Tagfixed vs. variable

Posted January 27, 20142 Comments Mortgage News

Bank of Canada says no rate hikes, but possible rate drops!!

Last week, the Bank of Canada governor, Stephen Poloz, held the first of 8 scheduled meetings to set the Target Rate. This is the rate used to set the Bank Prime rate which currently sits at 3.00%. No surprise, no change in the rate. It has been the same since Sept 2010.

From 2011 to 2013, the previous Bank of Canada governor, Mark Carney, continually announced of a pending rate increase. But late last year, Poloz changed the tide when he announced it could be a few years before rates go up. One of the key drivers for rate hikes is inflation. The BoC target for inflation is between 1% and 3%. If inflation goes above 3%, we can expect rate hikes.

Inflation is not a concern. In fact, there are concerns about deflation as the current inflation rate sit at 1.2%. Some experts believe we could see the BoC rate drop. Great news for anyone in a Variable rate. We are also seeing the govt of Cda bond yields drop. Friday’s close was down to 1.59% for 5 yr bonds. Haven’t seen that level since June 2013. This means Fixed mortgage rates will probably go down further. Continue reading “Bank of Canada says no rate hikes, but possible rate drops!!”

Posted November 11, 20131 Comment Mortgage News

Long term is almost always more expensive.

Ever wanted to change cell phone providers? How about internet providers? Move your investments or rrsps? Cancel that hydro or gas contract because you moved?

And how about mortgages? When interest rates started heading down about 4 years ago, thousand of borrowers in fixed rate mortgages wanted to get out of their higher rates and start benefiting from the record low interest rates.

But borrowers were shocked to hear of unbelievably high early prepayment penalties… Penalties of $15,000, $20,000, $30,000. One recent situation had CIBC charging a $33,000 penalty on a $500,000 mortgage. I’ve seen dozens and dozens of situations like this. Almost all of these high penalties were from one of the BIG SIX BANKS… Continue reading “Long term is almost always more expensive.”

Posted October 31, 2013 Mortgage News

You heard it here first!… Rule of thumb for choosing Variable over Fixed.

For the past few years, the Bank of Canada has warned us about the imminent interest rate hikes. Reminds me of the boy that cried wolf. “Interest rates are going up… soon!… real soon…. really, really soon!!” But last week, the new Bank of Canada Governor, Stephen Poloz, surprised many experts when he said rates would remain low for quite a while.

This announcement prompted many advisors to jump on the Variable Rate bandwagon and start recommending Variable rate over Fixed rate. I agree… Variable rate is the obvious choice for most of us today. But I also noticed a familiar rule of thumb being quoted in the media. So I wanted to set the record straight. Continue reading “You heard it here first!… Rule of thumb for choosing Variable over Fixed.”

Posted July 9, 2013 Interest rates

Time to look at Variable Rates again.

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.”

Posted March 23, 2012 Interest rates

The Star reports BMO suggests it’s time to lock into fixed rates…. well, maybe..

I had a discussion with The Toronto Star’s Susan Pigg about Fixed and Variable rates. Click here to read my comments in this article.

In short, BMO Captial Markets says it’s time to lock into a Fixed rate…. Well maybe, but I would caution anyone that had a BMO variable rate mortgage to think twice about locking into BMO’s well publicized 2.99% 5 year NO FRILLS mortgage. This product has limitations and restrictions that make it impossible to get out of the mortgage without selling your home. There are better options out there… you can get a great rate without sacrificing your options and privileges.

You also have to factor in the infamous BIG SIX BANK penalty calculation. We’ve written about this before. This could cost you dearly should you wish to refinance or have to pay the mortgage out before maturity. We have seen numerous cases of Bank prepayment penalties adding up to 12, 14, 18 and 20 months worth on interest. That’s right, 20 months worth of interest. Don’t get held hostage by your mortgage provider.

If you have a Variable Rate mortgage that is price at Prime less 0.50% or lower, I would stick with it… If you are higher than this or if you mortgage is coming up for renewal, then you should consider a Fixed Rate mortgage… And the only reason to consider Fixed rates is because they are priced so close to what a Variable rate could be had for today… Best Variable is around Prime less 0.25%… that’s 2.75%. Best 5 yr Fixed with ALL FRILLS is around 3.19%…

But before you make any decision, please speak with an unbiased advisor, like a mortgage broker…. Find out which product is right for you… Everyone is different and we all have different needs. There are so many unadvertised specials these days…. Your Mortgage Broker can access these products and also help explain the differences in penalty calculations and why this should be looked at more closely, even it you don’t think penalties apply to you…