*Updated* Ongoing Bank of Canada Benchmark Rate Announcements

[DoubleF]

Originally Posted by powderjunkie

I guess I'm saying that I thought it was dumb to hazard an 'educated guess' at that time. Uncertainty seemed obvious. If I had to hazard a guess I'd see a pretty simple bell curve with 'modest increase' (whatever that means) at the peak. Attach whatever shape you want, but in my mind it was:

25% - status quo = variable slight win
50% - small increase = it's a wash
25% - bigger increases = variable slight to massive lose

There was just so much more risk than reward at the fringes.

Agreed. I will also say that some posters are preaching to the choir. It's kinda amazing the types of things some posters in this thread think other people know.

People who aren't short sighted in terms of risk and with typical attention spans of a goldfish (thanks smart devices!) are rare. People are also often sheep rather than willing to spend time to understand things themselves. It got obvious during the pandemic how many people subscribe to an echo chamber concept of "thought" on all spectrums. I didn't matter whether you were pro or con. People on all sides often do not think critically for themselves. They just follow others they "respect".

Grade 11 economics? Micro and macro economics are first year courses and typically only if you're in a business or math related program. I learned bookkeeping in grade 12 and I was the weirdo for not doing the shop class, programming etc.

Interest rates? Most people don't know anything about that. Their financial literacy is a barely passable understanding of monthly cash flow. They need a loan, they need a mortgage, they need a credit card, they "need" a thing that they saw on instagram or tik tok... people are really stupid. Ask some people to read a utility bill and many look at it like it's written in calculus.

The fact we are in this thread posting means we are not normal. Normal people are unfortunately financially illiterate more often than not.

[powderjunkie]

Originally Posted by pseudoreality

When I went fixed in 2021 my logic was that rates didn't have a lot of room to go down, but could go way up. It seems like a smart move now, but again I also went fixed in 2007 and lost some opportunity there.

IMO fixed is generally the sensible choice in the first term or two of a mortgage, as it's the period when you are most leveraged, tend to have other costs (moving, furniture, kids, renos, etc.), and the least general flexibility.

You also won't really realize the 'rewards' from variable for another decade or two...the real reward would be being mortgage free in say 18 years instead of 21. Unless of course you just want variable for a slightly lower payment...which is almost always just dumb.

I'm pretty sure 50 year old me won't mind an extra few years of mortgage payments compared to what might have been possible.

I think this might be the biggest failure here...people don't recognize how/when they'll actually realize their 'winnings' if they come to pass. Whereas the risks could be realized immediately [and painfully]

[fundmark19]

Originally Posted by powderjunkie

I'm pretty sure 50 year old me won't mind an extra few years of mortgage payments compared to what might have been possible.

I think this might be the biggest failure here...people don't recognize how/when they'll actually realize their 'winnings' if they come to pass. Whereas the risks could be realized immediately [and painfully]

Variable is more than just savings over the near/long term though. It is flexibility which is why I have my mortgages in it. I seem to end up moving every other year and I would have spent a lot of money breaking mortgages or being handcuffed on porting compared the the flexibility of my variable.

Average mortgage is broken every 3 years yet #1 mortgage people request is a 5 year fixed.

Property values in Calgary shot up out of the blue last year great chance to refiance the house to consolidate a business loan at higher interest rates. While reducing my discount on Prime on my variable. Variable gives you the ability to keep locking in better discounts on Prime where as if fixed rates drop your penalty is significantly higher.

[opendoor]

Originally Posted by fundmark19

Variable is more than just savings over the near/long term though. It is flexibility which is why I have my mortgages in it. I seem to end up moving every other year and I would have spent a lot of money breaking mortgages or being handcuffed on porting compared the the flexibility of my variable.

Average mortgage is broken every 3 years yet #1 mortgage people request is a 5 year fixed.

Property values in Calgary shot up out of the blue last year great chance to refiance the house to consolidate a business loan at higher interest rates. While reducing my discount on Prime on my variable. Variable gives you the ability to keep locking in better discounts on Prime where as if fixed rates drop your penalty is significantly higher.

But at a certain point (like in 2020 and 2021), rates can't reasonably be expected to any lower; I don't think anyone thought the BoC was going to go into negative rates. Which means:

a) there was essentially zero possibility of benefiting from further rate reductions by holding a variable mortgage.

b) the penalties for breaking variable and fixed mortgages were essentially the same, as you only pay more than 3 months interest for breaking a fixed mortgage when current interest rates are lower. If rates are at their floor, then a fixed rate holder likely isn't going to have to pay an Interest Rate Differential penalty to break their mortgage.

Variable makes more sense most of the time, but 2020-2022 wasn't one of those times, and that's not just hindsight talking.

[Fuzz]

Another "mistake" I think people make is choosing 5 year terms. Ya, it's a round number. Everyone talks about 5 year as a reasonable term, and without thinking about it, it sounds totally reasonable. I'm pretty sure the banks are on to this psychological trick, as I always found you can save a decent amount selecting 4 year. Here's a couple examples:

Spoiler!

https://www.cibc.com/en/interest-rat...age-rates.html

The 4 year is the same as the 1,2 and 3, but 1% less than 5.



https://www.bmo.com/main/personal/mo...ortgage-rates/

Again, the 4 year is similar to shorter terms, but jumps .45% for 5 year.

So if you are going fixed, always check out that 4 year rate. The banks are counting on you to pick the 5 year.

[Johnny199r]

Originally Posted by DoubleF

Agreed. I will also say that some posters are preaching to the choir. It's kinda amazing the types of things some posters in this thread think other people know.

People who aren't short sighted in terms of risk and with typical attention spans of a goldfish (thanks smart devices!) are rare. People are also often sheep rather than willing to spend time to understand things themselves. It got obvious during the pandemic how many people subscribe to an echo chamber concept of "thought" on all spectrums. I didn't matter whether you were pro or con. People on all sides often do not think critically for themselves. They just follow others they "respect".

Grade 11 economics? Micro and macro economics are first year courses and typically only if you're in a business or math related program. I learned bookkeeping in grade 12 and I was the weirdo for not doing the shop class, programming etc.

Interest rates? Most people don't know anything about that. Their financial literacy is a barely passable understanding of monthly cash flow. They need a loan, they need a mortgage, they need a credit card, they "need" a thing that they saw on instagram or tik tok... people are really stupid. Ask some people to read a utility bill and many look at it like it's written in calculus.

The fact we are in this thread posting means we are not normal. Normal people are unfortunately financially illiterate more often than not.

“That company shouldn’t have given me a credit card at such a young age! I wasn’t responsible enough for one!!!” It’s like someone forced them to apply and use the card at gun point.

For most of the population these days the only question in their minds is “can I afford the monthly payments” rather than rather than looking at the true cost of something. Finance a spring break vacation by paying over 9 months? Great idea! You absolutely need it for your “mental health”. Finance a ridiculously expensive vehicle because it’s “only” $600 per month forever! You can afford it!

Don’t get me started on how most people don’t understand that difference between wants and needs anymore. Retirement planning??? What’s that???

[powderjunkie]

Originally Posted by fundmark19

Variable is more than just savings over the near/long term though. It is flexibility which is why I have my mortgages in it. I seem to end up moving every other year and I would have spent a lot of money breaking mortgages or being handcuffed on porting compared the the flexibility of my variable.

Average mortgage is broken every 3 years yet #1 mortgage people request is a 5 year fixed.

Property values in Calgary shot up out of the blue last year great chance to refiance the house to consolidate a business loan at higher interest rates. While reducing my discount on Prime on my variable. Variable gives you the ability to keep locking in better discounts on Prime where as if fixed rates drop your penalty is significantly higher.

Flexibility is definitely a valid argument. The devil is in the details as you could also port some fixed mortgages, which is another form of flexibility that may be even more rewarding these days.

Everyone can make the best decision for themselves. But gloating about 'winning' with variable is dumb. And bitching when you lose is even dumber, yet here we are.

[nik-]

Originally Posted by DoubleF

Agreed. I will also say that some posters are preaching to the choir. It's kinda amazing the types of things some posters in this thread think other people know.

People who aren't short sighted in terms of risk and with typical attention spans of a goldfish (thanks smart devices!) are rare. People are also often sheep rather than willing to spend time to understand things themselves. It got obvious during the pandemic how many people subscribe to an echo chamber concept of "thought" on all spectrums. I didn't matter whether you were pro or con. People on all sides often do not think critically for themselves. They just follow others they "respect".

Grade 11 economics? Micro and macro economics are first year courses and typically only if you're in a business or math related program. I learned bookkeeping in grade 12 and I was the weirdo for not doing the shop class, programming etc.

Interest rates? Most people don't know anything about that. Their financial literacy is a barely passable understanding of monthly cash flow. They need a loan, they need a mortgage, they need a credit card, they "need" a thing that they saw on instagram or tik tok... people are really stupid. Ask some people to read a utility bill and many look at it like it's written in calculus.

The fact we are in this thread posting means we are not normal. Normal people are unfortunately financially illiterate more often than not.

This is an insufferable post lol

[blankall]

Originally Posted by Fuzz

Another "mistake" I think people make is choosing 5 year terms. Ya, it's a round number. Everyone talks about 5 year as a reasonable term, and without thinking about it, it sounds totally reasonable. I'm pretty sure the banks are on to this psychological trick, as I always found you can save a decent amount selecting 4 year. Here's a couple examples:

Spoiler!

https://www.cibc.com/en/interest-rat...age-rates.html

The 4 year is the same as the 1,2 and 3, but 1% less than 5.



https://www.bmo.com/main/personal/mo...ortgage-rates/

Again, the 4 year is similar to shorter terms, but jumps .45% for 5 year.

So if you are going fixed, always check out that 4 year rate. The banks are counting on you to pick the 5 year.

Those are posted rates. The banks will almost always deviate from those and provide you with a 5 year fixed at a 4 year rate if you bargain.

Another thing that baffles me is that people are unaware you can haggle on mortgage rates. I've had to tell at least 4 people (all professional types with decent financial knowledge) to do so, and they all saved .5-1% on their rates doing so. It's a pretty easy process, you just bring in a quote from somewhere else offering a better rate, and they'll typically beat it.

The other alternative is to use a broker, which depending on your relationship with the bank, may or may not put you ahead.

[Azure]

I guess I don't really consider myself super knowledgeable when it comes to personal finance, but when hundreds of thousands of dollars of your own money are on the line, I'm inclined to read a few threads, watch a few Youtube videos, and ask a couple questions.

To think that the last 5-6 pages of this thread have more knowledge in regards to benefits / consequences of fixed rate versus variable rate mortgages than what most people ever hear in their lives is kinda concerning.

But I think I'm doomed as a person from actually reading these threads on CP & Reddit (PersonalFinanceCanada subreddit), and thinking why on earth can't the next common person do the same, cause this is extremely helpful.

[Azure]

Originally Posted by blankall

Those are posted rates. The banks will almost always deviate from those and provide you with a 5 year fixed at a 4 year rate if you bargain.

Another thing that baffles me is that people are unaware you can haggle on mortgage rates. I've had to tell at least 4 people (all professional types with decent financial knowledge) to do so, and they all saved .5-1% on their rates doing so. It's a pretty easy process, you just bring in a quote from somewhere else offering a better rate, and they'll typically beat it.

The other alternative is to use a broker, which depending on your relationship with the bank, may or may not put you ahead.

This!

Its insane how many people I know who have signed multi million dollar mortgages and didn't even bother to haggle on the rate, or shop around.

Why do people think banks are not in it to extract as much money from you as possible? Shop around for a car, haggle about the price, and go from dealership to dealership looking for the best price. Buy a house, sign with the first lender without asking questions. Crazy.

[DoubleF]

Originally Posted by nik-

This is an insufferable post lol

Apologies for the expanded "It's common sense!" and "Common sense ain't so common anymore" dialogue.

Originally Posted by Azure

This!

Its insane how many people I know who have signed multi million dollar mortgages and didn't even bother to haggle on the rate, or shop around.

Why do people think banks are not in it to extract as much money from you as possible? Shop around for a car, haggle about the price, and go from dealership to dealership looking for the best price. Buy a house, sign with the first lender without asking questions. Crazy.

There are a surprising amount of people who don't know you can and a few "Only poor people haggle" people out there. Honestly speaking, people would probably think it's a "hack" that you can try to haggle for a reduced rate or amount.

[Fuzz]

Originally Posted by blankall

Those are posted rates. The banks will almost always deviate from those and provide you with a 5 year fixed at a 4 year rate if you bargain.

Another thing that baffles me is that people are unaware you can haggle on mortgage rates. I've had to tell at least 4 people (all professional types with decent financial knowledge) to do so, and they all saved .5-1% on their rates doing so. It's a pretty easy process, you just bring in a quote from somewhere else offering a better rate, and they'll typically beat it.

The other alternative is to use a broker, which depending on your relationship with the bank, may or may not put you ahead.

Sure, but if you start at the 4, you can bargain even lower. I always did.

Always start your bargaining several months before your renewal is up, as it gives you more time to work them, and the rate gets guaranteed for awhile so if they happen to go up, you are still covered. But if it is dropping, you can keep hammering them. When you bring in other rates, they'll typically play a line like "the conditions are different, those rates wouldn't apply to what we are offering". It's usually a lie, so sometimes it's good to have a list of what that rate offers, just to cut them off on that one. But you can also throw a "well, I think you can do better than what you are offering, check with your manager and get back to me. No rush."

It also helps to get a really junior person who doesn't know the computer systems, and may type in the negotiated discounted rate in the original rate box, then add -1 or whatever in the discount box as well. This may not happen often...

[Firebot]

Originally Posted by tvp2003

Are there stats as to how many took variable rate mortgages versus fixed rate?

I have to say, there ought to be a mandatory course out there for people to figure out how mortgage rates are calculated, how they fluctuate, what an IRD is, the actul difference between insured and conventional mortgages, etc. I sure would have benefitted from something like that -- it's the biggest decision most people will ever make in terms of actual dollars coming out of their pocket.

EDIT: I see MillerTime posted some stats above -- if you're a first time homeowner (and don't have any equity elsewhere), that 48% figure IS staggering

Honestly, if I didn't have both an adjustable rate mortgage and a variable rate mortgage at the same time and noticed that the VRM mortgage payments weren't increasing, I would have never known there was a difference between lenders on their variable term products. I had no idea I had signed on to 2 different products as it's not told during discussions with brokers and lenders (and I consider myself decently informed).

I was on ARM for one of my properties since 2018, and I simply thought variable rate meant your payments increase or decrease as interest rates fluctuate.

Do you know why? Because that is literally how it was described to me, this is from the lender.

I wanted to reach out to you to see if you would be interested in locking in a rate at this time by converting your variable term into a fixed term by early renewing your mortgage.

And that's how my ARM was described, a variable term.

Same thing with collateral vs conventional. TD never once mentioned their mortgages were collateral and its impact (when you are a new buyer, you don't really know that banks have this sleazy product meant to penalize you and stay stuck with them)

People put too much trust into what experts provide without their own due diligence.

[Firebot]

Expanding on the sleaziness of big banks and on the collateral subject

See if you can find information on collateral mortgages anywhere on the TD page.

They also make zero mention of it on their mortgage rate FAQ page

https://www.td.com/ca/en/personal-ba...ortgage-rates/

Doing a search, way down the list of search, you will find this link, but is it in here? It's not even in the glossary

https://www.td.com/ca/en/personal-ba...fixed_variable

Oh wait it is, under security

S
Security - In the case of mortgages, real estate offered as collateral for the loan.

Of course, it doesn't tell you what it means. You usually learn of the collateral charge when you try to shop for a new lender, and it becomes a gotcha moment.

If banks won't even tell you and hide what type of mortgage they are selling you, how would the average consumer know about obscure conditions like trigger rate that have never been triggered in in the 21st century?

[nik-]

Originally Posted by DoubleF

Apologies for the expanded "It's common sense!" and "Common sense ain't so common anymore" dialogue.

Please link me to your pre-hindsight commentary.

[DoubleF]

Originally Posted by nik-

Please link me to your pre-hindsight commentary.

Huh? that wasn't even the point of that post and I've made no pre-hindsight commentary that I'm lording over anyone else. Some of my posts were in response to some posts wondering why the average person doesn't know certain complex topics (ie: interest rates etc.) that those posters felt was almost elementary. I was basically saying that expecting the average person to have a financial thought to even contemplate pre-hindsight financial risks is sadly asking a lot of the average person.

Do you have any clue how many people making over $200K salary are complete financial buffoons? I had one guy argue with me that the unused $250K LOC he had was an asset because he could get cash from it. He went as far as to say I was a complete moron for saying it would be a liability if it was drawn... because it's so obvious that the cash he draws and the item he buys is an asset.

[blankall]

Originally Posted by Azure

This!

Its insane how many people I know who have signed multi million dollar mortgages and didn't even bother to haggle on the rate, or shop around.

Why do people think banks are not in it to extract as much money from you as possible? Shop around for a car, haggle about the price, and go from dealership to dealership looking for the best price. Buy a house, sign with the first lender without asking questions. Crazy.

I know people who will spend months agonizing about the price of a car or home and negotiating, but then just accept the first bank rate they get. It's pretty baffling. They'll put all this effort into saving $5-10k on the property, but then lose out on entire interest points, costing themselves far more.

Originally Posted by Fuzz

Sure, but if you start at the 4, you can bargain even lower. I always did.

Always start your bargaining several months before your renewal is up, as it gives you more time to work them, and the rate gets guaranteed for awhile so if they happen to go up, you are still covered. But if it is dropping, you can keep hammering them. When you bring in other rates, they'll typically play a line like "the conditions are different, those rates wouldn't apply to what we are offering". It's usually a lie, so sometimes it's good to have a list of what that rate offers, just to cut them off on that one. But you can also throw a "well, I think you can do better than what you are offering, check with your manager and get back to me. No rush."

It also helps to get a really junior person who doesn't know the computer systems, and may type in the negotiated discounted rate in the original rate box, then add -1 or whatever in the discount box as well. This may not happen often...

Never had a mistake that saved me 1%, but was always able to negotiate great rates, with a very similar process to what you describe. That is typically why I push for 5 years though. I've always managed to either get a great fixed rate or a variable rate that was prime minus a significant amount. I really didn't see the benefit to 4 years in those scenarios.

[Fuzz]

Originally Posted by blankall

I know people who will spend months agonizing about the price of a car or home and negotiating, but then just accept the first bank rate they get. It's pretty baffling. They'll put all this effort into saving $5-10k on the property, but then lose out on entire interest points, costing themselves far more.



Never had a mistake that saved me 1%, but was always able to negotiate great rates, with a very similar process to what you describe. That is typically why I push for 5 years though. I've always managed to either get a great fixed rate or a variable rate that was prime minus a significant amount. I really didn't see the benefit to 4 years in those scenarios.

It made the irritation of watching him try to operate the computer for an hour bearable.

[Reaper]

Originally Posted by Monahammer

my term ends mid 2024 lol... REALLY hoping that we start seeing rate decreases by then

And mine's up December 2024 so I'm right there with you. I know I probably won't get a 1.43% fixed mortgage like I have now but I'm really hoping that interest rates chill tf out and sit tf down by then.