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Old 06-15-2012, 03:33 PM   #50
Bill Bumface
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Quote:
Originally Posted by blankall View Post
Basically, you argument breaks down into rates have been falling for the last 30 years (except for when they went up), so we should bank on that and always get a variable rate.

When rates are rising, fixed is better. I know there has only been one period in the last 35 years where that has happened, but now rates are at an all time low and really have nowhere to go but up.

The thing is, that the spread between variable and fixed rates is quite significant right now, as banks are accomodating for the fact rates will go up. The people at the banks setting the rates are a lot more knowledgable than anyone here. So at any given time, it should, in theory, be a coin flip between variable and fixed. Except when banks are in a pricing war and offering 2.99% fixed...then I'd definitely go fixed.
Yup, on a big up-kick you can definitely beat variable on a fixed. The problem is, how do you know when that up-kick is coming? I was told by everyone and everything I read that rates where going up when I signed on 3 years ago for a 5 year 3.65. That was the historical low for 5 year fixed rates ever, and everyone, including the BOC was warning that rates were going up in a matter of months. I couldn't lose! Oops.

Now maybe the fact I'm locked in a 5 year means I'll miss that big up-kick, and my next 5 year (in 2 years) will suck. See how easy it is to lose?

I can totally understand taking a gamble on a 2.99 right now. It looks like not a bad idea at all. But 3.9 does not look good at all.

Fixed rates are determined by the bond market, not "the bank". The fact you can get a 10 year 3.89 right now suggests the market is banking on interest rates being below that level for the next 10 years.

As soon as interest rates show a sniff of skyrocketing, bond yields will go through the roof, and the spread between variable and fixed will make you cry, and it's too late to do anything about it.

An increasing interest rate environment doesn't mean that fixed is better. An unexpected increasing interest rate environment does.
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