Fixed or variable rate mortgage?

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peter31's picture
peter31
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Posts: 34
Fixed or variable rate mortgage?

Good morning

We are thinking about renegotiating our mortgage (with RBC) from a 4.49% fixed rate mortgage to a variable rate mortage.  It may be 15 years before we pay the mortgage off.  I'd appreciate your thoughts on whether this is a good idea or not, and how you think interest rates might move in the next few years.

Thanks!

Peter

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ao
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Posts: 2220
peter31 wrote: Good
peter31 wrote:

Good morning

We are thinking about renegotiating our mortgage (with RBC) from a 4.49% fixed rate mortgage to a variable rate mortage.  It may be 15 years before we pay the mortgage off.  I'd appreciate your thoughts on whether this is a good idea or not, and how you think interest rates might move in the next few years.

Thanks!

Peter

Why do you wish to renegotiate from a fixed rate to a variable rate?

peter31's picture
peter31
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Posts: 34
Good question.  Answer: I

Good question.  Answer: I don't.  It's my wife who is pushing for this, and I am looking for some ammunition to defend what we have, which I think is probably quite a good deal.  She thinks she can save a few dollars on the monthly payments.  I think that if inflation and interest rates go up, which I think they will, we will be glad we kept what we've got.  I posted this same question on another financial discussion forum and got several answers which were all "keep the fixed rate".

You have probably guessed from reading this that my wife has not seen the Crash Course, which makes joint financial planning rather tricky, to say the least, because we have completely different world views of where things are headed.

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joemanc
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Keep the fixed

Rates are near all time lows. If you go variable and rates rise, then what? If rates drop from where you are now, you can always re-finance lower.

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Travlin
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peter31 wrote: We are
peter31 wrote:

We are thinking about renegotiating our mortgage (with RBC) from a 4.49% fixed rate mortgage to a variable rate mortage.  It may be 15 years before we pay the mortgage off.  I'd appreciate your thoughts on whether this is a good idea or not, and how you think interest rates might move in the next few years.

I don't know if you get any kind of tax break on a mortgage in Canada, and I don't know your inflation rate there (real verses official).  But in the US a 4.9% mortgage would be free money.  As was pointed out above you can't lose with your fixed rate, and you can lose big time with a variable. This would be true even in a normal economic environment. 

Be very firm on this issue with your wife.  The small monthly savings now would cost you a lot more later.  In addition, what are the costs to refinance the loan?  That can quickly wipe any savings from a lower payment. 

I thought all mortgages in Canada adjusted rates every five years.  Am I wrong about that?

Travlin 

peter31's picture
peter31
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Posts: 34
Inflation

My wife has agreed that we need to stay on a fixed rate mortgage.  As to whether all mortgages in Canada adjust rates every 5 years, I'm not sure but I wouldn't think so.  A mortgage is a contract, and the contracting parties can usually set the conditions of the contract to be anything they like.

Regarding the real vs official inflation rate in Canada, that's an interesting question.  I know they are very different in the US but I don't know if Canada massages the figures in the same way.  So what I have been doing for the last 18 months is every once in a while, I keep my wife's grocery bill (she always shops at No Frills).  Then, if a loaf of bread is going up by 10% each year but the Powers That Be tell us that inflation is only 2%, I will know there's something wrong (and I can point this out to my wife). 

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Anne101
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I know I am a little late

I know I am a little late to this conversation, but I am happy your wife (and you) :) decided to stick with the fixed rate mortagage.  With mortgage rates at an all time low, I can't imagine refinancing with the risk of them increasing being a good idea. 

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