Mortgage Renewals

KateMcKenzie

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Sep 16, 2007
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Hi, I have three mortgages coming up for renewal at the end of this month. They were all 2-year terms at 2.14%. There are predictions that the prime rate will go up another .5% this year. Therefore, I am leaning against going for a variable rate. I am trying to decide on the term and on what would be a rate that I should negotiate. What rates are others getting right now? These mortgages are with RBC and TD. Any advice on the direction I should take would be greatly appreciated!
 

kfort

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Sep 1, 2010
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I think that’s maybe the first time I’ve seen you suggest fixed rates Thomas!


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ThomasBeyer

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#4

KateMcKenzie

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Sep 16, 2007
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#5
Thanks Thomas. What kind of rates are people getting on the 2 and 3 year terms? RBC is offering 2.99 and 3.19 for the 2 and 3 year terms respectively. I think I should be able to do a bit better. Thanks again.
 

ThomasBeyer

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#6
Thanks Thomas. What kind of rates are people getting on the 2 and 3 year terms? RBC is offering 2.99 and 3.19 for the 2 and 3 year terms respectively. I think I should be able to do a bit better. Thanks again.
Money is very fungible.

Shop around via a good mortgage broker, many of which blog here. Do NOT go to your house bank unless they offer the best terms out there. Most banks are willing to negotiate a bit once they know you might go elsewhere.

The lowest rates I see are currently 2.79% for 2 and 2.89% for 3 year rates.

Variable rates are as low as prime MINUS 0.25% for 3 year and prime MINUS 0.5% for 5 year terms.
Let's assume prime goes up to in 4 more increases, and due to competitive pressure not 1% but only 0.8% to 4.0% from 3.2% the next 2 years that would be 3.5%. Likely then prime minus 0.7-0.9% again like we saw a few years ago. So, 3.5% tops. Low still.

Yield curve now almost completely flat for 3,5,10, 20 or 30 years. Very unusual. 20 and 30 year bond yields in Canada now LOWER than a year ago.
 

ThomasBeyer

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#9
20 year bond yield sub 2.4% and lower than 4 years ago https://ca.investing.com/rates-bonds/canada-20-year-bond-yield

30 year bond very similar. https://ca.investing.com/rates-bonds/canada-30-year-bond-yield

It gives you an upper limit for 2-5 year bonds which are all between 1.5 and 2% now.

5 year bonds up 1% from below 1% to close to 2% and people panic? https://ca.investing.com/rates-bonds/canada-5-year-bond-yield

Relax. Rates will stay relatively low. Availability is another issue though.


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Vine Group

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Mar 17, 2016
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#10
A Fixed vs Variable decision should be made based on your risk tolerance and goal timeline with the property. Historically, Variable has been the better option in terms of providing a lower rate, BUT there’s no way to predict the future and direction of rates.

Calculate the payment on a 5-year Fixed rate and see if you are comfortable with this in terms of cash-flow. If your numbers work AND you need the peace of mind of a consistent payment/rate (to sleep better at night), then this is the ONLY option you should consider. At the end of the day this is an investment, and you should mitigate your risks and build in these costs to ensure success. Trying to save a few hundred dollars here and there guessing the direction of rates is just not worth it.

Alternatively, if you are comfortable with POSSIBLE rate fluctuations on the Variable side and prefer the flexibility that Variable provides, then this would be the way to go.

Again, we can’t predict the rates but what you can do is setup a proper financing solution that you are comfortable with within your risk tolerance that allows you to sleep at night.

Hope this helps.
 
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ThomasBeyer

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#11
Investors should not get a five year rate as it is the most padded and most expensive of all options. Only if you expect a loss of income on 2-3 years should you go longer, or because you are an extremely cautious individual that loves to pay more as it is like insurance.

The bank pads it due to retail buyers’ demand and because the riskier longer term interest rate outlook.

Do you buy shoes too that say “Buy now, 20% more” ?

A 0.6% spread on a 3.6% 5 year loan is 20% more than a 3% loan. Guaranteed. Better to get the cheaper 2-3 year loan and refi in 2-3 years as the loan amount is lower then, too !

All my residential loans are variable or 2 years now !
 

Clinton R

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Mar 26, 2017
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#13
Investors should not get a five year rate as it is the most padded and most expensive of all options. Only if you expect a loss of income on 2-3 years should you go longer, or because you are an extremely cautious individual that loves to pay more as it is like insurance.

The bank pads it due to retail buyers’ demand and because the riskier longer term interest rate outlook.

Do you buy shoes too that say “Buy now, 20% more” ?

A 0.6% spread on a 3.6% 5 year loan is 20% more than a 3% loan. Guaranteed. Better to get the cheaper 2-3 year loan and refi in 2-3 years as the loan amount is lower then, too !

All my residential loans are variable or 2 years now !
Hi Thomas,

Why do you recommend not going with 5 year fixed rates unless if you expect a loss of income in 2-3 years?



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kfort

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Sep 1, 2010
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#14
Hi Thomas,

Why do you recommend not going with 5 year fixed rates unless if you expect a loss of income in 2-3 years?



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Paragraph 2 of his response covers that. Banks prey on fear that rates will rise so if you want a guaranteed rate for longer they “tax” you for it.


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ThomasBeyer

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#15
Hi Thomas,

Why do you recommend not going with 5 year fixed rates unless if you expect a loss of income in 2-3 years?



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Because it is the most common thus most padded option, plus it has the highest rate AND the highest payout penalties. Ie it is the most profitably for the lenders !!


Thomas Beyer, Asset Manager, Investor, Community Improver, Author, Father, Mentor www.prestprop.com
 

kfort

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Sep 1, 2010
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#17
If your income is down noticeably it will be harder to qualify. So if you KNOW you’re quitting your job etc or moving to part time so you can paint pictures of kittens 30 hours a week... plan accordingly


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