Quoted from Tuborg

I would second the advice of don't waste your time with a mortgage broker.  

I had good dealings with my mortgage broker.  He seemed to help steer us in the right direction.  Its like any sales field...they have their own agenda and their preferred lenders that they like to deal with.   Some are good, some are bad.  They can be helpful if you really are not comfortable in what you are doing.  But if you have a little knowledge, you can do it yourself.

Quoted from Steph

Yup... that's probably the wisest advice right there.....


Steph

Actually, the best advice is that if 6% is going to make you homeless, then you shouldn't be buying a house.  No matter how sweet a deal you strike up now, you are going to have to renew at the prevailing rate, 5 years down the road.  So long 4% !  

Quoted from mrniceguy

Actually, the best advice is that if 6% is going to make you homeless, then you shouldn't be buying a house.  No matter how sweet a deal you strike up now, you are going to have to renew at the prevailing rate, 5 years down the road.  So long 4% !  

Or buy a cheaper house at least.

In the game of interest rates, anything below 10% (and anything above 10% on savings) is gravy.  The problem is that we are a greedy, materialistic society that likes to buy now what we think we can afford tomorrow. (Me guilty too.)

We've gone on and off variable for about 15 years now (locking in with certain Presidential elections)  and we always did much better on variable and never should have locked in.  But that's what kind of market its been and we upped our payments to apply more towards principal while the rates are good (and our kids wear hand-me-downs).

I would follow a few simple rules: don't buy a house you can only afford with today's rates, buy a house you know you will be able to still carry in 5 years if you suddenly wake up to 10% interest. Make certain you always have at least one to two months mortgage payments stashed away in some liquid form to help cover a period of low income.

Right now our variable mortgage is 1.35% from TD (maturing in 2.5 years) and we've been lucky to have a below prime rate for quite some time because we've built equity and NOT up-sized or re-mortgaged (which are the killer mistakes).  

For me personally, once the fixed closed rates creep up to above 7 -8% for a 5 year mortgage (which is about where it was when we bought our first house) that's when I would start to think more seriously about locking in.  YMWV

I still have to pinch myself at the 1.35% part - good for us, but an indication of an unstable market.

Quoted from websherpa

I still have to pinch myself at the 1.35% part - good for us, but an indication of an unstable market.

Awesome while it lasts, but no chance of it lasting.  It's textbook Keynesian economics - couldn't be more so - keep interest rates artificially low so people go borrow and spend money.  What boggles me is the number of people who claim that there's no way interest rates will rise again or get as high as 10%.  

Why, to claim that would be as whacko as claiming.....I don't know..... the NHL is rigged by Gary Bettman.  

For most that have no intention of paying off thier mortage in the next 10 years it is actually best to lock in the 10 year rate, which can be obtained at around 5%. (Always shop a mortgage rate. Do not buy into the feature bs they tell you. The reality is money is a commodity and get it for as low as possible.) The massive majority of Economists say that rates will rise significantly in the next few years. This is supported by the massive government spending and the future need of controlling inflation due to this and many other factors. Many people new to housing (anyone in the last 8-10 years) do not realize how fast interest rates can move and how quickly a variable rate can get you in hot water. Now, with that said if you can easily handle your mortgage payments and do not live paycheck to paycheck then the reality is different and there are other strategies that can be employed. For most be careful.

I suggest you run various scenarios and this mortage calculator can help. http://www.drcalculator.com/mortgage/

Keep in mind that rates recently climbed 60 basis points overnight. It is not out of the realm of possiblities that this could happen 2-4 more times this year alone.

For those that are truely unsure and really on the fence...then simple, you can take half your mortgage and go variable and half and go fixed. Esentially you are lowering the benefits of rates going down or disadvantages of when rates rise.

The best advise I can give anyone is to have a monthly budget. I use a simple excel spreadsheet. Put all you incoming and outgoing cash flows. (Not your salary but what you get after tax and deductions.) The other key is to out To increase your net worth focus on lowering the interest you pay each month. This is a deciding factor on how fast you increase your net worth. Remember that if you lease a car a large percentage of your payment is interest. Also remeber an automobile is a depreciating asset. Most people have no idea what thier net worth is and this is your most important financial number as it is the only true representation of your financial health. For most realize that you do not own your house the bank does. Also when you calculate you houses value for a net worth calculation ensure to decrease the value from 5-6% from what you can sell it for as real estate fees, legal fees and moving costs will eat this much up for 95% of people.

FYI For those that can afford it the tax free savings account is the greatest savings vehicle the average person has access to. The argument that many will say is that if you put money in an RRSP you get tax credits. Where this is true the fact that you pay taxes on any withdrawl from an RRSP the math is not close. You pay no taxes on the TFSA. This is of course if we are looking at long term savings.

If this information does not make sense to you it is important you learn it. Quite frankly it should be taught in grad school but I have little hope for that. Also note that paying someone for advise is extremely expensive as a percentage it is best to learn this and understand it. This way you can truely make the right decisions for your personal situation and gaols. Most bank advisors are taught some basics and dispense what they believe to be good advice, these are the same people that put people into the market right before the crash and advised to move to bonds at the bottom. That is right they bought high and sold low; exactly what you are not supposed to do. The problem is they sell based upon emotion and trends rather than sound financial planning.

I am not a financial planner, I am a medical sales rep. I did take the Canadian Securities course and am educated in Economics. I am disapointed with policies that allow investment and banking organizations to charge annual fees on amounts under $25,000 in RRSPs and other investment vehicles, in addition to the MER's they charge and the hidden marketing, transaction and other fees charges by mutual funds and other investments. It makes it very hard for the little guy to get ahead. I am fortunate enough to have been able to avoid these fees and manage to get my fees to be negligable. This makes a huge difference on rates of return.

I hope this information is helpful, please do your own research to ensure your actions meet your own personal situation.

Very useful information Jester, thank you!

(P.S. We know that we're riding a crested wave - hang ten as it were - but the interest savings over the previous 10 year period has been phenominal.)

The idea of a 10 year fixed mortgage or a 50/50 are very progressive.  Also, no one should fear locking in to a 5 year mortgage because, as I said, anything below 10% is gravy and if you've spent the money and can sleep at night, that might be worth the security it provides.

[Man, I'm glad we don't live in the 80's... 18% mortgage rates?  No thanks![/quote]


There was a 12 month stretch in the 80's where 18% was a good rate i knew of people in the 20% range short term (hell I was getting 19 1/2 on a CSB that year and that CSB carried a minimum rate of 10 1/2 for the next 5 or 7 years).

When I studied finance, my prof offeered me this example;
He asked how much I pay for milk. I said $4 for 4 litres. He asked me if I would be willing to lock in my price of $6 for the next 5 years and "protect myself against the mortgage rate increases""
It is silly of course to pay a premium for peace of mind.
Go variable if you have the stomach for it.

I am renewing my mortgage in October and I have been looking at this as well. I have 17 years left and I have been considering locking it for the balance of the time. I have seen 5-6%, with a clause that I can pay as much as I want in extra and it is directly applicable to the capital amount, not the interest. As for 1.5-2% as stated by some, no way could I get that, unless I go variable, and only for 5 years. Considering we are in the low end of the curve right now, the only thing I see by doing that is my mortgage payment go up.

I was always told to lock it when it is dirt cheap. My father was laughed at by everyone in 1976 when he bought our house and locked the mortgage for 15 years. He managed to get 8% at the time, which was near the average. well, needless to say that all the people that laughed at him in 1976 lost their homes in 1980.

At 5-6%, I am considering just locking it for the remainder. No surprises.

I could have made a lot of people wealthy if I published what I did, and people did the opposite  

Jester advice is great & the complaint of service-fees on small long term savings accounts is spot on.   I don't expect the government to do anything about it though.

At some point Sparky's story will be true.   To me its similar to the "sell your stocks when the shoe shine boy is buying" analogy.    It's just knowing when the shoe shine boy is going variable.

WebSherpa "1.35%" - you bugger!   The annual savings compared to my rate would be like a HUO TZ annually!

My advice? on my 3rd house (selling it soon ) I have to say (like everyone else) it comes down to comfort and risk tolerance.

My step father was a miner up in sudbury,  He paid off his mortgage and it was always variable.  but being a high paid employee, and having a home out in the sticks outside the city, meant that he was carrying a rather small mortgage.  There were times his payments doubled from when he started, but he just kept on paying. cause he could float that.

If your interest rates go up fast (like they sometimes do) you might get a crap lock in rate if you wait longer.

If it goes up slow (like it usually does) then it is like the frog in the boiling water scenario... you keep adjusting and waiting , until the rate is too high and you can't afford  it.

When the brother in law asked me, I asked him if he could comfortably pay at least 50% more of his proposed mortgage... he claimed it would never happen....

THAT is the sort of person who loses their house.

Bottom line, if you are tight on a budget affording your current rate, i would lock in.  If you have a lot of wiggle room, you might stick it out... it all pretty much balances out in the long run


I just prefer to know exactly what my payments will be for a 5 year period. and never worry about fluctuations