Fixed or Variable?

[DineenJJ]

Hey,

I was just wondering what everyone`s thoughts are on the fixed vs. variable mortgage right now.

Will the variable rate exceed the fixed rate in the next year? Is it smarter to lock into a fixed mortgage within the next couple months?

Thanks!

 

[RobMacdonald]

It all depends on whether or not your mortgage keeps you up at night!

In my opinion, it is still a good option to take a VRM mortgage, even a new mortgage at 3.3%. If you have an existing VRM, at a discounted rate, definitely keep it. I expect the prime rate to remain fairly stable over the next 12 months. In that time, we will see fixed rates continue to fall. There has been a lot of movement lately, and I`m seeing 5 year fixed rates getting to the 4% level, and even slightly below.

 

[greg12]

I saw a 3 year fixed rate at 3.89%. This means it will come up for renewal in the US election year - when interest rates are usually low. Then you can renew into another 4-year term to correspond with the next election year. Just a thought if you are worried about a probable variable pendulum swing the other way.

 

[Conrad5]

QUOTE (greg12 @ Mar 26 2009, 11:00 PM) I saw a 3 year fixed rate at 3.89%. This means it will come up for renewal in the US election year - when interest rates are usually low. Then you can renew into another 4-year term to correspond with the next election year. Just a thought if you are worried about a probable variable pendulum swing the other way.


Do you have data on previous election cycles (atleast the past 20 years) to support your statement?
Conrad.

 

[kboughen]

QUOTE (greg12 @ Mar 27 2009, 01:00 AM) the US election year - when interest rates are usually low.
True, interest rates do typically decrease in election years, but we are not in typical times. One question we need to ask is, will rates decease enough in the next election year to rival the all time low rates available today. Many predict we will be in an inflationary period leading up to the next election year, which indicates rates will have already started to rise. The anticipated drop at election time may not come close to what we have available today on a five year term, which is close to the 3 year rates.

 

[Kimberly]

I`m hearing rumours that the bank rate may drop again on April 21st? Anyone else heard this?

I have a property closing on May 1st, which currently I have a commitment from MCAP for 5yr closed variable for prime +.6 with 25 year amotization, which today means 3.1%. Their 5 year closed is currently at 4.09%. When I first firmed up the financing, prime was 3.5 +.6 so 4.1%, which is what the fixed is at now, and the numbers worked then. I have 2 weeks before the closing to decide.

Watching such conversations as in this thread closely as well as general info as well.

 

[Thomas Beyer]

with a 5 year fixed at 4% (more or less) this is as low as it gets ..

yes variable will be lower for a year or 2 .. say prime @ 2.5% or even at 2.0% a prime + 0.6% is 3.1% .. maybe 2.6% for a year or so ..

1% on $200,000 = $2000/year .. peanuts compared to property price reduction or appreciation in 5 years ..

take 4% fixed for 5 years and sleep well .. or take prime and perhaps (but not necessarily) worry more in 2 years if prime goes to 3 then 4% then 5% ..

Historically, VARIABLE is always cheaper .. but may occasionally spike above fixed locked in 2 years ago ..

or: get a line-of-credit where you draw money only as needed at prime + 1% or 0.6%

 

[MikeMcCrae]

With 5 year fixed rates as low as 3.95% why would you try to get lower. If your property doesn`t work at that rate it likely isn`t a good deal. Remember that rates have little room to fall and a long way to go up. I am usually a variable fan but with rates this low, a 5 year ride is pretty appealing.

 

[Thomas Beyer]

QUOTE (MikeMcCrae @ Mar 27 2009, 05:43 PM) With 5 year fixed rates as low as 3.95% why would you try to get lower. If your property doesn`t work at that rate it likely isn`t a good deal. Remember that rates have little room to fall and a long way to go up. I am usually a variable fan but with rates this low, a 5 year ride is pretty appealing.
indeed .. well said Mike !!

 

[greg12]

QUOTE (caglah @ Mar 27 2009, 01:48 AM) Do you have data on previous election cycles (atleast the past 20 years) to support your statement?
Conrad.


I got the information from Peter Kinch. I am sure he will have the stats if you call their office.

 

[greg12]

QUOTE (MikeMcCrae @ Mar 27 2009, 04:43 PM) With 5 year fixed rates as low as 3.95% why would you try to get lower. If your property doesn`t work at that rate it likely isn`t a good deal. Remember that rates have little room to fall and a long way to go up. I am usually a variable fan but with rates this low, a 5 year ride is pretty appealing.

Indeed this is a no brainer Mike! Now I need to know who is offering this 5-year 3.95% mortgage and what the preconditions are if any. Thanks in advance.

 

[holymoly]

QUOTE (greg12 @ Mar 28 2009, 12:28 AM) Indeed this is a no brainer Mike! Now I need to know who is offering this 5-year 3.95% mortgage and what the preconditions are if any. Thanks in advance.

My brother was telling me where he thought inflation and interest rates would be going, and it made me wonder --

When making the lock-in decision, particularly with regard to choosing the term, do people try to anticipate the cost of renewing at term`s end? For example, say you think rates are going to be moderate in three years and high in 5 years -- so today you decide to lock in for 3 years instead of 5 so that when the term ends and you need to renew, you aren`t forced to take the (anticipated) substantially higher 5-year rate.

I don`t have the knowledge or skills to do that type of forecasting, but maybe some people do?

 

[MikeMcCrae]

The 3.95 rate is only available thru some brokers. You should talk to your broker to see if they have that option available to them. As far as forcasting 3 and 5 years into the future, 5 economists would give you 5 different answers. There are many unknown variables in this business so you can only deal with the best information you have at the time. Tax deductable interest rates in the 4 percent range are really really good for building long term wealth.

 

[zimnicki]

My first property is on fixed, and i just got my second property, getting keys on april 1, and that one is fixed as well. with the way the fixed is going, it`s better to lock it in for 5 years, cause they can only go so low. See what happens when i get my third one!

 

[21krunner]

Indeed 5 year fixed rates are very attractive now. i believe Firstline is also below 4% as of last week.

However, if you are insistent on a variable mortgage I would be inclined to secure a 1 year term. I don`t think prime will be moving very much in that time but I do believe the forces of competition with drive the variable rates offered closer to prime over that time... although we may never see the prime -.8 that used to be common place.

IMHO.

 

[DineenJJ]

Thanks for all of the insight! When I look for cash flow I always analyze it at a 5% interest rate to be conservative, and if it works then the rest is icing on the cake (for both variable and fixed at the moment).

 

[DaveToynbee]

. I Also have the samr thought as Greg and Thomas right now. I am currently finalizing a 5 year fixed with firstline at 3.99%

 

[DaveToynbee]

woops...that should have said Thomas and Mike.

 

[jkcomm]

Hi Dave,

How did you manage to get a 5 year term for 3.99% with Firstline?

I am also finalizing a VRM with Firstline at the moment at P + 0.75!

James

 

[jcab256]

Currently I am refinancing to a VRM.
What I normally try to do is get a VRM, but make my payments what they would be if I took a fixed rate at that time.
That way, the additional principle payments help to offset any additional interest that would come should prime exceed what the 5yr rate is at the time I signed up.

This also builds equity quicker, that I will later pull out for upgrades, or downpayments on new properties.

The `downside` is that it does take away cashflow, but it takes away the cashflow that wouldn`t have existed anyway, had I gone with the fixed rate.