Need advice on mortgage rates!

[Sopure]

Thanks everyone for reading and offering advice.

I recently pretty well sealed the deal on a new place and I need some input. Everyone in my inner circle (family and friends) seems to be split on what I should do-- that's why I'm reaching out. I'm an avid reader of all your posts for a few years now, and I only made an account for posting about a few months ago.

Option 1.)
The rate is 3.19% for 5 years. I can pay 20% against principal every year. There are payout penalties.

Option 2.)
The rate is 3.99% for 10 years. I can pay 10% against principal every year. There's also some payout penalties.

I'm a bit new to all this-- and I need some input. If you need more specific information, I can provide. Just curious as to what the community thinks.

I realize there is probably an interest rate thread-- I just thought I'd throw it out there and see if anyone responds.

I appreciate any and all advice. Seeing how this goes. Thanks CP.

Sopure

[Sopure]

Thanks man!

[albertGQ]

Where are you getting these rates?

I'd take the 5 year fixed at 3.19%.
What are the variable rates you're offered?

[albertGQ]

PS: congrats on the purchase! Exciting times!!!

[Jacks]

I'm by no means an expert on the subject but when I bought my house I used a mortgage broker that was referred by my realtor. He got me a better deal than the banks were offering.

It's been awhile but I'm pretty sure the bank paid the brokers fee and it didn't cost me anything.

Edit: Make sure you go with an option where you can pay extra each year and then pay whatever you can, every little bit helps. It's amazing how many years you can knock off your mortgage by putting a couple extra thousand (tax refund?) down each year.

[Wormius]

We went with First National and some of the payment options are really good - 10% lump sum every year, and being able to raise your payments by 15% / year as well as switching between the different payment schedules whenever you want.

We're on a 1 year fixed for 2.95% through them.

[Mike Oxlong]

With Interest rates at historic lows it might be a good time to lock in for as long as possible. A couple years ago a 5 year rate was over 5% so locking into a 10 year at 3.99% could certainly pay off down the road.

I'm sure you are happy with whoever you are using but I am fairly certain there are better rates out there than what you are getting now, not by alot but likely by .10%

Anyways one of the lenders I work with just sent out this FAQ about 10 year mortgages, it may answer some of your question and concerns. Particularly about the payout penalties on 10 year terms.
(Not saying ING has the best rates right now but it is an informative piece)

I am very interested in the 10 year term, but I have concerns...

Q. What is the penalty on a 10 year term?
A. According to the Interest Act, once 5 years has passed in the term, the maximum penalty is 3 months interest. For the first 5 years, the penalty is the greater of the interest rate differential and 3 months interest.

Q. I heard a statistic that 80% of mortgages refinance within the first 3 years. My client could get stuck paying a hefty interest rate differential.
A. All of ING DIRECT’s mortgages are transferable. If the client moves, he can transfer his mortgage to the new property and take a blended rate to avoid paying a penalty.

Q. But what if the client does not buy a new property?
A. In this case, the client will have to pay a penalty – the greater of the interest rate differential and 3 months interest. But consider the following: at ING DIRECT, we will calculate the penalty on the balance minus the unused portion of the 25% of initial capital (pre-payment privilege). AND ING DIRECT only has one rate, therefore our penalty will be calculated using the rate of 3.99% and not a much higher ‘posted’ rate like some banks who are at 6.75% posted for 10 years!

Q. I get the impression that there is a lot of risk involved in a 10 year product.
A. Rates are at historic lows. Economists are telling us that the rates could start to increase as early as the end of 2012. There is a strong possibility that in 3 years the 7 and 10 year rates will be higher than 3.99%. For ING DIRECT, our interest rate differential calculation would be negative leaving only a 3 month interest penalty for the client. Coupled with our transferability options, the risks for the client are low.

Q. What are the advantages of a 10 year term.
A. The advantages are a rate of less than 4% for 10 years! Two years ago the 5 year rate was at 5.25%... we have no idea where rates are going. With all that is happening in the global economy, mortgage stability offers a great financial security.


If you have any other questions or want to discuss things privately feel free to PM me.

[ranchlandsselling]

Mike's pretty bang on with the 10-year rate. That said - there's some sites out there that can show the rates you'd need to be renewing into to have the 10 year pay off in the long run. They're quite a bit higher than right now. That said... No one knows where rates are going and how quickly.

Another thing to consider. What are the odds you're going to need to pay off more than 10% a year. 15/20% is standard on most mortgages. But, let's say you have a $300 k mortgage. What are the chances you're going to need to pay off more than 60k in any 1 of the 5 years. Pretty slim. Not that you should take a mortgage with less of a paydown option - but the 10 year is likely fine at 10% given you can get out if it after year 5 with only 3 months interest.

Additionally, if you're young and this is your first house there's a good chance you've got some student or CC debt that is at a higher rate? You should pay that off first.

Yeah, you can probably get 3.09-3.14% from some brokers around.

At these rates I personally wouldn't go shorter than 5 years.

Good luck/enjoy. I'd message Mike if you've got more questions.

[afc wimbledon]

generally if it is your first mortgage it is a good idea to get a fixed rate for 5 years or so, gives you a chance to get used to things with a fixed monthly amount.

[#22]

I'm just about done my latest 5 year term @ 6.05 % and would jump at 3.19 % for five years. I agree with AFC, get the five year & get your feet wet, you can't really go wrong with interest rates this low ( When my parents bought here in '82 they paid 16 %!!!)

[ranchlandsselling]

Originally Posted by fotze

10% pricple is really low, is it not? Those sound like they are on the low end of pre-payment options.

Just do the math.
10 years, 10%.
5 years, 20%.

When the bank enters into the contract they'd like to know they're going to have a decent mortgage balance (at least something) each of the years of the term. If you could pay 20% on the 10-year the bank would have a less than $80k mortgage for the 6-10th years, then $62k, $50, $40, $32.

[GP_Matt]

Originally Posted by ranchlandsselling

Just do the math.
10 years, 10%.
5 years, 20%.

When the bank enters into the contract they'd like to know they're going to have a decent mortgage balance (at least something) each of the years of the term. If you could pay 20% on the 10-year the bank would have a less than $80k mortgage for the 6-10th years, then $62k, $50, $40, $32.

I don't have time to calc it all out, but your math doesn't work. If you can pay 10% a year, that is in addition to the normal mortgage payments that you are paying. On a $100 000 mortgage at 3.99 percent with 10k lump sum payments you will pay off the entire mortgage in about 7 years.

[macker]

http://www.ratebot.ca/

[oilyfan]

I just got a three year deal at 2.89% which I thought was the best deal out there. Even though the term is lower, the savings over 3.19% or 3.99% are substantial especially over 3 years.

I intend to take the 2.89% but make payments like I would have had a 3.19%. That way I will be much more ahead because I am paying principal down much faster.

[GP_Matt]

The post chain got confusing.
To add to the mortgage talk, I much prefer increasing my payments monthly vs. making lump sum payments. I like to raise my mortgage payments whenever I get a raise so you don't even notice the missing money.
Are variable rates getting any better or are they still pretty even with the best fixed rates? Does anyone know how much of a discount over prime a person can get with a variable right now?

[macker]

Check out ratebot. I don't think variable offers great value right now. About a year ago it was at prime minus 0.80 so about 2.20% now you can't get even close to that.

Canadian Mortgage Trends sent out a tweet a few days ago that 80-90% of mortgage brokers are going with fixed now and variable is out of fashion.....

[Wormius]

Originally Posted by fotze

10% pricple is really low, is it not? Those sound like they are on the low end of pre-payment options.

Sorry, both privileges were 15%. 15% on the original principal, and 15% increases on the regular payments.

[Wormius]

Originally Posted by fotze

Plus wormius said he is on a 1 year. or am I missing something?

I am, and with the same lender so nothing changed between our previous options. We are still able to pay 15% of the original principal even though we renewed for just the year, which is our last. 8 months and counting.

I am not sure what would happen if we had jumped ship though, does your principal become what the new lender took on?

[the wanderer]

What about a Heloc compared to a mortgage? My understanding is with a HELOC you can write of the interest for investments.

What do people think about that?

[Bill Bumface]

You can get a 10 year 3.89 and a 5 year 3.09 FYI.

Just hop on a broker site like http://www.truenorthmortgage.ca/, reference those rates at your bank. If they say no, just stop talking to them. It's like buying electronics from sounds around, you head for the door and they'll be chasing you out to give you what you asked for.