Hi Michael, Should I lock in if I have a variable rate mortgage?
Oct 29, 2009
NO…. But please read why, it is your decision at the end of the day. Well with that question, I am assuming you are in a variable rate mortgage. If thats the case, most Canadians are anywhere from .75{ea18e790148ddb141722068dfb73f9f74b06205fa18c7d39ece0e7144d0672b8} to .25{ea18e790148ddb141722068dfb73f9f74b06205fa18c7d39ece0e7144d0672b8} below prime. With bank prime being at 4.00{ea18e790148ddb141722068dfb73f9f74b06205fa18c7d39ece0e7144d0672b8} that gives you a rate of 3.25{ea18e790148ddb141722068dfb73f9f74b06205fa18c7d39ece0e7144d0672b8} to 3.75{ea18e790148ddb141722068dfb73f9f74b06205fa18c7d39ece0e7144d0672b8}. the 5 yr fixed rate is in a range from 5.55{ea18e790148ddb141722068dfb73f9f74b06205fa18c7d39ece0e7144d0672b8} to 5.99{ea18e790148ddb141722068dfb73f9f74b06205fa18c7d39ece0e7144d0672b8} due to “quick close” or ” no frills” Bonuses. So why lock into a higher rate? So why the wacky rates?…. REMEMBER…Variables float with Prime, fixed rates move with the bond market. It’s no secret that the banks have taken some sort of loss and are making up for it. its also not much of a mortgage secret that many of the banks books are very full with people holding variable rate mortgages vs fixed rate mortgages, some lenders even as high as 70{ea18e790148ddb141722068dfb73f9f74b06205fa18c7d39ece0e7144d0672b8}-30{ea18e790148ddb141722068dfb73f9f74b06205fa18c7d39ece0e7144d0672b8}. As an investor, a preferred book of business should be more balanced, 50{ea18e790148ddb141722068dfb73f9f74b06205fa18c7d39ece0e7144d0672b8}-50{ea18e790148ddb141722068dfb73f9f74b06205fa18c7d39ece0e7144d0672b8}. So how does a bank persuade customers to go fixed?. They will start to decrease the variable rate discounts. Some banks may even eliminate them completely. With many economists quotes that Prime rate will decrease anywhere up to 1.00{ea18e790148ddb141722068dfb73f9f74b06205fa18c7d39ece0e7144d0672b8}. so even a variable rate mortgage at prime could get you a rate as low as 3.75{ea18e790148ddb141722068dfb73f9f74b06205fa18c7d39ece0e7144d0672b8}. The teachers answer is: If you are currently in a below prime variable rate mortgage, enjoy the ride because according to this, your rate should decrease. But… Michaels advice is: Sit down and do a quick budget, try to if not increase your payment… at least hold your payment so when prime decreases, you will be able to look back at these years knowing you paid off a substantial amount of principal while rates were low.
