Home Variable, fixed, or convertible mortgage?

[Dreamer_D]

Okay, what would you do and how would you make the decision?

Fixed we would take a three year term locked in around 3.65%

Variable is, well, variable but rates are only 2.65% right now and the bank of Canada will not be rasiing prime substantially any time soon because they are trying to stimulate the economy (supposedly).

Convertible would be fixed until prime hit around 3.25%, then we would probably lock into a fixed rate around 5.25% or so.

ALSO...

25 year amortization (less interest) or 35 year amortization (lower monthly payments combined with lump sum yearly payments -- this option appeals b/c it means if an emergenct happens the lump sum funds are available)?

 

[Italiahaircolor]

Call me gun shy...but after the sub-prime mortage disaster, I''m all about keeping it simple. So for me, I''d choose fixed. Maybe because I''m not a "numbers gal" I always want something that clearly shows me what I need to pay each month and for how long I''ll be paying it.

But, before making a decision, speak with your broker...share with him your goals, current status and let him guide you to what will work best in the long run.

 

[chrono]

I would choose fixed because who knows how high the interest might go up to once the term expires. It''s pretty low right now too so that''s a good incentive. As for the time period, you can handle the 25 years, that would be better due to lower interest paid out. If not, then the 35 years but maybe make extra payments whenever possible to bring that number down sooner if there is no early payment penalty?

 

[Dreamer_D]

Date: 6/18/2009 9:47:32 PM
Author: Italiahaircolor
Call me gun shy...but after the sub-prime mortage disaster, I'm all about keeping it simple. So for me, I'd choose fixed. Maybe because I'm not a 'numbers gal' I always want something that clearly shows me what I need to pay each month and for how long I'll be paying it.

But, before making a decision, speak with your broker...share with him your goals, current status and let him guide you to what will work best in the long run.

We are working with a mortgage broker, but ultimately they can't make the decision for us! ETA He has given us his ideas about pros and cons but we are still a little torn. I too like the predictability of the fixed, but in the looooong term people who go variable always win out. The issue is being stalwart enough mentally and finalcially to hangle the times when rates are high.

 

[Dreamer_D]

Date: 6/18/2009 10:01:21 PM
Author: Chrono
I would choose fixed because who knows how high the interest might go up to once the term expires. It''s pretty low right now too so that''s a good incentive. As for the time period, you can handle the 25 years, that would be better due to lower interest paid out. If not, then the 35 years but maybe make extra payments whenever possible to bring that number down sooner if there is no early payment penalty?

The mortgage we choose will allow us to make lump sum payments on the principal once a year, so with the 35 year amortization we would try to do this, but if interest rates went up or we have unexpected expenses, we could simply make the basic payments. So it feels "safer" to do this, but it is more costly for sure.

 

[D&T]

Lower payment options is much more appealing since you stated you would like to have extra reserve funds for emergency. As long as you can make extra payments towards your principal without prepayment penalties. A home mortgage is a necessary loan. You can always Refi later if need be. I know many people having worked in the financial industry that have taken variable loans, even with student loan to gauge what their incomes might be so they can have two years to better prepare for repayment later or whatever the first term is. Having that extra cushion for very disciplined people can work to your advantage, ie: if you have a car loan that has higher interest or other debt that might be higher interest. If you don't have any other higher interest debt than your home mortgage than maybe the better option is to go fix. Just a thought

 

[Dancing Fire]

no brainer...FIXED !! interest rate are near historic low why mess around? only one way for interest rate to go in the future.