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Land Pimps: Lock in fixed or stay variable? NTSFW

April 23, 2015, 8:46 p.m.
Posts: 16696
Joined: Nov. 20, 2002

Ya, we renew next week. I'm still on the fence about which way to play it. In any case, we'll be doing better than oir current 2.79 (which was a great rate 3 years ago).

When one person suffers from a delusion, it is called insanity.

When many people suffer from a delusion, it is called religion.

April 23, 2015, 9:24 p.m.
Posts: 1757
Joined: Nov. 23, 2002

Ya, we renew next week. I'm still on the fence about which way to play it. In any case, we'll be doing better than oir current 2.79 (which was a great rate 3 years ago).

what about a 5yr at 2.49?

that could be a solid move. is 0.3% going to hurt you enough in the short run to outweigh the benefit of having a pretty low longer term rate?

Luck is what happens when preparation meets opportunity ~ Seneca

April 24, 2015, 5:56 a.m.
Posts: 4889
Joined: July 9, 2004

ya but lets say you are locked in at 2.20 and after the 2 years rates have shot up to 5% so thats where you renew and you only got 2 yrs of the low rates

but if you stayed loose and locked for 5 when rates started up maybe you get 5 yrs of the low rates and who knows what rates would be like later on?

I have held mortgages in times of 18% interest rates but I never had to pay those rates because I missed the peaks cuz I always took the 5 yr locked in

having said that the 5yr variable looks good to me now

I can't follow your argument. You are concurrently saying both locking in and floating are working for you.

I'm not going to say rates won't shoot up to 5% in two years but it is extremely unlikely.

April 24, 2015, 8:03 a.m.
Posts: 955
Joined: Oct. 23, 2006

I'm not going to say rates won't shoot up to 5% in two years but it is extremely unlikely.

I know you probably feel this way too and are just playing it safe with your comment, but I'm happy to come right out and say there's no chance of that at all. It would crater the economy that's been struggling for years. If it turns around, it will be moderate at best and they will let it run for a little while before putting the brakes on, and brakes will come in the form of .25 here and .25 there. That's 10x .25% increases (one every time they have a rate review) before we get to where variable would be 5%.

The argument seems to go like this right now: even though historically it has always been cheaper to go variable, this time is different. But it was historically better to go varible when rates were 18% or 10% or 5%. So why wasn't the same argument proven true when it went from 18% to 5%? The spread was lower than ever at that time too. Rates were so cheap! Now it will prove to be historically better to varible at 2.2%. The game is the same; the banks charge you a premium for peace of mind. They are not giving anything away, and you are likely to be wrong if you try to 'outsmart' them by betting against their rate forecasting which is exactly what you are doing when you fix your rate.

If the banks thought there was a snowballs chance in hell of rates going up by more then 1% in the next few years, they would not be offering fixed rates at around .5% over variable.

April 24, 2015, 8:18 a.m.
Posts: 14412
Joined: Feb. 19, 2003

I know you probably feel this way too and are just playing it safe with your comment, but I'm happy to come right out and say there's no chance of that at all. It would crater the economy that's been struggling for years. If it turns around, it will be moderate at best and they will let it run for a little while before putting the brakes on, and brakes will come in the form of .25 here and .25 there. That's 10x .25% increases (one every time they have a rate review) before we get to where variable would be 5%.

The argument seems to go like this right now: even though historically it has always been cheaper to go variable, this time is different. But it was historically better to go varible when rates were 18% or 10% or 5%. So why wasn't the same argument proven true when it went from 18% to 5%? The spread was lower than ever at that time too. Rates were so cheap! Now it will prove to be historically better to varible at 2.2%. The game is the same; the banks charge you a premium for peace of mind. They are not giving anything away, and you are likely to be wrong if you try to 'outsmart' them by betting against their rate forecasting which is exactly what you are doing when you fix your rate.

If the banks thought there was a snowballs chance in hell of rates going up by more then 1% in the next few years, they would not be offering fixed rates at around .5% over variable.

I agree with your sentiments especially WRT rates and where they will be in 2 years. But it should be noted that Variable are based on prime rates and Fixed rates are based on CDN bond rates. It's not just banks charging you for peace of mind, they source the money at different rates which can cause the spread.

My understanding of it - I am not a banker.

April 24, 2015, 8:19 a.m.
Posts: 15171
Joined: Nov. 20, 2002

would you rather be looking in 2 years, or ride the low variable for 5yrs or lock in if rates are skyrocketing, 5yr variable just gives more control for longer, yeah rates are very unlikely to hit 5% but its possible, think of all the things "they" said couldn't happen … like banks failing?

Instead of the shortest/cheapest possible rate strategey I used to pay a little more for a fixed 5yr cuz due to my situation I wanted a guarantee of what it would cost for the longest period and the longer term also allowed me to completely miss some of those big rate swings like that 18% period but that was the past, I no longer need that guarrantee, rates are fucking low so I go cheapest and so both strategys have either worked or are now working but not at the same time

April 24, 2015, 9:15 a.m.
Posts: 955
Joined: Oct. 23, 2006

I agree with your sentiments especially WRT rates and where they will be in 2 years. But it should be noted that Variable are based on prime rates and Fixed rates are based on CDN bond rates. It's not just banks charging you for peace of mind, they source the money at different rates which can cause the spread.

My understanding of it - I am not a banker.

I believe you are correct. Perhaps it would be more correct to say you'd be betting against the bond market by choosing fixed over variable. Currently the bond market suggests that inflation, and therefore overnight rates, is forecast to stay low over the medium term.

April 24, 2015, 9:54 a.m.
Posts: 4889
Joined: July 9, 2004

Ya Kram I'm totally with you. I play it safe with my comment as there is always the tiniest of chances, but realistically the entire economy would be screwed if there was a 100% increase in rates in a 2-5 year period.

You still win with variable in the long run. Where it is interesting now is the tiny spread changes decision making.

Ie. When I talked to the bank the other day if they had said I would have to lock in at 3.25% vs my prime -.75 (the case only 18 months ago) I would scoff at that. But now, the largest spread is .5 to lock and even .1 on two years. That's small peanuts if I decide to make a move soon.

April 24, 2015, 10:29 a.m.
Posts: 8935
Joined: Dec. 23, 2005

At 2.05% I think we'll keep riding our Vancity Homeprime -0.8.

April 24, 2015, 10:33 a.m.
Posts: 1757
Joined: Nov. 23, 2002

yeah well fuck you all, i have prime -1.85 at the bank of mom.

Luck is what happens when preparation meets opportunity ~ Seneca

April 24, 2015, 10:34 a.m.
Posts: 16696
Joined: Nov. 20, 2002

At 2.05% I think we'll keep riding our Vancity Homeprime -0.8.

Is that Vancity "normal", "preferred customer" or hardball negotiated rate?

When one person suffers from a delusion, it is called insanity.

When many people suffer from a delusion, it is called religion.

April 24, 2015, 10:37 a.m.
Posts: 1757
Joined: Nov. 23, 2002

Is that Vancity "normal", "preferred customer" or hardball negotiated rate?

it's a rate for the not intellectually superior people of the world so they have something to smile about when they get home at the end of the day from working their regular people jobs.

Luck is what happens when preparation meets opportunity ~ Seneca

April 24, 2015, 10:47 a.m.
Posts: 10077
Joined: Nov. 19, 2002

Is that Vancity "normal", "preferred customer" or hardball negotiated rate?

https://www.vancity.com/Rates/Mortgages/

https://www.vancity.com/Rates/?xcid=hp_pod_memberpreferredrates

Prime Rate (Rates effective 2015-01-29) Rates
Vancity Prime Rate 2.85%

April 24, 2015, 10:49 a.m.
Posts: 14412
Joined: Feb. 19, 2003

it's a rate for the not intellectually superior people of the world so they have something to smile about when they get home at the end of the day from working their regular people jobs.

I think you just called Shirk a simpleton.

April 24, 2015, 11:15 a.m.
Posts: 8935
Joined: Dec. 23, 2005

Is that Vancity "normal", "preferred customer" or hardball negotiated rate?

Managed to work with someone within Vancity that doesn't usually handle normal people mortgages. A working relation via Maya managing the rebuild of our old apartment building post fire.

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