Welcome!

By registering with us, you'll be able to discuss, share and private message with other members of our community.

SignUp Now!

Should I lock in my open variable mortgages

JBagorio

JBagorio

0
Registered
Joined
Dec 4, 2007
Messages
261
Currently I am riding off a prime - 0.75 open variable mortgages that are not due in 2 to 3 years time. RBC is offering me to transfer my mortgages to them to a 4 year closed at 4.68%. Should I lock in some or even all? What would one do in this case? Would you stay at the variable and ride the wave, or lock if given a good rate.
 
QUOTE (JNB @ Dec 18 2008, 09:38 AM) Currently I am riding off a prime - 0.75 open variable mortgages that are not due in 2 to 3 years time. RBC is offering me to transfer my mortgages to them to a 4 year closed at 4.68%. Should I lock in some or even all? What would one do in this case? Would you stay at the variable and ride the wave, or lock if given a good rate.
anything sub-5% is good .. and variable will not be a lot lower .. so if you like the peace of mind .. lock it in .. but usually it pays to stay variable .. so it depends on the price of "peace of mind" for you !
 
QUOTE (thomasbeyer2000 @ Dec 18 2008, 10:36 AM) anything sub-5% is good .. and variable will not be a lot lower .. so if you like the peace of mind .. lock it in .. but usually it pays to stay variable .. so it depends on the price of "peace of mind" for you !


Thanks Thomas for your valued input. I guess there`s no solid right or wrong answer. It all comes down to your comfort level.
 
QUOTE (JNB @ Dec 18 2008, 01:40 PM) Thanks Thomas for your valued input. I guess there`s no solid right or wrong answer. It all comes down to your comfort level.


That`s true, but i know a couple of freinds that have investment proporties, and they all have variable rates, in the long run it`s cheaper, then being on a fixed mortgage! you save more money.
 
The farther in the future the maturation dates of your variable rate mortgages are - the better off you are.
 
QUOTE The farther in the future the maturation dates of your variable rate mortgages are - the better off you are.

Why would that make a difference? That`d leave it more time to go either way.

4.68%, do it. There`ll be some huge injections into the economy by the goverment soon enough, which will increase the money supply, which will increase inflation, which will increase the cost of borrowing. 4.68% locked down for 4 years is a beautiful thing.
 
If you wait till the end of January, assuming a 50 basis point drop jon the 20th...you might be able to get a 25 basis point reduction on a 5 year locked...at 4.75% (currently the best is 4.99%) so that might be worth the wait of a few weeks. I would personally take the 5 year locked over the 4.

cheers.
 
Jack, Garth is correct.

There is a basic rule in statistics explaining that the more you wait the closer the difference between actual weighted average variable rate and the actual weighted average fixed rates will be from the expected difference. since historically and logically variable is expected to perform better the more you wait the more you are expected to gain from a variable rate.

I have no doubt prime - 0.75 is much better than 4.68% (unless you`re losing sleep). the current difference is around 2%(!) or $2,000 a year in your pocket, compared to fixed, on 100K mortgage. Jack, are you willing to pay Bagorio $2,000 a year on every 100K mortgage he has? I`m sure not and you don`t have to
but let`s think twice before recommending people what to do with their money.

personally, no way I would switch to a 4.68 fixed from a 2.75 variable. call me a risk taker, that`s funny.
Cheers.
 
QUOTE (Nukav @ Dec 19 2008, 10:48 AM) If you wait till the end of January, assuming a 50 basis point drop jon the 20th...you might be able to get a 25 basis point reduction on a 5 year locked...at 4.75% (currently the best is 4.99%) so that might be worth the wait of a few weeks. I would personally take the 5 year locked over the 4.

cheers.
any 5 year mortgage is NOT based on prime, but on the price of a Government of Canada bond. With Canada going into a deficit expect GofC bonds to go UP, and variable rates / prime to go down.

It makes sense to stay VARIABLE !!

Expect banks to not follow the prime down though .. maybe another 25 basis points at best, so interest rates are basically as low right now as they will get for a while !!
 
QUOTE I`m sure not and you don`t have to
but let`s think twice before recommending people what to do with their money.

So, it`s OK for you to recommend variable, it`s just not OK for me to recommend fixed? I understand.


Expose yourself to interest rate risk all you want, I`d rather not.
 
Well Jack, you can recommend all you want. as long as it is sincere I’m sure some will appreciate it. I just wanted you to see a completely different money savings perspective. At least now I know you have a clear picture of the most probable implication of your advice to go with fixed. next time you take fixed do the math, understand you are likely to pay thousands more and if you are still happy with it, that`s fine – it simply means you have a risk averter personality like my mother. nothing wrong with it. she worked as a teacher for 40 years and happily retired at 62. Good luck.
 
It`s probably true that variable will be better in the long run, as they are expected to be lower than fixed. But if the fixed rate works for your business plan, and it helps you sleep at night it`s not a bad idea.

QUOTE (investmart @ Dec 19 2008, 01:51 PM) Well Jack, you can recommend all you want. as long as it is sincere I`m sure some will appreciate it. I just wanted you to see a completely different money savings perspective. At least now I know you have a clear picture of the most probable implication of your advice to go with fixed. next time you take fixed do the math, understand you are likely to pay thousands more and if you are still happy with it, that`s fine – it simply means you have a risk averter personality like my mother. nothing wrong with it. she worked as a teacher for 40 years and happily retired at 62. Good luck.
 
Thanks guys for all your input on the topic. May be we should compile the pros and cons...Truly there are good arguments from both sides of the spectrum. It seems to come down to one`s tolerance in terms of risk or sleep comfort. I had this inner battle since I started in this business in 2005, and for some apparent reason I stayed in the variable side any ways. Given the outcome and benefit from the low prime rates in the past 3 years, yes I am glad I did stay where I was. But still from time to time I play with the idea of locking in when a good rate comes.

As always I am very glad to be part of this social network sponsored by REIN. I hope someday I could afford the time and money to be a full member.

Again thanks you for all you help!

Jason
 
There will probably be an even greater opportunity over the next 12 to 18 months to lock in your VRM. At the moment, the Bank of Canada is still fighting a stumbling economy. I expect we will see lower rates on VRM`s, as well as slightly lower fixed rates.

Wait until you get to a point that locking in makes sense for your long term plan. You also need to make sure that locking in works for your plan. Are you in a holding pattern? Then locking in will make sense.
 
Prime has to be at 5.43% for your current prime-0.75 variable rate to hit 4.68% that the Bank is offering you. Do you think that is going to happen within the next year or two? Prime is currently at 3.5%. I believe there should be enough signals by the time prime rises that high to indicate the time is ripe for you to lock in.
Conrad.
 
QUOTE (caglah @ Dec 20 2008, 12:59 AM) Prime has to be at 5.43% for your current prime-0.75 variable rate to hit 4.68% that the Bank is offering you. Do you think that is going to happen within the next year or two? Prime is currently at 3.5%. I believe there should be enough signals by the time prime rises that high to indicate the time is ripe for you to lock in.
Conrad.

In the fall of 2007 prime was 6.5% I don`t think any one expected that just over 1 yr later prime would drop 3 points, so who`s to really know where prime will be in 1 yr, 2 yrs, 5 yrs. I think it was in Ben Tal`s talk @ the spring REIN meeting that he said 2009 would be about inflation, how things have changed in the last 6 months.

It really is about risk tolerance, but here`s some #`s that I ran that may help shed some light on whether 4.68% is a good rate:

A few months ago, when trying to decide whether to lock in one of my mortgages I went over the historical prime rates for the last 10 yrs and came up with an average of 6%. I had a variable rate of prime minus .7, so in theory if the next 5 years w
 
You must log in or register to reply here.
Back
Top Bottom