Need advice on mortgage rates!

[Canada 02]

Can someone help me understand the difference between Canadian and American banks and the mortgages offered. Down here, the only mortgages offered by my bank are 10, 15, 20 and 30 years, with rates ranging from 2.5 to 3.5%.

How would a short term (less than 10 years) mortgage work in Canada? I assume the amortization is longer than the term, correct? Do you re-new when the term is up, but keep the same amortization period?

Some banks down here offer adjustable rate mortgages, or ARMs, that are short term (3 to 7 years), were the rate is adjusted every 12 months or so based on some common index like 1 year treasury or LIBOR. The adjusted rate is also capped so it can only go up or down a maximum amount.

Are Canadian mortgages the equivalent of ARMs?

[blankall]

Nm

[macker]

Originally Posted by Canada 02

Can someone help me understand the difference between Canadian and American banks and the mortgages offered. Down here, the only mortgages offered by my bank are 10, 15, 20 and 30 years, with rates ranging from 2.5 to 3.5%.

How would a short term (less than 10 years) mortgage work in Canada? I assume the amortization is longer than the term, correct? Do you re-new when the term is up, but keep the same amortization period?

Some banks down here offer adjustable rate mortgages, or ARMs, that are short term (3 to 7 years), were the rate is adjusted every 12 months or so based on some common index like 1 year treasury or LIBOR. The adjusted rate is also capped so it can only go up or down a maximum amount.

Are Canadian mortgages the equivalent of ARMs?

In the US it is surprising that with the rates so low and the incentive that you can lower your taxes by having a mortgage why things aren't gaining more traction. Both countries hit yields today that are all-time lows after the US Job numbers and the Canadian GDP. I think the Bank of Canada could cut rates by December of this year and it seems to be pricing this in. For variables in Canada it is somewhat similar as the rate is called variable but basically is an adjustable rate and adjusts based on prime which is set at 3% right now. Within one year things have changed in the variable market where the rates are basically 1% higher even though prime hasn't changed so the initial offering rate has gone up and the banks are profiting from this.

As for making extra payment 15% etc. Canadians typically aren't doing this and 62% of extra lump sum payments are going directly to credit cards and 46% to lines of credit and only 22% to mortgages. Borth countries obviously have major consumer debt issues to be worked through and the average Canadian consumer debit is up again from last year at $26,029 so although the systems are slightly different the debt issues offer the same results with record low rates supporting things.

[ranchlandsselling]

Originally Posted by GP_Matt

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.

I had even less time as I was already late out the door for work. I didn't bother with am. as even without inlcuding it one sees how small of a mortgage is left with the paydown.

[ranchlandsselling]

Originally Posted by fotze

INGdirect shows:

5 Year Variable 3.00%
1 Year Fixed 3.09%
2 Year Fixed 3.15%
3 Year Fixed 3.19%
4 Year Fixed 3.25%
5 Year Fixed 3.49%
7 Year Fixed 3.99%
10 Year Fixed 3.99%

ING is a bit high right now. And given the bond yields on 5 vs 10 year the 5 year is a better deal.

5-year bond is (July 2017) 1.13%
10-year bond is (July 2022) 1.64%

Scotia right now has 80bps pricing between their 5 and 10 year rates and the bond is 51 bps.

So for the 5-year they're pricing 206 bps
So for the 10-year they're pricing 235 bps

Right now - the lender I work for, we're 180 bps for 5 year money and 205 bps for 10. But none of you can borrow from us.

[GP_Matt]

It looks like you can get a variable for 2.6%. From my experience, the posted rate is never what you pay. CIBC told me that the posted rate is for mobile homes and people with awful credit. That is why ING can post a lower rate, I think they just say no to those people.

[GP_Matt]

Originally Posted by ranchlandsselling

Right now - the lender I work for, we're 180 bps for 5 year money and 205 bps for 10. But none of you can borrow from us.

Not even if I tell them that I know you from online?

[tvp2003]

Since we're in the realm of talking about mortgage pre-payments:

Pro's of making bigger/additional payments:

- Guaranteed interest (savings) at the mortgage rate you're paying, tax free
- Lowers the amount owing/ammortization on the mortgage (all principle!)

Con's of making bigger/additional payments:

- Money is tied into the mortgage and can't be withdrawn unless you refinance
- Interest (savings) is "limited" to the mortgage rate you're paying (albeit tax free)
- Can't use the money for other savings such as RRSP's (I'm assuming you've paid off any other higher interest loans)

Anything I've missed?

Before when I was stuck on a fixed mortgage at > 5% putting money against the mortgage seemed like a no-brainer. Now that I'm currently paying 2.3 on a variable, I'm more inclined to keep that money "accessible" in TFSA rather than sink it into the mortgage...

Oh, and to the OP -- I think your decision depends on the size of the mortgage (and therefore the size of your payments), your risk tolerance, how stable you'll be financially over the next 5 years and 10 years. The room for additional payments can be nice, but as pointed out above, it may not make much difference in the grand scheme of things unless you're actually going to be making significant lump sum payments in addition to the mortgage.

[Deegee]

Originally Posted by 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?

You can write off the interest for any loan that is for investment purposes. However if you didn't purchase the investments with your HELOC you might be in trouble.

I am going to plug my company now, Mountain View Credit Union. I hope this is okay in a thread about Mortgages and the fact I have never plugged it like this before.

Our rates are good right now for a bricks and mortar bank. 2.99% 3 Year fixed, 3.19% 4 Year fixed, 3.39% 5 Year Fixed. We also have an Open Variable at 3% (our Prime - 1/2%) and a Closed Variable at 2.75% (our Prime less 3/4%). We do have a floor on our Prime rate, so our variable options give you some cushion on interest rate moves as we won't move ours until the market goes past 3.5%. The nice thing is we do interest rebates depending on our financial performance.

I've also done more then my share of deals for people who are self employed and do not claim income personally and show it corporately and construction mortgages. We're also in the market of giving these rates out on acreages that span in size up to a full quarter sections (160 acres) which is rare as far as I know.

Feel free to drop me a PM sometime if you ever want some in depth questions answered or your personal situation assessed.

[the wanderer]

Originally Posted by Deegee

You can write off the interest for any loan that is for investment purposes. However if you didn't purchase the investments with your HELOC you might be in trouble.

I am going to plug my company now, Mountain View Credit Union. I hope this is okay in a thread about Mortgages and the fact I have never plugged it like this before.

Our rates are good right now for a bricks and mortar bank. 2.99% 3 Year fixed, 3.19% 4 Year fixed, 3.39% 5 Year Fixed. We also have an Open Variable at 3% (our Prime - 1/2%) and a Closed Variable at 2.75% (our Prime less 3/4%). We do have a floor on our Prime rate, so our variable options give you some cushion on interest rate moves as we won't move ours until the market goes past 3.5%. The nice thing is we do interest rebates depending on our financial performance.

I've also done more then my share of deals for people who are self employed and do not claim income personally and show it corporately and construction mortgages. We're also in the market of giving these rates out on acreages that span in size up to a full quarter sections (160 acres) which is rare as far as I know.

Feel free to drop me a PM sometime if you ever want some in depth questions answered or your personal situation assessed.

What's your rate on a heloc?

[Deegee]

Originally Posted by the wanderer

What's your rate on a heloc?

Depends on the situation.

We have done a couple at our Prime rate less 1% for 1 year, converting into our Prime less 1/2% thereafter.

[RubberDuck]

Looking for some opinions on this.

I am two years into a 5 year fixed at 3.9%. My lender has offered to renew for another 5 years at the same rate of 3.9%. No fees or anything.

I know there are slightly better rates out there right now but the payout penalty would not make it worthwhile to change lenders at this point.

In todays market, would you take it or leave it hoping for a better rate come renewal time in three years?

[linecook]

Google "avoid the 5-year fixed mortgage trap". Very informative article and the main arguement is to go with a variable rate or short term fixed over the 5 year fixed rates. I switched over to a variable rate 2 years ago with the rate capper offered by RBC (I don't think this is an option anymore) and have saved thousands. When I renew my agreement I will probably switch to a 1 year fixed rate and renew yearly.

[Bill Bumface]

Originally Posted by RubberDuck

Looking for some opinions on this.

I am two years into a 5 year fixed at 3.9%. My lender has offered to renew for another 5 years at the same rate of 3.9%. No fees or anything.

I know there are slightly better rates out there right now but the payout penalty would not make it worthwhile to change lenders at this point.

In todays market, would you take it or leave it hoping for a better rate come renewal time in three years?

You can currently get a 5 year 2.99% and a 10 year 3.89%. If you sign this, somewhere, some lending institution employee will be chuckling to themselves at all the money they just stole from you.

Why do you think they approached you? Because they are trying to help you out, from the goodness of their hearts?

[blankall]

Originally Posted by hulkrogan

You can currently get a 5 year 2.99% and a 10 year 3.89%. If you sign this, somewhere, some lending institution employee will be chuckling to themselves at all the money they just stole from you.

Why do you think they approached you? Because they are trying to help you out, from the goodness of their hearts?

The issue is that he is already locked in for 3 more years. He can't get the 2.99 rate or the 10 year deal without paying about $6000 to break his current mortgage.

[stacey]

Originally Posted by hulkrogan

You can currently get a 5 year 2.99% and a 10 year 3.89%. If you sign this, somewhere, some lending institution employee will be chuckling to themselves at all the money they just stole from you.

Why do you think they approached you? Because they are trying to help you out, from the goodness of their hearts?

No I think everyone is chuckling at you...

Do you really think this same offer will be there for him 3 years from now when he goes to renew?

[Sopure]

Since I asked you all for advice, I've bought the place and I signed up for the 3.89% fixed rate for ten years. I take possession on July 1!

I'm still relatively new to the home-buying process and mortgages in general, but in regards to what RubberDuck asked, my mortgage broker said that when you're coming up to your renewal, the bank will in fact offer you rates that quite simply aren't the best. He advised not to sign the form and send it back, even though it seems ridiculously easy to do and doesn't bring much brain damage. It makes sense, I guess.

He advised to do some digging around and see what kind of rates are offered.

I like the ten year rate because I'm not sure where rates are headed for the next three to six years. There seems to be a lot of speculation that they're going up-- how high is the question.

He beat the 3.99% fixed over ten years as soon as I called him, so I was happy with the deal. If you need some contact info, RubberDuck, I can give you his information. Maybe you have some more options?

[ranchlandsselling]

Originally Posted by blankall

The issue is that he is already locked in for 3 more years. He can't get the 2.99 rate or the 10 year deal without paying about $6000 to break his current mortgage.

3.90% for three years blended with 3.29% (likely the best his bank is offering) for two years with the penalty blended into the rate is less than the 3.90% they're offering you. They're charging you the penatly either way. It's just blended into the rate.

Do the math on what your payments would be at current rates plus the penalty vs. your current mortgage vs. what they're offering you and see which one works out best. I don't have time to get into this more but feel free to PM me.

[Bill Bumface]

Originally Posted by blankall

The issue is that he is already locked in for 3 more years. He can't get the 2.99 rate or the 10 year deal without paying about $6000 to break his current mortgage.

Which is a steal compared to how bent over he'd get on the 5 more years of 3.9%.

[Bill Bumface]

Originally Posted by stacey

No I think everyone is chuckling at you...

Do you really think this same offer will be there for him 3 years from now when he goes to renew?

a 2 year for 3.9% or less?

Yes, I absolutely think that same offer will be there. Unless they are actually adding 5 years on, making this 8 more years at 3.9%. I'd still take that bet.

I don't think there are many ways you could financially handle this worse than signing a 5 year extension at 3.9%. I can't predict rates, so we'll have to wait 3 years and see, but give me a time in history, and I'll show you that this would have been a bad choice, every time.