economics says the higher the risk the higher the expected gain (otherwise no one would take risks, right)
Same with mortgage rate: expected interest payments are lower when taking variable rate compared to fixed rate REGARDLESS of the market condition. It’s beyond the scope of this forum to show the proof but basically the gap between the variable rate and fixed rate at any point in time is predetermined by the banks in order to ensue this rule always works, statistically.
This does not mean you will pay less with variable but rather you`re expected to pay less (more than 50% chance).
if you are not comfortable with the risk take a fixed rate for peace of mind, as Bill mentioned. But remember if you do that you are also taking a type of a "risk": the "risk" of paying more than you would if you took variable. that "risk" is high - more than 50% chance you will pay more. that`s how I look at it.
Regards,
Neil
Same with mortgage rate: expected interest payments are lower when taking variable rate compared to fixed rate REGARDLESS of the market condition. It’s beyond the scope of this forum to show the proof but basically the gap between the variable rate and fixed rate at any point in time is predetermined by the banks in order to ensue this rule always works, statistically.
This does not mean you will pay less with variable but rather you`re expected to pay less (more than 50% chance).
if you are not comfortable with the risk take a fixed rate for peace of mind, as Bill mentioned. But remember if you do that you are also taking a type of a "risk": the "risk" of paying more than you would if you took variable. that "risk" is high - more than 50% chance you will pay more. that`s how I look at it.
Regards,
Neil
QUOTE (investmart @ May 27 2008, 08:36 PM) A basic rule in economics says the higher the risk the higher the expected gain (otherwise no one would take risks, right) On this topic, I`d refer the readers to the book "Just One Thing" edited by John Maudlin, in the chapter where Ed Easterling discusses how "Risk is not a Knob" one can dial for higher gains.
It`s a great book overall, and one I`d recommend to anyone looking at investing.
It`s a great book overall, and one I`d recommend to anyone looking at investing.