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03-30-2010, 06:05 PM
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#1 | | Willing to sell body for a few minutes on RS
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| Mortgage question
So right now I have a great rate on an open variable, Prime -.75 which is equal to 1.50% right now. I have the prime minus rate for 30 more months. I know that prime as well as fixed rates are going to rise. I also know that even with prime rising for the next 30 months I should be below the 3.65% I can lock in for on a 5 year fixed term. I have this 3.65% option for the next few days well I make up my mind.
Now what I`m trying to figure out is what would rates have to be at in 30 months in order to make it worth while for me to take a chunk of my mortgage and move it into the fixed rate. Say I move 40% of my mortgage to the fixed rate and leave 60% at the variable rate for the next 30 months. I guess my concern would be that say in 30 months prime has risen 2.5-3% and fixed rates have gone up say 2%+.
Does it make sense at all to hedge my mortgage locking in part of it now and leaving part of it open to protect myself against rising rates so only a portion comes due in 30 months and the rest in 60. Do I just ride out the open variable and live with it when it comes to to reknew.
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The world ain't all sunshine and rainbows. It's a very mean and nasty place... and I donīt care how tough you are, it will beat you to your knees and keep you there permanently, if you let it. You, me or nobody, is gonna hit as hard as life. But ain't about how hard you hit... It's about how hard you can get hit, and keep moving forward... how much you can take, and keep moving forward. Thatīs how winning is done. Now, if you know what you worth, go out and get what you worth. - Rocky Balboa | 
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03-31-2010, 12:22 AM
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#2 | | Ubereem Mod
Join Date: Mar 2002 Location: Richmond
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both are good options quasi, i'll go more in depth tomorrow. to tired to answer but a short little thing would be :
1 hedges your bet while the other will give you a short term bonus of paying more principal over interest. And a little math that might show that you save a couple grand in the next 30 month vs a higher fixed rate.
There are other factors involved but there isn't one right answer.
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03-31-2010, 12:29 AM
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#3 | | The RS Freebie guru
Join Date: Jul 2001 Location: East Vancouver
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I wrestled with this last week... very similar conditions as your's.
I was in a closed variable at prime minus 0.75 with about 38 months left.
Using some guestimates, I figured that in the remaining 38 months, I very well could end up paying the same or slightly less by staying with the variable... but the difference comes with the 22 months AFTER that.
If I stayed with my variable rate, after 38 months when I would HAVE to renew, who knows what the rates would be then... but if I lock in a fixed rate now, I would have another 22 months after that at 3.73%.
I figured by renewing for five years now, I could extend the low rates for a couple years.
You better make up your mind soon, because if you haven't heard, some banks raised their 5-year fixed rate by 0.6% today, and another couple will raise it by the same tomorrow...
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03-31-2010, 07:30 AM
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#4 | | Willing to sell body for a few minutes on RS
Join Date: Jul 2001 Location: Cloverdale
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| Quote:
Originally Posted by InvisibleSoul I wrestled with this last week... very similar conditions as your's.
I was in a closed variable at prime minus 0.75 with about 38 months left.
Using some guestimates, I figured that in the remaining 38 months, I very well could end up paying the same or slightly less by staying with the variable... but the difference comes with the 22 months AFTER that.
If I stayed with my variable rate, after 38 months when I would HAVE to renew, who knows what the rates would be then... but if I lock in a fixed rate now, I would have another 22 months after that at 3.73%.
I figured by renewing for five years now, I could extend the low rates for a couple years.
You better make up your mind soon, because if you haven't heard, some banks raised their 5-year fixed rate by 0.6% today, and another couple will raise it by the same tomorrow... | Ya I already talked to the bank I deal with and they started a mortgage at the 3.65% on the computer but I haven't signed anything yet. He said I could take a couple days and decide what I want to do.
__________________
The world ain't all sunshine and rainbows. It's a very mean and nasty place... and I donīt care how tough you are, it will beat you to your knees and keep you there permanently, if you let it. You, me or nobody, is gonna hit as hard as life. But ain't about how hard you hit... It's about how hard you can get hit, and keep moving forward... how much you can take, and keep moving forward. Thatīs how winning is done. Now, if you know what you worth, go out and get what you worth. - Rocky Balboa | |
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03-31-2010, 10:17 AM
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#5 | | Ubereem Mod
Join Date: Mar 2002 Location: Richmond
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As promised, Quasi:
The main issue with the lock in and keeping with the variable rate is Risk tolerance. If you did lock in, atleast your money allocation is easy, you put X into MTG, X into RRSP, X into vacation and never have to worry for the next 5 years.
Not really knowing your full situation, i'll quote an article: Quote:
Instead of trying to guess where rates are headed, consumers would do better to think about their own situation. They should evaluate their personal balance sheets and risk tolerance. The decision of whether to go short (variable) or long (fixed) will depend on the consumers’ tolerance for risk as well as their ability to withstand increases in mortgage payments.
The first time homebuyer or those with minimal down payment represent the perfect consumer to go long-term fixed mortgage rate. If the consumer is at or near their maximum GDS/TDS ratios, they cannot take the chance of increasing interest rates. The worrywart, who is constantly looking at interest rates and can’t sleep at night wondering if it is time to lock in, should also go long-term fixed mortgage rate. The seasoned veteran who has plenty of equity in their home or has little time left on their mortgage, i.e. 5 to 10 years remaining on their amortization, can afford to go variable rate and take the risk.
Something to keep in mind is that variable rate mortgages allow consumers to lock in to a fixed rate at any time without costs. While there's no up-front cost to the change, not all lenders will lock in at the fully discounted five-year fixed rate mortgage.
| If you asking for an opinion, I wouldn't change your P -0.75 until the 30months is up, not knowing how much you pay monthly and how far you're into your mortgage. Your savings are acutally quite substantial with a 2% different in rate and with 30mnths left, i'll take advantage of that,
HISTORICALLY, variables over the last 40years or so, variable has come out on top in saving yourself money over a life of a mortgage:
Example: Quote: |
Linda Long had a fixed rate of 7.5 per cent, with monthly payments of $799. Shelly Short opted for a variable rate mortgage (VRM) that began with a rate of 6.5 per cent. Her rate changed 15 times over the course of the first three years, fluctuating between 3.75 per cent and 6.25 per cent, but never exceeded the 6.5 per cent at its outset. She chose to match Linda's repayments of $799. In the first three years both women repaid $28,749. The interest on Linda's loan totalled $21,394 and her principal declined by $7,355. The interest on Shelly's loan amounted to $13,171 and her principal dropped by $15,576. That Shelly repaid $8,221 more than Linda off the principal after only three years, even though the total repayments were identical
| Yes the rates are low @ 3.65% as long as you can live with risk tolerance. I would stick with your current mtg, even in 30mnths, prime rate has increase back to pre 2008 lvls, which would average roughly 4.5% while fixed were around 6.5%.
Take a look at this graph, and it shows you what was fixed (with a 1.5% discount, as thats roughly the market avg.) vs a variable prime (without a -%) http://www.canequity.com/mortgage_rate_history.stm
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Originally Posted by Culture_Vulture sometimes I like to use kindergarten art class scissors to cut my pubes | | |
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03-31-2010, 10:36 AM
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#6 | | HELP ME PLS!!!
Join Date: Jan 2004 Location: here
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| Quote:
Originally Posted by InvisibleSoul
You better make up your mind soon, because if you haven't heard, some banks raised their 5-year fixed rate by 0.6% today, and another couple will raise it by the same tomorrow...
| quoted rates are good for 3 months. (they are at TD anyways) so he should have time.
I don't currently have a quoted rate. Sh*t I should go get one today. I probably won't be buying in the next 3 months though anyways.
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