*Updated* Ongoing Bank of Canada Benchmark Rate Announcements

[Izzle]

Originally Posted by Muta

Sooo... should I suck up my ego, bite the bullet and lock my mortgage in (ie. equivalent of buy low sell high, haha)? Or has that ship sailed and now I should ride out my variable rate in the hopes rates go down later... got 2.5 years left until renewal

Honestly, this is an extremely personal question as you, and only you know your own risk tolerance. If these rates and the potential for higher rates in the near future are causing you to lose sleep, then maybe lock for 3 years and revisit at the end of the term.

Fwiw, a buddy of mine bought a new house in Feb this year and went variable. Each rate hike is painful. And he doesn't have the luxury of locking in for a short term. He basically has to lock for 5 years. Which is another set of headaches.

[calgarywinning]

The fiscal policy of the current government and endless nonsense spending has fuelled these rate hikes to control inflation as the media says. Well, here is the thing, interest rates for housing and borrowing have been all time low; because as each 3/4 point hike builds, homes truly do become unaffordable or attainable to most. Most importantly these rate hikes hit Canadian's extremely hard.

I feel bad for those who are going to be hit hard by this and the new generations of homebuyers entering the market.

[bluejays]

One thing people should be weary of fixed mortgages are the stiff penalties to break them. With a variable rate at least it’s about three months interest as the penalty. With fixed rates it isn’t calculated the same across most lenders and the penalties are a lot higher. I’m on variable and oddly with cibc the payments are staying the same, but the proportion of what’s going to interest vs. principle is shifting each month more and more towards interest. I do think a year from now when the recession is official things should lower a bit so I think not locking in was a good idea, especially if I want to sell, I won’t no part of those fixed rate penalties.

[powderjunkie]

Originally Posted by calgarywinning

The fiscal policy of the current government and endless nonsense spending has fuelled these rate hikes to control inflation as the media says. Well, here is the thing, interest rates for housing and borrowing have been all time low; because as each 3/4 point hike builds, homes truly do become unaffordable or attainable to most. Most importantly these rate hikes hit Canadian's extremely hard.

I feel bad for those who are going to be hit hard by this and the new generations of homebuyers entering the market.

Prices should drop accordingly, but of course it will take a while to balance out.

Everyone's been talking about how broken RE is in this country...correcting things was never going to be painless. Of course its debatable where 'correct' actually is, but it's high time we all had a wake up call. And I say this as a recent buyer (thankfully fixed low) who will feel a fair bit of pain before too long.

[Muta]

Originally Posted by fleury

One thing people should be weary of fixed mortgages are the stiff penalties to break them. With a variable rate at least it’s about three months interest as the penalty. With fixed rates it isn’t calculated the same across most lenders and the penalties are a lot higher. I’m on variable and oddly with cibc the payments are staying the same, but the proportion of what’s going to interest vs. principle is shifting each month more and more towards interest. I do think a year from now when the recession is official things should lower a bit so I think not locking in was a good idea, especially if I want to sell, I won’t no part of those fixed rate penalties.

That's actually the exact same situation as mine, same bank and everything. I didn't lock in because of the penalties associated with fixed... thought maybe the rates would go up a bit, but not this much. It's a double-edged sword - my monthly payments haven't increased, but the proportions of interest and principal have obviously changed. Took the variable as well because if a certain leader becomes premier next year, I wanted the option to leave the province if need be. That, and possibly exploring other career opportunities as well.

That said, I'll be putting more pre-payments on going forward. Or take that amount and invest it, try and beat the mortgage interest rates on return, and make a bigger lump sum payment upon renewal. Haven't decided yet.

[Mr.Coffee]

The one good thing about increasing rates is that it forces and teaches fiscal awareness, fiscal prudence and should reduce debt levels. This is needed in this country and people need to start thinking about these things in such a competitive world.

[tvp2003]

Originally Posted by Izzle

Honestly, this is an extremely personal question as you, and only you know your own risk tolerance. If these rates and the potential for higher rates in the near future are causing you to lose sleep, then maybe lock for 3 years and revisit at the end of the term.

I would agree with this. You can try to look at the trends and what experts are projecting, but it should be a question of risk tolerance and what you can afford, not trying to crystal ball the future.

The point about penalties if you have to break your fixed rate mortgage early is also important; make sure you know how an IRD is calculated in the even rates drop in the future.

[GGG]

Originally Posted by Muta

Sooo... should I suck up my ego, bite the bullet and lock my mortgage in (ie. equivalent of buy low sell high, haha)? Or has that ship sailed and now I should ride out my variable rate in the hopes rates go down later... got 2.5 years left until renewal

The question isn’t whether you will save money by locking in.

It’s can you afford the worst case outcome of interest you can imagine then stay variable as variable over time is cheaper and very few can predict markets effectively.

I locked in at the start of the pandemic because if I lost a job I wanted fixed costs

[Enoch Root]

Originally Posted by GGG

The question isn’t whether you will save money by locking in.

It’s can you afford the worst case outcome of interest you can imagine then stay variable as variable over time is cheaper and very few can predict markets effectively.

I locked in at the start of the pandemic because if I lost a job I wanted fixed costs

This is usually the case, but not necessarily the case. Variable has been cheaper for much of the last 40 years because we have been in a declining, and relatively predictable and stable, interest rate environment for the entire time. However, if we are entering a period where interest will oscillate up and down, and be volatile and difficult to predict, variable could be more expense for much of the period.

As Izzle said, this is a personal matter, factoring in one's personal risk tolerance. I don't think it's good advice at all to say that variable will be lower over time.

[Izzle]

Didn't Moshe Milevsky say that variable rates beat fixed only 66% of the time. I'm trying to find articles that support this but am drawing a blank. If that's the case, then we should consider that the times we're in currently is that 33% where fixed is better.

[DoubleK]

Originally Posted by Izzle

Didn't Moshe Milevsky say that variable rates beat fixed only 66% of the time. I'm trying to find articles that support this but am drawing a blank. If that's the case, then we should consider that the times we're in currently is that 33% where fixed is better.

If you were up for renewal late last year or early in 2022 you might beat variable. Do you think rates will increase (or not go down) for the next 5 years?

The economy would be in such a state that my mortgage would be the last thing I'm worried about.

[Weitz]

Originally Posted by shermanator

What we are seeing now has always been the risk with variable rate mortgages. The issue is that for the last 15 years variable rate would have been the better option given the incredibly low interest rates available.

I think that some people believed that these historically low interest rates would continue to be the better option and a lot of them are getting burned as a result.

The world has changed though. The days of interest rates your parents saw are gone. The modern economy can’t support it.

[blankall]

Originally Posted by Weitz

The world has changed though. The days of interest rates your parents saw are gone. The modern economy can’t support it.

Also incredibly high interest rates aren't as universally devastating as people make it out to be. They also mean incredibly high returns on savings and low property prices. They reward those that are able to save.

[Erick Estrada]

Originally Posted by blankall

Also incredibly high interest rates aren't as universally devastating as people make it out to be. They also mean incredibly high returns on savings and low property prices. They reward those that are able to save.

So less than 5% of the population?

[Fuzz]

Sounds good, sign me up!

[blankall]

Originally Posted by Erick Estrada

So less than 5% of the population?

Pretty much. But that's the same people who also seem to benefit from high prices. Basically, anyone with capital is going to benefit if interest rates are low or high. Canada is doing nothing to alleviate the housing crisis.

[bizaro86]

Originally Posted by blankall

Also incredibly high interest rates aren't as universally devastating as people make it out to be. They also mean incredibly high returns on savings and low property prices. They reward those that are able to save.

Actual real interest rates are still very negative. The real rate is the interest rate minus the inflation rate, so it's negative as inflation is still higher than interest rates. That means savers lose purchasing power on their savings - ie if you save $100, you get say 3% interest so in a year you have $103. But the stuff you could have bought with $100 now costs $107, so you can't buy it.

And of course the $3 is income so you have to pay tax on it, so you really probably only have $102.

Inflation is absolutely a cost to savers, while higher interest rates are a cost to borrowers, and inflation is higher than interest rates, so borrowers are the net beneficiaries right now.

[chemgear]

Originally Posted by Mr.Coffee

The one good thing about increasing rates is that it forces and teaches fiscal awareness, fiscal prudence and should reduce debt levels. This is needed in this country and people need to start thinking about these things in such a competitive world.

Budgets balance themselves. /s

[Enoch Root]

Originally Posted by blankall

Pretty much. But that's the same people who also seem to benefit from high prices. Basically, anyone with capital is going to benefit if interest rates are low or high. Canada is doing nothing to alleviate the housing crisis.

The lost value in hard assets like real estate would be magnitudes larger than the increased benefit of higher interest rates for savers. It is no doubt a net negative, as we saw the last time we had really high interest rates.

Also, high interest savings sounds good in theory, but if people stop spending, and hoard their savings, it is a net negative for the economy.

Finding a goldilocks level of interest rates (4-6% range?) is extremely difficult. Extremely low interest rates were never going to be sustainable. But very high interest rates are much worse.

[Enoch Root]

There is a reason that central banks around the world settled on 2-3% as an inflation target