Ok guys, need alittle help to gather a few opinions. Myself and 2 partners just purchased a property for approx 250,000. We are on the fence of which mortgage we should go with and I was hoping for some of your opinions. On one hand a 5 year fixed at 4.65 with 5% cash back(or close to) is safe and will protect us from any volatile jumps in interest rates. However with a 5 year vaiable @ 3.5 or so will increase our cash flow by over 345.00 a month. Amm= 35 years. What would you guys do.
Variable or Fixed
- Thread starter zorant
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If I were you I would select a shorter period 2-3years as there 4 partners in the deal. In 5 years, a lot of different things might happen which might force to cancel the mortgage (new marriage, divorce, etc). Now, since there are 4 partners to me is very safe to roll the dice with the variables (they will go up for sure but in general you pay less) if rates jump too high you would only liable for 25% of the jump. Also, I would try to mortgage with a line of credit, in the worse case you would be just paying the interest.
Anyways, that me.
Anyways, that me.
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The break even point on this choice will be determined when interest rates rise and the variable rate is great than today's 5 year fixed. So you have 115 points in room before today's fixed term rate starts to look better.
Personally, I think that the Bank of Canada wants to raise interest rates but cannot due to the US situation and I do not think the Americans are going to solve their problems anytime soon. So my gut tells me interest rates are not going to rise another 1% for awhile. However you need to make your own judgement call on what interest rates will do.
Personally, I think that the Bank of Canada wants to raise interest rates but cannot due to the US situation and I do not think the Americans are going to solve their problems anytime soon. So my gut tells me interest rates are not going to rise another 1% for awhile. However you need to make your own judgement call on what interest rates will do.
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I would go fixed in your situation
In general I would go variable though
In general I would go variable though
R
RussellWestcott
Guest
Guest
Couple things, why would you be getting a variable rate a 3.5%? The last VRM I closed on was Prime -.6= 2.4%. Plus you might want to check your quote for your fixed rate too 4.65% seems high.
The strategy that I and many sophisticated investors are going for right now is to:
- Take the variable interest rate (have lock in provisions if needed).
- Set your payment at the fixed interest rate.
This way you get a hedge against future Prime interest rate increases, and the benefit of accelerated mortgage pay down early in the amortization (when it makes the most difference).
If you need some more information on this, there is plenty of information on Don's Blog
Link #1
Link #2
The strategy that I and many sophisticated investors are going for right now is to:
- Take the variable interest rate (have lock in provisions if needed).
- Set your payment at the fixed interest rate.
This way you get a hedge against future Prime interest rate increases, and the benefit of accelerated mortgage pay down early in the amortization (when it makes the most difference).
If you need some more information on this, there is plenty of information on Don's Blog
Link #1
Link #2
- Joined
- Aug 31, 2007
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- 323
"What would you guys do."
Although today's 5 yr variable at 2.25% with a 35yr amortization looks like a good option for you, without knowing your current Lender utilization, TDS, portfolio DCR details, DCR details of the subject property, or
your future refinance and purchase objectives, it is not possible to
tell you if it is the right product.
Choosing a
mortgage product that is going to allow you to meet your Investment
Objectives is much more involved than fixed or variable, cash back or not. The REIN Sophisticated Investor Binder along with building the right Team
is an important part of a successful investors strategy.
Although today's 5 yr variable at 2.25% with a 35yr amortization looks like a good option for you, without knowing your current Lender utilization, TDS, portfolio DCR details, DCR details of the subject property, or
your future refinance and purchase objectives, it is not possible to
tell you if it is the right product.
Choosing a
mortgage product that is going to allow you to meet your Investment
Objectives is much more involved than fixed or variable, cash back or not. The REIN Sophisticated Investor Binder along with building the right Team
is an important part of a successful investors strategy.
- Joined
- Oct 22, 2007
- Messages
- 2,803
There are many valid points here.
Statistically most mortgages don't last for 5 years. You may lose partners, you may decide to sell, or you may have equity that you and your partners would like to pull out with a refinance. It is quite understandable to choose the fixed rate for peace of mind, especially considering the rates are at historical lows. And if you choose a 3-year term, the rate will be even lower (by as much as 1/2%).
Variable is a great option to maximize cashflow while prime is so low, but only if it fits within the expectations and risk tolerances of all parties involved.
With some institutions, you can put fixed or variable mortgages (or a combination of the two) within a "Total Equity" product that allows you to pull out equity with a HELOC set by today's property value. Very helpful for major reno's on the property or to payout partners, and no refinance involved. With a $250k property, you may be approved for a $200k mortgage. Your HELOC can be set to automatically increase as you pay down the mortgage, leaving you with $200k total available credit.
I also agree that your quoted rates for variable and fixed seem quite high.
Statistically most mortgages don't last for 5 years. You may lose partners, you may decide to sell, or you may have equity that you and your partners would like to pull out with a refinance. It is quite understandable to choose the fixed rate for peace of mind, especially considering the rates are at historical lows. And if you choose a 3-year term, the rate will be even lower (by as much as 1/2%).
Variable is a great option to maximize cashflow while prime is so low, but only if it fits within the expectations and risk tolerances of all parties involved.
With some institutions, you can put fixed or variable mortgages (or a combination of the two) within a "Total Equity" product that allows you to pull out equity with a HELOC set by today's property value. Very helpful for major reno's on the property or to payout partners, and no refinance involved. With a $250k property, you may be approved for a $200k mortgage. Your HELOC can be set to automatically increase as you pay down the mortgage, leaving you with $200k total available credit.
I also agree that your quoted rates for variable and fixed seem quite high.
- Joined
- Aug 29, 2007
- Messages
- 2,042
Variable without hesitation.
Your choice will tell a lot about how you see yourself in regards to investments in general and how you feel about your future in this business. There are always risks, some greater than others, some calculated.
A variable rate is a calculated risk that with actual numbers can be plotted.
Statistically variable rates are proven to be better long term.
So safe and secure with black and white guarantees (to a limited degree) or a slightly higher risk with greater returns.
Where do you see yourself and your partners as investors. Safe and secure wanting to know exactly what you will earn tomorrow or are you willing to take a small risk for potentially greater returns in the future.
Investing of any type involves risk. The rewards are often based on how big of a risk you are willing to take.
In my opinion variable over fixed is a very tiny risk.
Your choice will tell a lot about how you see yourself in regards to investments in general and how you feel about your future in this business. There are always risks, some greater than others, some calculated.
A variable rate is a calculated risk that with actual numbers can be plotted.
Statistically variable rates are proven to be better long term.
So safe and secure with black and white guarantees (to a limited degree) or a slightly higher risk with greater returns.
Where do you see yourself and your partners as investors. Safe and secure wanting to know exactly what you will earn tomorrow or are you willing to take a small risk for potentially greater returns in the future.
Investing of any type involves risk. The rewards are often based on how big of a risk you are willing to take.
In my opinion variable over fixed is a very tiny risk.