Only recently has 5 year fixed rate become a product worth considering when it comes to paying the least amount of interest on your mortgage. Studies prove that short term mortgage funds are the cheapest way to finance a house.. this includes Variable rate mortgages.
Historically, Variable rate and short term fixed rates have had lower rates than long term rates. And yet, the BIG SIX BANKS, the Federal govt, and several popular finance experts have preached 5 yr fixed. ‘You must take 5 year fixed so you know what your rate is.’ That’s a load of nonsense. It’s true, that over the past 2 years, 5 yr fixed did make more sense given that the spread between Variable and Fixed was less than my target of 1.00%. (I like to see a 1.00% spread between Variable and 5 yr fixed before recommending Variable). Continue reading “Choose short term money for long term gains.”
Remember 2008? It was almost 5 years ago that the U.S. sub-prime mortgage scandal erupted. October 2008, to be exact. That’s almost 5 years ago… And with October and November 2013 renewals being less than 120 days away, we can now lock in some rates for those upcoming renewals. So I thought this would be a great time to see what sort of advice and recommendations the Banks were giving to their mortgage customers.
THE BANK’S ADVICE
The funny thing is, Banks have never changed their advice or strategy. ‘Take a 5 year fixed rate’. That’s all the Banks seem to want to promote. And with good reason… it’s the most profitable product FOR THE BANKS. But historically, it’s NOT the best product to take. There is no historical data that I am aware of that shows taking a 5 year fixed is the best strategy. But I’ll get into that in more detail later. Continue reading “Looking back 5 years.. which mortgage product did your Banker recommend in 2008?”
With fixed rates up around 0.60% over the last 4 weeks (currently at around 3.49%.. there are some lower rates but these come with conditions so we are using the more widely available rate) we must again take a look at Variable rates. Today’s best Variable rate product is sitting at around Prime less 0.40% … there’s even a few promotional Variables at Prime less 0.50% for qualified applicants. But for this article we will stick with Prime less 0.40%. That’s 2.60% today. We are almost at that 1.00% spread that I like to see.
Two years ago, the best Variable rate was at Prime less 0.75% with the option to lock into the BEST discounted fixed rate at any time (this option is important, don’t ever settle for a variable product that doesn’t have this clause). And 5 years ago, we had Variable rate products as low at Prime less 0.90%. Continue reading “Time to look at Variable Rates again.”
In case you haven’t heard, Fixed rates are up around 0.50% over the last 3 weeks. But the Banks haven’t increased their posted rates… How can that be?? And how does that affect you?
The BIG SIX BANKS have played the rate guessing game for as long as I can remember.. This time, they’ve added another twist to ensure you will be paying those inflated penalties even longer.. By not increasing the posted rates, they ensure themselves any existing BANK customer will pay the same inflated penalties.
Look back to 5 years ago when fixed rate discounts we around 1.10% off Bank posted rates.. Now fast forward to May 2013. Rate discounts reached an all-time high of 2.25%. And whether it was by design or not, this inflated your penalty by the same margin. (I’ll let you decide if this is just good old BANK luck… yeah, right.) Continue reading “Banks maximizing mortgage penalties again… but there’s a bright side..”