*Updated* Ongoing Bank of Canada Benchmark Rate Announcements

[nik-]

Originally Posted by chemgear

I recalled this article about governments still throwing money around and adding to the fire. Wonder if they are trying to scale back the spending and self created inflation at this point.

lol

[CroFlames]

OK so does it make sense to start making lump sum payments now while I'm locked in for about 3 more years at a really low rate, or do I just enjoy this low interest holiday until I get bent over in 3 years?

Then start making lump payments when rates are high?

[DoubleF]

Originally Posted by you&me

I really do think it would cost hundreds of billions to build a nation wide high speed rail network if we're talking about connecting places like Okotoks, but that's irrelevant because it will just never happen.

I do agree with the basic concept though, that growth needs to be distributed throughout the country... I just don't know how that can be achieved, as many immigrants, after coming from across the world, rightfully seek out a sense of community, which is far easier to do in the big cities... The same cities with the worst affordability, so again, more self-perpetuating problems inflicted by poorly conceived government policy.

Your other point touches on what I was saying early about the blanket upzoning and why I don't think we need to do that (yet). Your example of Chinook is great, as there are acres of under-utilized land that could be redeveloped into a higher density multi-use node. I know that's an existing strategy for the city, but it would be nice to see some of those come to fruition before, again, rezoning Sliver's house to a 4-plex... I just don't feel like that's necessary with where Calgary is in its current built form.

Oh, I wasn't suggesting a nationwide high speed rail network, unless you mean across the nation? I just meant that a rail network to attempt to decentralize urban populations while allowing for more "bedroom community" options in areas that aren't as densely populated. You might be right that such a project would cost hundreds of billions of dollars. But curious if such an investment could aid acceleration of immigration and construction projects elsewhere that would also add to the tax basis.

I agree we don't have to do stuff like this yet, but it is worth investigating and doing pro and con analysis in advance. Such commercial and government projects would have amplified effects from interest rate moreso than for the average individual's inflation etc.

Originally Posted by Fuzz

But why??? That's a miserable existence. That stretch of BC is my idea of hell. So is living on top of a train station. They do that becuase they have to, not becuase they want to.

I get there are ways to densify Canada(and no shortage of examples around the world), my point is it doesn't provide benefits to happy living. Is the point to stretch every resource and ecosystem to the limit? Why? Who's life improves from that? How is that good for the planet?

Any dense city or country is going to rely on imports from elsewhere to function. If those resources are already stretched, how does adding more people fix that?

Because people are coming regardless of our sentiments. Addressing it in a similar but improved way could in theory help to ensure we aren't repeating the same issues that BC has.

It's a little bit give and take. If public transportation was made easier and more convenient as it is in Asia (yes, I know it's a little grating to keep saying Asia), then maybe the density won't automatically go insane like it does in other major cities over 1.5 million.

Maybe we promote cycling, individual e-transport etc. more which benefits keeping the current vibe. Maybe we develop more night life in these surrounding cities so the traffic doesn't automatically rush towards Calgary city centre for all events etc.

Resources are stretched, yes. But limiting people coming doesn't completely address that and waiting to the last moment to address the issues creates other ones that aren't as easy to navigate. The government could incentivize many businesses to do things that benefit the society in a more sustainable way, and with higher rates, perhaps the government can collect that from local and international companies rather than let private lenders benefit.

[DiracSpike]

Originally Posted by CroFlames

OK so does it make sense to start making lump sum payments now while I'm locked in for about 3 more years at a really low rate, or do I just enjoy this low interest holiday until I get bent over in 3 years?

Then start making lump payments when rates are high?

Start making lump payments now while it's low and you'll thank yourself in three years when a bunch of people are panic selling because they enjoyed their low interest holiday too much.

If it's your long term family home then definitely I would. You're not going anywhere, it's the lowest risk move, you can secure the future of your family/yourself and not have to sweat out every time Tiff gets out there. You could try and get cute but that comes with a lot of risk and I think we'll start to see and hear the people that got too cute have to make some tough choices soon here.

[MillerTime GFG]

Originally Posted by CroFlames

OK so does it make sense to start making lump sum payments now while I'm locked in for about 3 more years at a really low rate, or do I just enjoy this low interest holiday until I get bent over in 3 years?

Then start making lump payments when rates are high?

Need more information than that. How low is your current rate? Can your extra funds be better served elsewhere? Higher returns on investments? Do you have other debts higher than your mortgage rate?

Three years is a long ways from now. No one can say if you're going to get "bent over" by then. Personally, I'd make my decision based on today, and start worrying about your renewal when you're perhaps within a year of it.

[DoubleF]

Originally Posted by CroFlames

OK so does it make sense to start making lump sum payments now while I'm locked in for about 3 more years at a really low rate, or do I just enjoy this low interest holiday until I get bent over in 3 years?

Then start making lump payments when rates are high?

It depends. It's up to you. IMO you have to look at it in 1-3 year terms as well as over the life of the mortgage. So not just until renewal, if you have 20 years mortgage, you'd have to think that way too IMO.

Most people only look at the short term differential. That doesn't consider the extra duration of the mortgage with compounding interest. I haven't run the numbers, but I think you'd save the few percent difference in safe investing over several years of compounding interest. However, lumpsum payments do create inflexibility and seemingly has less pros short terms and only pros really long term (ie: 5-10 years+).

But dumping it into the mortgage early also possibly means paying more to borrow for a rainy day (ie: HELOC or LOC). You'd lose the flexibility to cash out and use the cash for other things, but I guess it also means you're less likely to spend as much if it's not as easily accessible.

I've debated this personally as well. IMO if I'm going the safe route with GICs etc. I'm better off lump summing it into the mortgage instead to make up the difference via compound interest. But if I want to invest for a few years (ie: Canadian banks as an example) it's probably worth risking the principle in hopes that I will have more in a few years time to tackle more of the mortgage principle. Keep also in mind that there are often limits to paying down the principal of your mortgage (for me, it's around $80K) without penalty even at renewal. So combinations of regular paydowns, payment increases and investing are probably more likely to be the best option vs one side or the other.

In 3 years, I can't just dump $240K into the mortgage. So maybe I'm better off doing $50-80K per year and investing the "excess". Mortgage companies also don't like modifying payments. So if you up your payments, when you renew, they likely won't let you lower your payments without significant resistance.

[Jason14h]

You can get 6% GICs (or close) right now

Assuming you have room in a TFSA that’s tax free 6% no risk . Why would
You pay down a 2-3% mortgage faster ?

If it’s not in a tax account you have to account for taxes on interest so it’s closer but you’re almost guaranteed still to come out ahead

Now at 7.2% (prime) you need ~9-10% on before tax investment income , so at that point paying off mortgage faster starts to be economical

If you are a prudent saver paying down a low interest mortgage is a bad ROI

This is all ignoring the max lump sums you can make and if you are worried about hitting that in 3 years if you wanted to do a lump sum on renewal of interest rates are still high

[pseudoreality]

Originally Posted by CroFlames

OK so does it make sense to start making lump sum payments now while I'm locked in for about 3 more years at a really low rate, or do I just enjoy this low interest holiday until I get bent over in 3 years?

Then start making lump payments when rates are high?

Depends on what you would otherwise do with the money. For me, I'm locked in at 2% for another three years and I feel like I will get a better return from ETFs in my TFSA and RRSP on average over the next three years, especially considering the tax benefits. Therefore, I am not making any extra payments on my mortgage and instead putting that money in my investments.

However, if instead of investing that extra money went to paying for Onlyfans subscriptions, then paying off the mortgage faster is probably the wiser thing to do.

[opendoor]

Originally Posted by CroFlames

OK so does it make sense to start making lump sum payments now while I'm locked in for about 3 more years at a really low rate, or do I just enjoy this low interest holiday until I get bent over in 3 years?

Then start making lump payments when rates are high?

Depends how low your rate is. If your after-tax return from throwing the money into a High Interest Savings Account, GIC, or Cash ETF exceeds your mortgage interest, then it makes zero sense to pay down your mortgage (assuming you have the discipline to not spend that money).

And it's far from certain that you're going to see a big increase in 3 years. You're not likely to get your pandemic rate again, but based on history, it'll probably be lower than it is now. The peaks in rate hiking cycles are generally pretty narrow. So once the Bank of Canada or the US Federal Reserve starts raising rates quickly, it takes about 2-4 years from that point for rates to drop back down significantly. And because we're already over a year into this one, that would suggest that rates will be lower in 3 years than they are now.

[DiracSpike]

Originally Posted by DoubleF

It depends. It's up to you. IMO you have to look at it in 1-3 year terms as well as over the life of the mortgage. So not just until renewal, if you have 20 years mortgage, you'd have to think that way too IMO.

Most people only look at the short term differential. That doesn't consider the extra duration of the mortgage with compounding interest. I haven't run the numbers, but I think you'd save the few percent difference in safe investing over several years of compounding interest. However, lumpsum payments do create inflexibility and seemingly has less pros short terms and only pros really long term (ie: 5-10 years+).

But dumping it into the mortgage early also possibly means paying more to borrow for a rainy day (ie: HELOC or LOC). You'd lose the flexibility to cash out and use the cash for other things, but I guess it also means you're less likely to spend as much if it's not as easily accessible.

I've debated this personally as well. IMO if I'm going the safe route with GICs etc. I'm better off lump summing it into the mortgage instead to make up the difference via compound interest. But if I want to invest for a few years (ie: Canadian banks as an example) it's probably worth risking the principle in hopes that I will have more in a few years time to tackle more of the mortgage principle. Keep also in mind that there are often limits to paying down the principal of your mortgage (for me, it's around $80K) without penalty even at renewal. So combinations of regular paydowns, payment increases and investing are probably more likely to be the best option vs one side or the other.

In 3 years, I can't just dump $240K into the mortgage. So maybe I'm better off doing $50-80K per year and investing the "excess". Mortgage companies also don't like modifying payments. So if you up your payments, when you renew, they likely won't let you lower your payments without significant resistance.

This is well reasoned but ultimately the summation is you're taking on more risk by doing this. You're counting on capturing the differential between investing and just straight math of reducing a mortgage amount. It *might* pay off, but it also might not. And for a lot of people if it doesn't they're in a world of hurt. I've yet to hear from anyone I've met that regretted paying down their mortgage. Could they have theoretically come out ahead investing that money instead? Maybe, in a lot of cases, but the peace of mind of securing your family's home base for decades, being impervious to interest rate shenanigans, and having a bunch of cash that was being shovelled into a mortgage available ahead of schedule outweighs that. For the vast majority of people that are not sophisticated investors I tend to believe it's the best move.

Or you can hope your investments pay off while sweating out every time an interest rate announcement comes out and take the risk you have to move your family out of a home everyone presumably likes and is comfortable in because you thought you could beat the market. Up to the individual I guess.

[CroFlames]

Great information guys, thank you. Lots to consider. I really don't ever plan to move, so this is both a long term & short term discussion for me.

[Jason14h]

It not theoretical with 5.5% GICs ( before the last interest raise )

It’s simple math

People paying down a sub 3% mortgage are crazy unless they doubt their ability to save .

You are literally flushing $ down the toilet

[flamesfever]

Originally Posted by Fuzz

I've always had a problem chasing perpetual growth for the sake of growth(and GDP). My hope is kinda that as automation helps reduce the need for workers we can get the GDP without adding more people(and more problems and cost). To get there though, we really need to target training and education to what is needed and I think we do a really poor job of that. We have so many holes in the trades that really shouldn't exist with planning. Same with doctors and nurses. Yet we have a surplus of naturopaths, life coaches, and social media influencers, and that shouldn't happen with proper planning.

I agree with your better planning with regard to training and education, however I think the greater importance is to have a system that encourages both domestic and foreign investment, in order to develop and supply our resources to the rest of the world. This would add to our tax base and help us afford the services we have come to expect. Too much Government interference in the form of over regulation and taxation is not the way to go.

I think you have to have a growing economy to support the increase in population. Relying on technology to solve the problem may help to a degree in the long run, but I can't see this happening soon enough to make a difference.

As for immigration, I think it should be targeted to a large degree to serve our particular needs, although our needs cover almost every segment of the
economy.

I think our PM ,and those surrounding him, are too hung up on ideology, are in over their head, and are leaving our country in a poor state.

[Slava]

Originally Posted by DiracSpike

This is well reasoned but ultimately the summation is you're taking on more risk by doing this. You're counting on capturing the differential between investing and just straight math of reducing a mortgage amount. It *might* pay off, but it also might not. And for a lot of people if it doesn't they're in a world of hurt. I've yet to hear from anyone I've met that regretted paying down their mortgage. Could they have theoretically come out ahead investing that money instead? Maybe, in a lot of cases, but the peace of mind of securing your family's home base for decades, being impervious to interest rate shenanigans, and having a bunch of cash that was being shovelled into a mortgage available ahead of schedule outweighs that. For the vast majority of people that are not sophisticated investors I tend to believe it's the best move.

Or you can hope your investments pay off while sweating out every time an interest rate announcement comes out and take the risk you have to move your family out of a home everyone presumably likes and is comfortable in because you thought you could beat the market. Up to the individual I guess.

Well that's why things like GICs or bonds or potentially high-interest savings accounts make sense. If you have the mortgage come up in three years, you can buy bonds that mature ahead of that and earn a better rate of return than just paying the mortgage. When the bond matures, you plunk it on the mortgage at renewal and you have paid more down on the mortgage than you would've today and with low risk (depending on the bonds you buy...or really have someone who knows what they're doing buy for you).

And...worst case scenario, you can sell those bonds ahead (again, assuming that you aren't buying a riskier high-yield bond).

And of course, with something like a GIC, you end up with ~5% for three years, and it's virtually guaranteed.

[Slava]

Originally Posted by Jason14h

It not theoretical with 5.5% GICs ( before the last interest raise )

It’s simple math

People paying down a sub 3% mortgage are crazy unless they doubt their ability to save .

You are literally flushing $ down the toilet

Well the three year today is at 5.32%...at least the best I can see. GIC rates don't move directly with the overnight rate.

[Fuzz]

See if your max bulk amount is more than you would invest now, and if it is, go ahead and invest. If you have more than you can bulk pay, then you may want to plan to bulk pay 2 years before as well. Keep in mind you can bulk pay just before renewal, and then do another one just after. So it's really double the amount. Investing now, then planning to do that all at/after renewal could work well. Plus you can probably double up payments as well for a year before or after renewal to really move the money into it.

[Jason14h]

Originally Posted by Slava

Well the three year today is at 5.32%...at least the best I can see. GIC rates don't move directly with the overnight rate.

True I was looking at 1 year . Which allows more flexibility !

Point is - as a few pointed out - You actually have a perfect storm where you can make guaranteed income vs paying down mortgage

You should actually try and skip a few payments if your bank will
Allow you (half kidding )

[The Yen Man]

Originally Posted by CroFlames

OK so does it make sense to start making lump sum payments now while I'm locked in for about 3 more years at a really low rate, or do I just enjoy this low interest holiday until I get bent over in 3 years?

Then start making lump payments when rates are high?

Depends on your discipline I guess? Technically, if you're on like a 2% rate, even a GIC will get you like 5% right now, so you can earn 3% net until renewal, and then lump sum pay off the 3 years were you were going to, but just at the end of your term.

That's provided you save that lump sum amounts and don't spend it. If you know you are going to spend it, then it's better to make regular lump some payments.

[blankall]

Another thing to consider is the effect of inflation on your debt. If inflation is 20% over the next 3 years, then your debt is 20% less. So you're better off putting the money into a safe investment that's inflation proof.

As others have stated, the issue is really with your ability to save. You can get a 1 year GIC at 4.75%. That's better than paying off your debt, with a sub 2% interest rate, now. Another thing I'd look at is penalties and how much of your mortgage you can pay off without a penalty.

[BagoPucks]

Originally Posted by CroFlames

Great information guys, thank you. Lots to consider. I really don't ever plan to move, so this is both a long term & short term discussion for me.

I think without knowing your life situation, one thing I would suggest to more people is to really look at the plan of not ever moving and how realistic it is. It is a tough thing (challenge the assumptions) to do but ultimately lots in life could change pretty quickly. Maybe make a list of reasons why you would move to evaluate the likely hood of it before assigning it an improbable outcome.