Canadian Money Forum banner
1 - 20 of 60 Posts

·
Registered
Joined
·
157 Posts
Discussion Starter · #1 ·
I have a property closing soon, early May. It is a new mortgage. I'm torn if I should lock it in a fixed or variable rate.
My Scotia mortgage broker can give me 2.15% 5-Year Variable
He is suggesting to keep it in variable and not fixed but with all the news and articles I'm reading I'm currently undecided

Most of my mortgages are variable. Frankly I've been riding the variable rate for the last 20years and it has paid off.
I'm just wondering if it is time to consider fixed. Are the outlook on future rates on a 3-4 year timeline going to go higher than 4-5%

I think there is a 1-1.5% or even 2% difference between the fixed and variable rates right now.

Your input is appreciated. Cheers
 

·
Registered
Joined
·
4,757 Posts
Not sure if it was the right move, but I renewed last week for a 5 year 3.69% fixed.

I'm not sure how high the rates will go, but I do know one thing for sure.... The difference between the variable rate and 3.69% is not that large. But the upside is theoretically unlimited on how many rate increases can happen. We know the 2.15 variable will not stay at 2.15, and because of that, I chose to lock in a little bit higher to reduce any potential large moves.

Maybe I made a mistake. But even if so, what am I really losing out on? MAYBE 0.5% after all the math of blended rates over the next 5 years? Maybe? I think variable will go over 3, for sure.
 

·
Registered
Joined
·
13,126 Posts
We don't know how high and for how long, overnight rates need to go to get inflation tamped back down so it is a roll of the dice. My best guess would be continued rate increases through 2023 when BoC hopes CPI will trend back down in the 2-2.5% range at the end of 2023. The question is whether they are any better at crystal ball gazing than anyone else but if reasonably correct, then some reductions may start to occur thereafter.

One suggestion might be to look at a 3 year fixed term if you can get it for closer to 3-3.25%. Best 3-year fixed mortgage rates - Canada mortgage rates - Ratehub.ca That way, there may be a possibility of catching a new rate on the way back down, particularly if the current trend of rate increases trigger a recession. I don't think I'd want to commit 3.69% for 5 years though (my gut feel).
 

·
Registered
Joined
·
181 Posts
I went with a 5 year variable at 2.85% last week. I was offered 5 year fixed at 3.79%. Taking my chances I guess but I also plan on hammering the mortgage over the next 5 years.
 

·
Registered
Joined
·
896 Posts
I have a property closing soon, early May. It is a new mortgage. I'm torn if I should lock it in a fixed or variable rate.
My Scotia mortgage broker can give me 2.15% 5-Year Variable
He is suggesting to keep it in variable and not fixed but with all the news and articles I'm reading I'm currently undecided

Most of my mortgages are variable. Frankly I've been riding the variable rate for the last 20years and it has paid off.
I'm just wondering if it is time to consider fixed. Are the outlook on future rates on a 3-4 year timeline going to go higher than 4-5%

I think there is a 1-1.5% or even 2% difference between the fixed and variable rates right now.

Your input is appreciated. Cheers
 

·
Registered
Joined
·
896 Posts
I think it depends on the size of your mortgage and ability to afford payments should rates just happen to go very, very high. I was involved in the business when the prime rate hit 22.75% and I think the lowest mortgage rate was 17%. The current rates are still historically low and if I had a mortgage and planning on staying where I was I would lock in for 5 yrs. Just my opinion.
 

·
Registered
Joined
·
4,757 Posts
I think it's foolish to NOT lock in.

Generally, variable rates have always been the best option long term. However, if there was ever a time to go fixed... That time is now lol.
 

·
Registered
Joined
·
13,126 Posts
Variable is likely the best option from strictly a financial cost point of view but it is a bit narrow minded to say 'always' when there are other risk factors, such as cash flow management, at play. Do what you feel is best for your sleep-at-night health.

Going without auto or property insurance is most cost effective too.... until it isn't.
 

·
Registered
Joined
·
730 Posts
Let's say the current variable rate is v1, the current fixed rate is f1, and the gap between variable and fixed is g1, (v+g=f).

If v increases for five years until v=f1, then you would have five years of savings. But guess what f2 will be, v=v2, f2=v2+g.

The gap, g can either be constant or increasing. I doubt if it will ever decrease.

Also, if v increases so much that v2 is greater than f1, then your initial savings would be reduced by the total amount of time v is higher than f1. Your fears may be realized if you have a net payout over five years instead of any savings. However, guess what the new fixed term rate will be when you have to renew? F2=v2+g. And you still would have paid less than if you had the fixed term rate all that time because of the initial gap, g1.

Let's not forget that the gap, g is set by the bank for the bank's interest, not yours. The gap is so high as to mitigate or minimize the risks the banks may have to endure for rate increases and lost potential profits.

Go with variable. Budget for the five year fixed and set aside the money saved. Then at renewal or whenever, you can dump the money you have saved into the principal. If you don't have any net money saved, you wouldn't have had any with the fixed term rate anyways.
 

·
Registered
Joined
·
157 Posts
Discussion Starter · #13 · (Edited)
Thank you all for your input.

I'm also thinking BoC really cannot afford to make it too high or keep it there for a long time. I feel that homeowners, particularly new homeowners cannot afford much increase or any increase at all. Defaults will start to become an issue. If that happens we will have a real problem in our hands.

I also do not think that interest hikes will fix the housing problem. The underlying issue is shortage of supply Permits and construction in the municipality levels need to increase and keep up with population growth. That will require actual solutions from all levels of government, cutting of red tape, incentives to the private sector, rethinking the LTB etcetera. A mere increase of rates might lower inflation but does not fix the housing crisis.
 

·
Registered
Joined
·
24,069 Posts
Most of my mortgages are variable.
Wait, you have several mortgages?

Why do you have several mortgages? You can probably live in just one house.

Or are you one of these guys who's making homes unaffordable in Canada by buying several properties, all of it debt financed.

Maybe you should strongly consider selling all your properties except the one you live in. Look at how high home prices still are... probably better to sell now than before interest rates go sky high.
 

·
Registered
Joined
·
1,814 Posts
Wait, you have several mortgages?

Why do you have several mortgages? You can probably live in just one house.

Or are you one of these guys who's making homes unaffordable in Canada by buying several properties, all of it debt financed.

Maybe you should strongly consider selling all your properties except the one you live in. Look at how high home prices still are... probably better to sell now than before interest rates go sky high.
Individual property investors are far from tipping the scale to "making homes unaffordable in Canada".
 

·
Registered
Joined
·
24,069 Posts
Individual property investors are far from tipping the scale to "making homes unaffordable in Canada".
I strongly disagree, Mr Mortgage Underwriter. Boy talk about bias. You worked your whole career in the mortgage industry and got rich off this.

Many individuals in this country are involved with hoarding property portfolios. @Letran appears to be one of them, but there are tons of others. It causes harm to other Canadians and deprives them of home ownership.
 

·
Registered
Joined
·
1,814 Posts
I strongly disagree, Mr Mortgage Underwriter. Boy talk about bias. You worked your whole career in the mortgage industry and got rich off this.

Many individuals in this country are involved with hoarding property portfolios. @Letran appears to be one of them, but there are tons of others. It causes harm to other Canadians and deprives them of home ownership.
i guess we will agree to disagree.

Before you take aim at individual investors, where do you classify large property management companies?

Demand and supply are what drive prices. Not individual investors.
 

·
Registered
Joined
·
157 Posts
Discussion Starter · #18 ·
Wait, you have several mortgages?

Why do you have several mortgages? You can probably live in just one house.

Or are you one of these guys who's making homes unaffordable in Canada by buying several properties, all of it debt financed.

Maybe you should strongly consider selling all your properties except the one you live in. Look at how high home prices still are... probably better to sell now than before interest rates go sky high.
Are you trying to buy a property? :p
I know it could quite frustrating but no need to aimlessly shoot accusations.

But thank you nonetheless for your comment.

On the contrary -
The property that I live in is mortgage free
My mortgages are solely on investment properties.
Let me correct your assumptions
Property investors is more than likely to bring price comparisons...down

1. For the most part property investors do not buy properties that are inflated. It is a business, so the numbers needs to make sense. That usually means that the property would have been in the market for quite sometime and no one is interested. Sometimes vacant and needs some work. So investors would buy the property at below market therefore lowering comparables for future listings

2. Ridiculous inflated prices are usually from personal home buyers that wants the property for their personal use. They do not want to lose the property and with this blind bidding process inflates the price.

3. Thanks for your suggestion to sell but at the moment I'm trying to grow my portfolio. It is tempting, definitely not be a bad idea. But after capital gains, commissions, penalties etc. It is not worth the trouble for me. My long term goals supersedes the short term gain. But thank you for the suggestion anyway

4. As already mentioned the culprit in making homes affordable in Canada has more to do with shortage. Permits/builds not catching up with demand/population growth. Investors/builders are the one group that needs to be incentivized to bring more housing in the market. There is no one easy solution though. This mess is from decades of ignoring the issue. The pandemic just exacerbated the situation.

If you still feel like throwing accusations I would suggest you to educate yourself with the actual facts and study the cause and effect of the policies that created this crisis. ;)
 

·
Registered
Joined
·
896 Posts
Thank you all for your input.

I'm also thinking BoC really cannot afford to make it too high or keep it there for a long time. I feel that homeowners, particularly new homeowners cannot afford much increase or any increase at all. Defaults will start to become an issue. If that happens we will have a real problem in our hands.

I also do not think that interest hikes will fix the housing problem. The underlying issue is shortage of supply Permits and contraction in the municipality levels need to increase and keep up with population growth. That will require actual solutions from all levels of government, cutting of red tape, incentives to the private sector, rethinking the LTB etcetera. A mere increase of rates might lower inflation but does not fix the housing crisis.
 

·
Registered
Joined
·
24,069 Posts
If you still feel like throwing accusations I would suggest you to educate yourself with the actual facts and study the cause and effect of the policies that created this crisis. ;)
Hey I'm just sharing my warning. You can justify anything you want to yourself... the human mind is amazing.

Your Mortgage Underwriter friend, and others like you, can all pat each other on the back and tell yourselves that what you are doing is fine.

Go get another mortgage, buddy. Teach me a lesson. Get two more mortgages. Are you really going to let some stranger on the internet make you feel bad about what you do?
 
1 - 20 of 60 Posts
Top