Mortgage - Fixed or Variable?

[Chris12345]

Just now, JM_ said:

it really comes down to your personal ability to absorb risk. If a 2% hike sends you into bankruptcy, maybe lock in. 

True but if a 2% increase put me into bankruptcy I wouldn't borrow.

[JM_]

2 minutes ago, Chris12345 said:

True but if a 2% increase put me into bankruptcy I wouldn't borrow.

I wonder how much of the country would tho? 

[Chris12345]

Just now, JM_ said:

I wonder how much of the country would tho? 

Great question?

 

That's what makes fixed vs variable such a personal choice.

[The_Rocket]

8 hours ago, JM_ said:

I wonder how much of the country would tho? 

A lot unfortunately. Especially over the last 2 years when everyone was trying to get into the housing market. 
 

worth remembering that the qualifying rate was 4.79% in 2020/2021 (meaning in order to borrow money you have to be able to afford your mortgage at 4.79 even if you’re only paying 2% or whatever). The point of this mechanism is to build in protection against defaulters if rates rise…

 

now people are going to be renewing into 5.5% which could be higher than their TDSR suggests they can afford. 
 

tough situation

[D-Money]

I just sold my house a few months ago (I now rent from a family member, so was renting out the home I owned for a while). I had fixed mortgage the whole time I owned, and ended up regretting that decision - it cost me quite a bit of money in the long run. That said, in the current market, with threats of rising rates for a while, I’d probably be considering fixed…but there is a general rule that would probably still make me lean variable.

 

In a way, a fixed mortgage is like insurance against a rate hike. It may end up paying off, but generally, the insurance provider (in this case, the mortgage lender) is the one that will benefit. One good rule to live by to save money is don’t bother insuring against something that won’t really hurt/break you if it actually happens.
 

Most people need car, house, and life insurance, because if the unfortunate happens it would be an extremely difficult situation for them and their family. You should absolutely get insurance for situations like that. Whereas things like extended warranties and trip cancellation insurance are examples of things that might pay off in your favour if something bad happens, but generally are manageable if you declined such coverage. As a general rule, if it will only end up in a mild, yet manageable financial hit for you, one that you could absorb, you’re almost certainly better off to decline such insurance whenever it is offered. Its price is set to benefit the company offering the insurance, not the one being insured. Similarly, banks and lenders are in the business of making money. If they are offering a fixed rate mortgage, it’s because all of their internal calculations and projections indicate that it is in their benefit. Sure, the rates may rise further than expected, and the fixed rate favour the mortgagee, but usually it goes the other way.
 

So it really depends on the situation of each individual/family (this is what @JM_ was alluding to earlier). If interest rates raise further than expected, will it be a financial burden that you can manage, or is it something that will really hurt - even potentially break - you? If it’s the latter, then fixed is most likely the way to go for you. However, if you’re that leveraged, the question remains: If rising rates are so dangerous to the financial well-being of your family, what are you going to do when it’s time to renew?

(Note: This is just my opinion, and I’m not a professional financial advisor. Go see one if you need real advice.)

Edited September 12, 2022 by D-Money

[JM_]

7 hours ago, D-Money said:

I just sold my house a few months ago (I now rent from a family member, so was renting out the home I owned for a while). I had fixed mortgage the whole time I owned, and ended up regretting that decision - it cost me quite a bit of money in the long run. That said, in the current market, with threats of rising rates for a while, I’d probably be considering fixed…but there is a general rule that would probably still make me lean variable.

 

In a way, a fixed mortgage is like insurance against a rate hike. It may end up paying off, but generally, the insurance provider (in this case, the mortgage lender) is the one that will benefit. One good rule to live by to save money is don’t bother insuring against something that won’t really hurt/break you if it actually happens.
 

Most people need car, house, and life insurance, because if the unfortunate happens it would be an extremely difficult situation for them and their family. You should absolutely get insurance for situations like that. Whereas things like extended warranties and trip cancellation insurance are examples of things that might pay off in your favour if something bad happens, but generally are manageable if you declined such coverage. As a general rule, if it will only end up in a mild, yet manageable financial hit for you, one that you could absorb, you’re almost certainly better off to decline such insurance whenever it is offered. Its price is set to benefit the company offering the insurance, not the one being insured. Similarly, banks and lenders are in the business of making money. If they are offering a fixed rate mortgage, it’s because all of their internal calculations and projections indicate that it is in their benefit. Sure, the rates may rise further than expected, and the fixed rate favour the mortgagee, but usually it goes the other way.
 

So it really depends on the situation of each individual/family (this is what @JM_ was alluding to earlier). If interest rates raise further than expected, will it be a financial burden that you can manage, or is it something that will really hurt - even potentially break - you? If it’s the latter, then fixed is most likely the way to go for you. However, if you’re that leveraged, the question remains: If rising rates are so dangerous to the financial well-being of your family, what are you going to do when it’s time to renew?

(Note: This is just my opinion, and I’m not a professional financial advisor. Go see one if you need real advice.)

 

we're also not where we were just a short time ago with historically low rates, you could lock in for 10 years at 2% for a while there. Thats now gone. 

 

 

[Losing With Pride]

Of course professional advice is vital, but I was just curious on what people on here were thinking.

 

Just curious on the outlook, are rates going to keep going up? Are they going to come down within 1 year? 2 years? 3 years?

[JM_]

52 minutes ago, Losing With Pride said:

Of course professional advice is vital, but I was just curious on what people on here were thinking.

 

Just curious on the outlook, are rates going to keep going up? Are they going to come down within 1 year? 2 years? 3 years?

if we knew that with certainty, we'd be logging on to CDC from our yacht. 

[Elias Pettersson]

7 hours ago, Losing With Pride said:

Of course professional advice is vital, but I was just curious on what people on here were thinking.

 

Just curious on the outlook, are rates going to keep going up? Are they going to come down within 1 year? 2 years? 3 years?

The Bank of Canada is looking at at least one more rate hike this year, maybe two.  After that it is a wait and see I think.  Depends on where inflation is at, which is the entire reason for the rate hikes.  Any potential rate hikes in 2023 will be based on the inflation numbers that come out during that time.

 

As for rates coming down, you can always look at some historical charts to give you an idea of what has happened during the last inflationary periods.  At the end of the day rates will always come back down at some point, it is just a question of when.  Timing the market is impossible though, so move forward with caution.

[ronthecivil]

On 9/12/2022 at 9:13 PM, Elias Pettersson said:

The Bank of Canada is looking at at least one more rate hike this year, maybe two.  After that it is a wait and see I think.  Depends on where inflation is at, which is the entire reason for the rate hikes.  Any potential rate hikes in 2023 will be based on the inflation numbers that come out during that time.

 

As for rates coming down, you can always look at some historical charts to give you an idea of what has happened during the last inflationary periods.  At the end of the day rates will always come back down at some point, it is just a question of when.  Timing the market is impossible though, so move forward with caution.

Pretty much.

 

I just locked in today. It's only 1% higher than my (current er make that former) floating rate, and I set it for the next four years. That should be enough for the dust to settle. And if things go right pay the whole thing off at that time.