Quote:
Originally Posted by Hesla
I have a Prime - 0.75% Mortgage right now. I have the opportunity to fix this at 4% . Should I fix now ? or should i wait it out ?
Basically the rate would need to jump 2.5% and maintain that level over the 5 year term for it to be worthwhile .
Thoughts ?
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(Just copy and pasted this from the other thread you started)
It really comes down to what you are most comfortable with.
I understand you don't want you payments to increase by 35% overnight, however if you think inflation is going to cause rates to rise enough that you are paying more than 4% down the road it is something you are going to have to face eventually.
If it were me I would stay in a variable. Prime less .75% is a fantastic rate, better than anything available on the market today. The reason you get into a variable is to take advantage of rates when they drop. Right now they are at rock bottom and you are in a great situation. Yes they are going to climb and will likely start in a couple of months - likely June or July. However it isn't like they are going to jump 2% overnight.
With your situation you have a cushion of 2.5% before you are effectively paying 4% on your variable. I think the increase of 2.75% (from your article) is maybe a bit on the high side but it's tough to tell. I've seen other reports saying rates aren't going to rise as quickly as people think so it's a tough guessing game.
If you are finacially stable and can ride the fluctuations in the market then I would just hold on to the variable for now and keep milking that great rate as long as you can.
If you feel like an increase that effectively puts you over 4% is going to cause you trouble financially then maybe you should be locking in.
I really don't see rates climbing to the 7-10% range. Not anytime soon for sure, that is a MASSIVE jump. Even though we are living in some crazy economic times that just seems like too much of an increase. It would really cause a LOT of issues in the housing market and I thik the Bank of Canada is smart enough to avoid a problem like that.
I know this didn't really answer your question with a solid answer. It really is your choice and what you are comfortable with. If it was me I would stick with the variable and ride it out as long as I could (I would also take the savings every month and put it down on the principal as well). Since this is a rental property you may want some cost certainty as well which is another argument for the fixed.
I am starting to discuss the option of variable rates again with clients. Now that rates are at Prime -.5% variable rates are becoming an attractive option again. Within the next week or so most banks 5 year fixed will be in the 4.69% range. When 5 year fixed were 3.69%ish and the variable were at Prime or even Prime plus it was a no brainer to lock in to a fixed. With the recent rate increase on fixed and the fact you can get Prime less .5% makes variable a good option again. You effectively have a cushion of about 3% that rates need to climb until you are at today's fixed rates. (I know this is a bit different than your situation but just throwing it out there)
