Interest Rate Anticipation

[lilbuffet]

So with all this interest rate increase talk we are currently hearing, my prediction is that the rates will rise in Q2 but at a modest level. I recently purchased my 1st property and I currently have a variable rate which is prime +.1 would it be better to lock in or stay at a variable rate for the long term? (2-5 years)

 

[GarthChapman]

It would be better to have a Variable Rate Mortgage (VRM) at a rate more like Prime less 0.3%, which is what is widely available. It sounds like you might have an open VRM instead of a closed VRM, and unless it is a short term hold I don`t recommend that product to my clients. The closed VRM pre-payment penalty is only 3 months interest.

 

[housingrental]

What Garth wrote

 

[Alvaro Sanchez]

I was looking at that a few days ago... I decided to take a VRM for 5 years (closed) with a fixed payment on the investment mortgage. While I am getting a nice cash flow on the property I realized that once the interest is goes up; the payment will go mostly to interest instead of capital. I will be deposit the positive cash flow into my secured LC (I do not have a mortgage, I have a LC) so basically transferring the bad debt into the good debt... I am still paying debt but I decided to pay the bad one first...

any flaws on this scenario?


QUOTE (lilbuffet @ Mar 8 2010, 10:20 PM) So with all this interest rate increase talk we are currently hearing, my prediction is that the rates will rise in Q2 but at a modest level. I recently purchased my 1st property and I currently have a variable rate which is prime +.1 would it be better to lock in or stay at a variable rate for the long term? (2-5 years)