Let's talk mortgages...

[Dreamer_D]

Specifically variable or fixed rate?

We got a fixed rate mortgage about 3 years ago at 3.99% because at the time, variable mortgages were prime-plus, which is not a very good deal long term. Now, mortgages are prime-minus again and we can get a 2.1% mortgage that way! By my math that will save us about $500 per month on our payment AND gain us about $15k in paid principle in 5 years to boot. We are thinking of paying the penalty on our present mortgage to switch to a variable rate (convertible) because the savings are so huge.

So I wonder if anyone has any thoughts of fixed versus variable? How did you choose? Has anyone ever done what we are thinking of doing and are you glad or do you regret it?

 

[texaskj]

As someone who let her (ex) husband talk her into a variable rate....Don't do it. Variable rate mortgages always bite you somewhere down the road. You'll just end up refinancing. Besides, what are the closing costs? Points? 3.99% is an incredible rate, be happy with it, I would.

 

[swingirl]

How long do you plan on staying in your house? That usually makes a difference.

 

[movie zombie]

variable mortgage? no way.....unless you know for certain that within one year you will be gifted enough $ to pay the place off. variable mortgages are not the consumers' friend.

 

[Italiahaircolor]

In one word...NO! It sounds good, sure...but as good as it is right now, that's how bad it get down the road.

 

[Dancing Fire]

DD...are you nuts?.. with fixed rate near historic low don't even think about switching to a variable mortgage..

 

[autumngems]

NOOOOOOOOOOOO Don't do a variable rate. 3.9 is great and who knows what will happen with variable

 

[Dancing Fire]

variable mortgage? no way.....unless you know for certain that within one year you will be gifted enough $ to pay the place off. variable mortgages are not the consumers' friend.

depends,if fixed rates are high (i.e. over 10%) then a variable might be a good choice.

 

[packrat]

I wouldn't do it D. When we got our house the only loan we could get was variable. There was a certain time frame before we could refinance to fixed rate, and during that time our interest jumped quite a bit..tho actually, there was a period of time *right* before it went up that the bank called about refinancing to fixed rate and my dad told us it would be stupid to pay the closing costs, assessors fees etc all over again, so we didn't, and got screwed. We refinanced after that tho and were able to get a 15 year loan instead of another 30 year, but the rate wasn't as good as it had been so our payments weren't as good..we'd probably be paying about $150 less/month if we'd refinanced to fixed right away. Plus, we had cut out all these things from the papers showing "historical lows" on interest rates and the bank laughed at us. Those were for first time loans not refinancing, so here we thought instead of 8% we were going to be down to like 3%..nope.

 

[Dancing Fire]

Specifically variable or fixed rate?

We got a fixed rate mortgage about 3 years ago at 3.99% because at the time, variable mortgages were prime-plus, which is not a very good deal long term. Now, mortgages are prime-minus again and we can get a 2.1% mortgage that way! By my math that will save us about $500 per month on our payment AND gain us about $15k in paid principle in 5 years to boot. We are thinking of paying the penalty on our present mortgage to switch to a variable rate (convertible) because the savings are so huge.

So I wonder if anyone has any thoughts of fixed versus variable? How did you choose? Has anyone ever done what we are thinking of doing and are you glad or do you regret it?

but don't forget you'll start over again... and what did you meant by "penalty"?

 

[Miss Sparkly]

With rates being so low they really only have one place to go - up. If you're not going to stay in the house long term then go for it but anything over a couple years I would say no way.

eta: you said it would save you money in five years. That's only if the rates stay the same correct? Five years ago in 2006 rates hovered right around 6% and nobody thought they'd drop as low as they have just as nobody knows what they will be in 2016. There hasn't been a single year in which the rates were the same as the previous year. On average they seem to fluctuate by about 1% between years

 

[Fly Girl]

Ditto everyone else. When rates are near historic lows, that is the time to lock in a fixed rate. Variable rates can, and will, go up at some time in the future.

 

[Dreamer_D]

It is funny to see you all say this. It goes against what I have always read which is that over the longer term, variable wins.

I wonder if the country matters at all? In Canada mortgages operate very differently than in the states.

The penalty would be about $5000 to switch. The rate is prime - 0.90 so that mean prime would have to rise to approximately 4.9% for the interest rate on a variable mortgage to be equal to what we pay now. The rate would be convertible to fixed at any point without penatly.

 

[megumic]

Haha DD I'm so glad you posted this, it was my next question! I've also heard that fixed rate are the best bet.

My next question: mortgage from a bank/credit union or mortgage broker???

 

[MissGotRocks]

If I had a 3.99 interest rate, I would certainly not pay 5k to switch to a variable. Rates can fluctuate for lots of reasons but with today's housing market what it is, I wouldn't want to take a gamble. I remember in the 80's when rates were at 16-18% and they rose to that level rather quickly. Most folks were going with variables because they couldn't afford the fixed rates but they got hosed with those escalating variable mortgages before they could get out of them. There were caps on them but there was also lots of fine print. . .and therein laid the nightmare!

 

[Echidna]

It is funny to see you all say this. It goes against what I have always read which is that over the longer term, variable wins.

I wonder if the country matters at all? In Canada mortgages operate very differently than in the states.

DD, variable always wins out in Australia too. We have a variable rate and have consistently paid less for the life of our loan. That said, we are paying 7.04% and that is considered cheap here (although property prices are sky high)! Sorry I can't add more to the discussion.

 

[Dreamer_D]

Funny thing is, 2 years ago everyone said interest rates were an all time low. That is when we got the 3.99%. Today the fixed 5 year rate is around 3.5%. Go figure.

 

[Miss Sparkly]

So you pay $5,000 to maybe save $15,000 netting $10,000 once again maybe Gambling mortgage style In all reality if somebody were to keep a variable rate mortgage for many years and was fully prepared for the fluctuation, I can easily see how in the end they could be ahead. Problem is, I don't see many people of the younger generations (40 or younger) doing that. There's always something they want to upgrade to.

 

[iota15]

Specifically variable or fixed rate?

We got a fixed rate mortgage about 3 years ago at 3.99% because at the time, variable mortgages were prime-plus, which is not a very good deal long term. Now, mortgages are prime-minus again and we can get a 2.1% mortgage that way! By my math that will save us about $500 per month on our payment AND gain us about $15k in paid principle in 5 years to boot. We are thinking of paying the penalty on our present mortgage to switch to a variable rate (convertible) because the savings are so huge.

So I wonder if anyone has any thoughts of fixed versus variable? How did you choose? Has anyone ever done what we are thinking of doing and are you glad or do you regret it?

Everything I've read says VARIABLE wins too. You pay more interest with fixed for the stability. Banks have to guess what interest rates will be in the future - and then they have to bump up their estimates by a bit in case they are low.

Like you said, with prime - 0.9, prime would have to jump to 4.9% for you to pay what you are paying now. Plus, you have to consider that you're paying for this mortgage over five years. For lack of a better word, your "bet" is that prime will not be more than 4.9%/year on average (or an effective mortgage rate of 3.99%) over the course of these five years.

Let's give an example, assuming prime rate is (*these are all admittedly complete guesses*):

Year 1 - 3.1% average prime for this year
Year 2 - 3.8% average "
Year 3 - 4.5% average "
Year 4 - 6% average "
Year 5 - 7% average "

The average of these five years is 4.88% - which is better than what you are currently paying. It depends on what you're comfortable with and how likely you think the above scenario is.

If it helps, if the five year fixed rate is 3.5% right now. This means the banks are betting that this will be a good rate over the next five years. Like GIC's, it's very rare in the financial world for someone to give you a "deal" for certainty - and that's what fixed mortgages provide.

 

[Mara]

My 2 cents. Can you easily refinance to fixed with no costs to yourself (aka thru a bank where they don't charge fees) in a year or two or three? If so, I would go for variable now and save the $$ up front. But you'll also need to keep an eye on prime and the rates and the market and be ready to move quickly if you see things going up again. Also depends on how long you might want to be in the house.

One of our mortgages is on variable because it rolled over and the mortgage is ridiculously low right now and has been for 2 years. But we know at some point it'll start going back up so when it does, we'll refi into a fixed until we sell the property (it's a rental right now).

We also just refi'd our house we've been in for 2 years this year down to a slightly lower rate with the same timeline/term and it saved us $500 a month and cost us nothing because we did it thru our bank and they don't charge any fees to refi. That was a no brainer.

 

[texaskj]

Haha DD I'm so glad you posted this, it was my next question! I've also heard that fixed rate are the best bet.

My next question: mortgage from a bank/credit union or mortgage broker???

Just go for the best deal, odds are pretty good they're going to sell the mortgage anyway.

 

[diamondseeker2006]

I can't imagine switching to variable when fixed rates are as low as the are! If you were only staying in the house 3 or 4 years it might be worth the risk, but I wouldn't do it if you plan to stay in the house long term! Our rate is about 4.5% which is the lowest we have ever had, and we are VERY happy to have a fixed rate that low.

 

[chemgirl]

It is funny to see you all say this. It goes against what I have always read which is that over the longer term, variable wins.

I wonder if the country matters at all? In Canada mortgages operate very differently than in the states.

The penalty would be about $5000 to switch. The rate is prime - 0.90 so that mean prime would have to rise to approximately 4.9% for the interest rate on a variable mortgage to be equal to what we pay now. The rate would be convertible to fixed at any point without penatly.

Fixed rate at 3.99%! RBC's been quoting us over 7%! We were thinking of going with a variable with a convertible rate in case rates start going crazy. Also, clearly we won't go with RBC if their rates are higher than at other places. Granted we haven't met with them since February so things have probably changed. We were being quoted around 3% for a variable rate. 3.99% for a fixed rate sounds amazing, sign me up, that would take a lot of the guesswork out of it for us. I think generally you read that variable rate is better over the long term (at least in Canada) because fixed rates are so high. In your case, the fixed rate is low and I personally think you should keep it IF you plan on having your mortgage for a while. If you think you can pay everything off in a few years than I would think switching to variable is a good idea. I'm no expert though.

 

[neatfreak]

Dreamer, I think mortgages in Canada vary A LOT from mortgages in the US. IIRC, they don't work the same way at all so the advice of us folks may not be super helpful for you...

 

[NOYFB]

This topic is timely for me. I am in discussions with my mortgage broker right now about switching to a 5 year ARM at 3.75 (our current 30 year fixed rate is 5.5) and then refinancing to a 15 year fixed before the term is up (3-4 years). We have some other debt that needs to be paid off and the extra $300 a month will go towards that debt. Then when we switch to the 15 year fixed we will be paying higher payments, but we will be in a better position to afford it (with the other debt paid off) and ultimately pay down our principle enough to sell at some point. Right now, we are so underwater with our mortgage, due to a cash out refi 2 years ago when DH lost his job, that at this rate we would never be able to sell. We have been in our home for 8 years and never planned to stay this long. When the housing market crashed we lost all hope. Now, thanks to the short and long-term plan I have, we will get out from under this house sooner and move on to our dream home.