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Fixed Rate or Variable! Getting a new mortgage

M

Millions

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Oct 6, 2007
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Hey everyone,

I need to decide between a fixed rate and variable. I have been doing a vendor finance and switching now to ScotiaBank.

Basically the value would be for 475K. They offer a 5 year closed fixed rate at 4.29%. Or they also offer a closed 5 year variable at 2.45%, and a 5 year open variable at 3.05% as part of the Scotiabank equity plan. Both terms offer 1% off the post rate should I choose to sign a fixed in the future.

I regret getting into a 5 year fixed 2 years ago on another property as my payments would be cut by 30% had I gone variable.
However, Some investors have told me now may be the only time to lock in at 4.29% since interest rates can only go up.

almost a 2% difference though today. Hard to say what the future holds
What does everyone think here. 4.29% 5 year fixed or 2.5% variable. I do plan on holding the house for atleast 5 years since I need to get the equity back so just looking for thoughts. I have to choose by tommorow.

Thanks
 
Mathew, have you checked out Peter Kinch and his forecasts? If not, you should, as he provides great insight as to where things are today, and where they are likely heading. I have personally elected to utilize variable rate mortgages since I began investing in real estate, and I would not change a thing. QUOTE (Millions @ Sep 7 2009, 06:27 PM) Hey everyone,

I need to decide between a fixed rate and variable. I have been doing a vendor finance and switching now to ScotiaBank.

Basically the value would be for 475K. They offer a 5 year closed fixed rate at 4.29%. Or they also offer a closed 5 year variable at 2.45%, and a 5 year open variable at 3.05% as part of the Scotiabank equity plan. Both terms offer 1% off the post rate should I choose to sign a fixed in the future.

I regret getting into a 5 year fixed 2 years ago on another property as my payments would be cut by 30% had I gone variable.
However, Some investors have told me now may be the only time to lock in at 4.29% since interest rates can only go up.

almost a 2% difference though today. Hard to say what the future holds
What does everyone think here. 4.29% 5 year fixed or 2.5% variable. I do plan on holding the house for atleast 5 years since I need to get the equity back so just looking for thoughts. I have to choose by tommorow.

Thanks
 
QUOTE (tonypeters @ Sep 7 2009, 08:35 PM) Mathew, have you checked out Peter Kinch and his forecasts? If not, you should, as he provides great insight as to where things are today, and where they are likely heading. I have personally elected to utilize variable rate mortgages since I began investing in real estate, and I would not change a thing.

Where Can i find the forecast? Is he saying it is still smart to take a variable in todays market?
 
QUOTE (Millions @ Sep 7 2009, 09:45 PM) Where Can i find the forecast? Is he saying it is still smart to take a variable in todays market?

I read something he wrote in march about variables most likely being save for the next 6-12 months but 6 months have gone by since he said that.

2.55% is very tempting but does anyone think this could spike much higher in the next year or 2? or 3 or 4?

Scotia is offering prime + .2 on a closed 5 year variable, or 2.55% on a 1 year fixed but you have to go to a 5 year fixed after.

I need to decide tommorow so any advice is much appreciated!

Thanks
 
QUOTE (Millions @ Sep 7 2009, 06:27 PM) ...
What does everyone think here. 4.29% 5 year fixed or 2.5% variable. I do plan on holding the house for atleast 5 years since ..
4.29% - 2.5% = 1.8% difference .. likely at least for about 2 to 2 1/2 years ..

thus the variable rate has to go up over 4.29% + 1.8% = 6% for the remainder of the last 2 1/2 years to lose with a variable.

Chose variable .. and keep some cash in the bank in case variable rates go over 7% !

btw: variable is ALWAYS cheaper than a fixed rate as the banks have to build in a risk premium if they lend you money for 5+ years. It is called "insurance". On average, you always lose with insurance.

Insure only what you cannot afford to lose ! (say, a house worth $600,000 as it may burn down ..) but a mortgage spike for a year or 2 ?
 
The reason many say that mortgages can only go up is because of economic factors pointing to inflation or even possibly hyper inflation. I try to not be a doomer but when ever Warren Buffet warns of inflation coming soon...i tend to listen. The problem with staying with the variable rate strategy is that interest rates my be close to the bottom and if inflation does set in the current five year rate may a distant memory and one will be stuck at the variable rate`s mercy, only remembering the chance he had of locking in at the amazing 5 year rate of 3.55% which passed us by only a few months ago. I believe that 3.55-3.75% 5 year rate will be back soon but won`t stay for long and I feel that would be the ideal time to lock in with no regrets. Just like remembering $20 a barrel lows are only a memory, I feel the same about these low, low rates. These times are not the norm and many a real estate investor, builder, speculators now look like geniuses because of the world wide plot of stimulation by continuously lowering rates and printing and borrowing money. Of course no one has a crystal ball and neither do I, but I think it`s due time for the pendulum to at least consider swinging in the other direction for a little while.
 
Like a pendulum rates always continue to swing which is one of the reasons variable always works out to be a better deal in the long term.
Locking in provides a false sense of security but for some it does help them sleep better at night.
 
Have you signed up for any of Peter`s mortgage updates? He has a regular spot on a radio show in Vancouver called "The Mortgage Minute with Peter Kinch". If you go to his profile link you should be able to navigate to his website and sign up for his newsletters and articles etc.

My own personal opinion, the variable rates are an extremely powerful tool. I have only ever locked in to a "Fixed Rate" mortgage once. The decision also gets down to an issue of "security". For some, they prefer to know exactly what their payments will be over a set period of time. Hope this helps?


QUOTE (Millions @ Sep 7 2009, 09:45 PM) Where Can i find the forecast? Is he saying it is still smart to take a variable in todays market?
 
Go variable for now but draw a "line in the sand" where you`d be satisfied locking in at a five year rate. If five year rates hit that point, lock it in.
In the meantime, enjoy the improved cash flow.
 
QUOTE (mortgageman @ Sep 8 2009, 11:09 PM) Go variable for now but draw a "line in the sand" where you`d be satisfied locking in at a five year rate. If five year rates hit that point, lock it in.
In the meantime, enjoy the improved cash flow.


What does everyone think of a 1 year fixed rate of 2.55%

IS that better (I am also trying to sell or have the property assumed asap)

I was told after 6 months, I could renew

Matt
 
QUOTE (luckyluciano @ Sep 8 2009, 11:37 AM) The reason many say that mortgages can only go up is because of economic factors pointing to inflation or even possibly hyper inflation..........

Most Economist don`t see inflation happening soon since it is caused as a direct result of increased wages. This increase will not happen since most people are trying not to lose their job never mind asking for a raise (the actual unemployment rate is around 16% in the USA currently). The only cause of inflation that can be forecast is that typically gold is used to edge out inflation but with gold prices raising this may spur inflation. Keep in mind gold prices are inversely proportional to USD and the recent increase in gold is more to do with the USD decreasing (compare yen to gold, or GBP to gold and the increase over the last few months is minimal).

So I would say you will be safe with a var mortgage over the next 2 years without worrying too much about a drastic increase in prime. Thomas has hit the nail on the head with his post. In the short time I have been on the board I have learned tons but one of the most important things I have learned is to always pay close attention to his posts
.
 
QUOTE (aiden1983 @ Sep 10 2009, 11:22 AM) Most Economist don`t see inflation happening soon since it is caused as a direct result of increased wages. This increase will not happen since most people are trying not to lose their job never mind asking for a raise (the actual unemployment rate is around 16% in the USA currently). The only cause of inflation that can be forecast is that typically gold is used to edge out inflation but with gold prices raising this may spur inflation. Keep in mind gold prices are inversely proportional to USD and the recent increase in gold is more to do with the USD decreasing (compare yen to gold, or GBP to gold and the increase over the last few months is minimal). So I would say you will be safe with a var mortgage over the next 2 years without worrying too much about a drastic increase in prime. Thomas has hit the nail on the head with his post. In the short time I have been on the board I have learned tons but one of the most important things I have learned is to always pay close attention to his posts
.

Our perspectives on interest rates depends on how long one has been investing in real estate. If one has been investing since 1995 or sooner (15 years) then your limited perpective tells you real estate prices only go up and interest rates can only be single digets. If you have been investing since 1980, you`ll know that interest rates can be double digets. The pendulum has been swinging in one direction since 1995 with interest slowly dropping to current levels (stimulation). Prudent real estate investing should be based on prime easily doubling or even tripling. Can you hold your properties if prime was to do this? Cap rates would increase across the board and so will prices. The sex appeal/uphoria of real estate investing would be gone! Can you still hold for the long term till the properties are paid off and you can retire under a tree with a coconut somewhere. That`s the way the Mentors in my life invest, the Warren Buffet way.
 
QUOTE (luckyluciano @ Sep 10 2009, 05:22 PM) Our perspectives on interest rates depends on how long one has been investing in real estate. If one has been investing since 1995 or sooner (15 years) then your limited perpective tells you real estate prices only go up and interest rates can only be single digets. If you have been investing since 1980, you`ll know that interest rates can be double digets. The pendulum has been swinging in one direction since 1995 with interest slowly dropping to current levels (stimulation). Prudent real estate investing should be based on prime easily doubling or even tripling. Can you hold your properties if prime was to do this? Cap rates would increase across the board and so will prices. The sex appeal/uphoria of real estate investing would be gone! Can you still hold for the long term till the properties are paid off and you can retire under a tree with a coconut somewhere. That`s the way the Mentors in my life invest, the Warren Buffet way.


sorry but I didn`t understand what you meant. Are you suggesting locking in or not locking in? Are you suggesting paying down debt faster..?
 
QUOTE (JoefromTO @ Sep 10 2009, 08:30 PM) sorry but I didn`t understand what you meant. Are you suggesting locking in or not locking in? Are you suggesting paying down debt faster..?

With my calculations IF I took a 4.19% 5 year fixed with no penalty ..... Or if i took a variable prime +.2 for a $3,000 penalty, Assuming the varibale stays at 2.45 for 2 years and then jumps to 5% for the remaining 3 years, My loss in at the end of 5 years will be basically the same.

So i guess its just a gamble haha
 
QUOTE (Millions @ Sep 12 2009, 08:03 PM) With my calculations IF I took a 4.19% 5 year fixed with no penalty ..... Or if i took a variable prime +.2 for a $3,000 penalty, Assuming the varibale stays at 2.45 for 2 years and then jumps to 5% for the remaining 3 years, My loss in at the end of 5 years will be basically the same.

So i guess its just a gamble haha
4.19% for 5 years is a GREAT rate .. and you`ll sleep well, too !
 
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