Mortgage Renewal Time | GTAMotorcycle.com

Mortgage Renewal Time

shanekingsley

Curry - so nice it burns you twice
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Banks initial 5yr offer is:
Fixed: 3.64%
Variable: Prime minus .33% (currently at around 3.02%)

Broker is currently offering for 5yr:
Fixed: 3.24%
Variable: Prime minus 1% (currently putting us at 2.35%).

We are not going to prepay, port or refinance, so all of those variables don't affect us.

We plan to live in this house for at least 15 years - maybe longer.

Thoughts?
 
i'm an ex banker from many years ago and i've always recommended and done myself the fixed rate...for me, peace of mind of knowing my budget for the next five years is priceless...yes, rates could go lower, but what if they went up?...personally, try to look at what the potential interest cost could be over the term of the mortgage, and try to take advantage of all the prepayment options available to nullify those...just my two cents worth...
 
I always go variable as there have only been a couple years in the last 50+ years that fixed was cheaper than variable. I would rather have more of my money going towards principal.

Using your broker provided numbers, even assuming they keep ratcheting up the rates, do you honestly think that the average variable rate over 5 years will exceed 3.24? Realistically, they will crank it up 0.25% every couple cycles. If it takes them more than 2.5 years to get to 3.25%, you have a hard time losing (it would have to crank up more than another 1% during the last half before you were down).

A 2+% rate hike over 5 years would have horrendous fallout in the market (both problems with existing loans affording renewal leading to a flood of properties on the market and a slowdown of construction as buyers will have trouble getting financing and there will be excess resale stock available).

If, for some reason you felt that you needed to go with the bank instead of the broker, I would go fixed as the spread isn't large enough and fixed will likely cost less over the term (and give you the simplicity of fixed payments).

I am just going with gut feeling on fixed with 0.6% spread and variable for 1% spread. If I was actually working this out, I would run some scenarios on rate hikes to see how things actually play out.
 
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Take the broker's variable rate, but set your payments based on the bank's 5-year rate (or more, if you choose). Doing that painlessly pays down the mortgage a bit faster.

Rates are likely to go up over the next little while, but I wouldn't expect them to go up by more than a quarter point a couple times per year. If it goes up at that rate, it would be halfway through the renewal period before rates even reached the fixed rate, and they'd have to keep going up even more than that for it to be better to take the fixed rate, except that now you've paid down the mortgage more in the meantime, so the rates won't affect you as much.
 
Ask your bank to match the broker's rate. My brother's always gone variable and beat the fixed rate. We started fixed and then switched to variable as we got closer to paying it off on the first house, and variable on the second. If it opens up once a year, try and get an extra payment in then, as it cuts your time way down over the years.
 
Take the broker's variable rate, but set your payments based on the bank's 5-year rate (or more, if you choose). Doing that painlessly pays down the mortgage a bit faster.
This is what we discussed today and are leaning towards.
Talking to the current lending bank on Monday and will see how much lower they will go.
 
Variable. You can always flip it to term later if you want... for whatever reason.
Pay down 2.35% faster... Why? It's 2.35%.. I'm sure you can find somewhere to park the extra money that will earn you more than 2.35% costs... Or have something else that costs more.
 
some rumblings of BOC bumping rates again
but with a luke warm economy, can't see it being much

with the broker variable more than a point lower than the bank fixed
there is no way BOC is gonna raise it enough to make that a bad bet

broker variable
 
We just went through the same exercise. Ended up going with variable at Prime - 0.85% from BMO will take a while to catch up with the current fixed rate. I wish we waited a week because then it went to Prime - 1% ... but how were we to know what BMO was going to do.

Broker came up with similar values and basically what we are doing is we extended our amortization to increase our cash flow, but are adding 20% to every payment to bring it back to the 17 years that we had at renewal time. Within 2 months of doing this we're already 2 months ahead of our scheduled repayment. Payments won't go up with variable (with BMO) with every rate increase, as long as there's no danger of your repayment schedule being extended due to increase in rates).

One of our biggest issues is the fact that breaking a fixed mortgage may be extremely expensive. When they calculate the interest differential b/w your current rate and the posted rate at the time you can end up owing 20-30k or more...with variable it's 3 months interest and you're done.
 
Banks initial 5yr offer is:
Fixed: 3.64%
Variable: Prime minus .33% (currently at around 3.02%)

Broker is currently offering for 5yr:
Fixed: 3.24%
Variable: Prime minus 1% (currently putting us at 2.35%).

We are not going to prepay, port or refinance, so all of those variables don't affect us.

We plan to live in this house for at least 15 years - maybe longer.

Thoughts?
I generally recommend banks if at all possible. They can often match non-bank lenders (go back to the bank and ask for better rates), you might also find the terms less onerous AND you may enjoy other banking benefits like lower interest on loans and credit cards.

Brokers generally offer installment credit - if you need additional credit you have to apply for it. Banks often setup revolving credit using Mortgages and HELOCs, so when you pay down your mortgage, or if you have equity in your home, you can access additional credit on a revolving basis with no applications.
 
All good to know - thanks.

We have no interest or need to take out a HELOC or use the equity in our home for anything.
Our broker will put a hold on the rate for us, but I do want to see what the bank can offer us to compete with the broker's rates.

Anyone hear of current variable offerings lower than Prime minus 1%?
 
All good to know - thanks.

We have no interest or need to take out a HELOC or use the equity in our home for anything.
Our broker will put a hold on the rate for us, but I do want to see what the bank can offer us to compete with the broker's rates.

Anyone hear of current variable offerings lower than Prime minus 1%?

look at other factors besides rate. Advance payments, breakage, etc and compare.

I always recommend www.ratehub.ca as a starting point. CANWISE owns them so their rates are always front and centre. But a lot of rates are only to get you to call in and then you can't get them.

BMO was offering prime - 0.6 but soon as I said they've got 24hrs before I sign elsewhere I got Prime - 0.85.....magic!
 
Look into the manulife one account.

we just switched.
 
Great concept. How are the rates compared to conventional mortgages?

a bit more than my last one

3.7%

it will actually cut our pay off in half. We were on schedule to pay off our house in 12 years.

With the manulife one, we are just shy of 6 years to pay it off.
 
a bit more than my last one

3.7%

it will actually cut our pay off in half. We were on schedule to pay off our house in 12 years.

With the manulife one, we are just shy of 6 years to pay it off.

Thanks. That interest rate hurts, but having any spare cash reducing principal obviously makes a big difference in the end.
 
We used a manulife 1 as a mortgage for a decade, which once paid off become a LOC account, which we didn't need but nice to know its there if ever wanted.

It was a good idea for us as any money deposited came off the "principle" , took about 5+ yrs off our anticipated payout date.

It does take dicipline since access to a potentially large line of credit is not for everyone.
 
Banks initial 5yr offer is:
Fixed: 3.64%
Variable: Prime minus .33% (currently at around 3.02%)

Broker is currently offering for 5yr:
Fixed: 3.24%
Variable: Prime minus 1% (currently putting us at 2.35%).

We are not going to prepay, port or refinance, so all of those variables don't affect us.

We plan to live in this house for at least 15 years - maybe longer.

Thoughts?

Are these open or closed mortgages? I always like the open ones because you can throw a bit of extra cash on them and get out of debt faster. As for fixed or variable, that depends on your income. If you're barely making it go fixed because you get that security. If you can handle changes in the market go variable. It's risky, but over the past 30 years the record shows it's worth it. Not much inflation going on, and it doesn't look like there will be much in the future.
 
Are these open or closed mortgages? I always like the open ones because you can throw a bit of extra cash on them and get out of debt faster. As for fixed or variable, that depends on your income. If you're barely making it go fixed because you get that security. If you can handle changes in the market go variable. It's risky, but over the past 30 years the record shows it's worth it. Not much inflation going on, and it doesn't look like there will be much in the future.

I doubt they're open, that usually adds 3-5% on top of closed rates.

It seems I had a pretty bad "deal" given the timing since signing up for a 3yr closed variable mortgage with CIBC 2 years ago at around 2.79% (I was new at this and wasn't really good at shopping around for better mortgage rates). Made that decision based on the history of rates staying low, however rates are slowly climbing. As for how high, or whether it will go down, who knows...

I'm moving now and was able to get pre-approved at BMO on a 5yr fixed for 3.19% - have a friend in the industry and she was able to get me their "employee rate".
 

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