Variable or Fixed Mortgage

[Habari]

My variable mortgages are up for renewal on a few of my single family properties.



Currently the variable mortgages are about 2.35%. Scotiabank, the current lender, is offering me 3% fixed for 5 years.



Is this a good time to fix the mortgages to take advantage of the low rates or ride with the low variables for a while?



Is 3% fixed reasonable. A quick review of Google search shows low rates as 2.64% for a fixed rate.

 

[RobMacdonald]

Around 3% is a decent rate, but there are other lenders, credit unions and major banks that are consistently offering 2.89% for a 5 year fixed.



The best VRM in the market is prime - .45%, but available on principal residences only.



The Google search is probably giving you the very best rate, for a quick close, hi ratio residence purchase. Many lenders these days are limiting their short term specials to residence mortgages only.

 

[DavidHain]

Almost all the banks prefer or used to recommend 3% rates on refinance.Refinancing mortgage could be an extraordinary money related move assuming that it diminishes your contract installment, abbreviates the term of your credit or encourages you raise value all the more rapidly. The point when utilized precisely, it can additionally be a profitable instrument in getting your obligation under control. When you refinance examine your budgetary scenario, and ask yourself: How long do I want to keep living in the house? Furthermore what amount cash will I safeguard by refinancing?

 

[invst4profit]

Historically variable has paid dividends.

Ask yourself why are banks offering fixed at 3% or less. Likely due to the fact that they do not expect variable to rise above that point during the term.

 

[CurtisSvidal]

Current rate news you may find useful from the Globe and Mail:



Yesterday...





The European Central Bank has cut its benchmark interest rate for the first time in 10 months. But it`s a largely symbolic move that will have little effect on borrowing costs or lending practices, leaving troubling questions about the recession-battered euro zone`s ability to dig itself out of a deepening hole.



And today...



India`s central bank cut its benchmark interest rate by 25 basis points on Friday for the third time since January, as expected, as growth slows and inflation ebbs, but said there is little room to ease monetary policy further, disappointing markets.



Whether this will trickle down to Canada...time will tell.

 

[Thomas Beyer]

[quote user=Habari]Is 3% fixed reasonable.
yes it is for 5 years, although some banks offer them a tad lower, say 2.89, or 2.49% even for 2 or 3 years, or if variable. Depends what your goal is with the property. If you may wish to sell in 2 or 3 years take a lower 2 or 3 year term, then decide in 2 or 3 years again.



Rates will be low for a LONG time .. several more years.

 

[twitandy]

variable mortgage is costly than fixed mortgage so you can go with fixed mortgage ...

 

[Thomas Beyer]

Fixed rate mortgages, on average, are ALWAYS more expensive, as the bank does not know where interest rates will go in 3, 5 or 10 years and as such has to build in a risk premium, i.e. insurance to cover their butt.



The 10 year GofC bond rate is below 2% and the US Treasury for 30 years is below 3% so rates will stay LOW for quite some time.



Get fixed mortgages if you will sleep better at night, or like the certainty, but it'll cost you more, on average. Like life, travel or car insurance it is often more of a view of life or risk that determines ones decision.

 

[bizaro86]

[quote user=ThomasBeyer]Fixed rate mortgages, on average, are ALWAYS more expensive, as the bank does not know where interest rates will go in 3, 5 or 10 years and as such has to build in a risk premium, i.e. insurance to cover their butt.



The 10 year GofC bond rate is below 2% and the US Treasury for 30 years is below 3% so rates will stay LOW for quite some time.



Get fixed mortgages if you will sleep better at night, or like the certainty, but it'll cost you more, on average. Like life, travel or car insurance it is often more of a view of life or risk that determines ones decision.





On average is not the same thing as ALWAYS. On average fixed is more expensive, but it is not always more expensive. Those are different statements with different meanings.



Regards,



Michael

 

[Thomas Beyer]

[quote user=bizaro86]On average is not the same thing as ALWAYS.
Indeed.



The temperature in Vancouver, on average, is higher than in Edmonton (but not always)

 

[reinvestors88]

If I may ask in this forum, what interest rate are you getting for multifamily mortgage? Your feedback is much appreciated.

 

[Thomas Beyer]

[quote user=reinvestors88]multifamily mortgage?
Between 2.0 and 2.25% for CMHC mortgages and around 3% for conventional mortgages.

 

[Darr]

Interest rates on Ten Year Canada bonds are negative yielding after inflation. Current 10 year mortgage spreads have widened but the embedded implied forward rates still does not price-in jump risk abroad. Consequently 10 year mortgage rates are cheap on an optionality adjusted basis.




Japan is a time bomb, more than anyone can imagine and the main street media is simply not covering the news and the risk. Rates there are near zero and the MoF and the BoJ are adamantly debasing the Yen that will accelerate its demise. I don`t know when confidence will flee but within the next five years is a high probability event.




When, (not if) investors lose confidence in the Yen, then expect a flight to safety into safer havens such as Canada where bond prices could rise enough to drop the nominal yields potentially as low as into negative territory.




All g7 nations will debase their currencies simultaneously to attempt to maintain parity.






At that point, you`ll need a microscope to see cap rates where real-estate will go into a cash market as a flight to quality and hard assets. Mortgage renewal will be the greatest risk, not rates. In other words, no institution will want to renew given the hyperinflationary uncertainty abroad. In lieu of renewal, they may however offer to buy your asset. Renewal risk is the black swan that no one dare discuss at the retail level.




You want to avoid having to renew at the wrong time. The cost of insurance by going long the term is currently cheap IMHO.

 

[Thomas Beyer]

[quote user=Darr]hyperinflationary uncertainty abroad.
Enlighten us here .. besides Zimbabwe where do we have hyper-inflation ?



[quote user=Darr]Mortgage renewal will be the greatest risk, not rates.
Why ? if hyperinflation the asset value will go up too !



[quote user=Darr]The cost of insurance by going long the term is currently cheap IMHO
is it ? It is almost 50% of the base rate i.e. 2.1% for 5 years vs. 3.1 for 10 years !



Generally the yield curve is sloped upwards, i.e. longer money yields (or costs( more, so why go long in any case ? Even governments these days go short, 1-2 years often only as it is cheaper.

 

[Darr]

[quote user=ThomasBeyer] Enlighten us here .. besides Zimbabwe where do we have hyper-inflation ?


Why ? if hyperinflation the asset value will go up too !
To a lesser extent, it is happening right now in Argentina. Buying dollars is illegal. Real Estate is in a cash market. Argentinians are buying luxury cars as a hedge since the depreciation is less than the currency debasement.



Yes. Asset prices will increase but the issue is the lack of credit at renewal.

 

[Thomas Beyer]

[quote user=Darr]lack of credit at renewal.
Why ?



Isn't this an overly gloomy view of the world ?

 

[Darr]

Yes it is gloomy. My point was not to scare but to inform about the risks. Thus investors can weigh the pros, cons and probabilities in choosing the term that best matches their risk aversion.

 

[Thomas Beyer]

[quote user=Darr]risk aversion.
or risk perception.



You cannot avoid risk. You can only react differently to it.



Some people only cross streets on green pedestrian lights, as there clearly is risk crossing the street. Some folks jaywalk. Some run. Most folks look at least left and right, then dash.



Only very few folks do not cross the street at all, and as such avoid the risk.



Living means acting. Acting means taking risks.

 

[Darr]

[quote user=ThomasBeyer][or risk perception.]


I would like to be wrong but there are no political solutions to this problem. Deleveraging only a small portion of the quadrillion in OTC derivatives, massive government and private debt will create a scenario 10x worse than the great depression.

Inflating the money supply is the lesser of two evils. There are no IF`s. The only questions are relating to timing and magnitude. The rich will get richer, the poor will stay poor and the `over indebted` unable to hang-on to their assets will get wiped-out.

 

[Thomas Beyer]

[quote user=Darr]

Inflating the money supply is the lesser of two evils. There are no IF`s. The only questions are relating to timing and magnitude.


Well said !