Real Estate

5y Mortgage: Fixed or Variable?

  • Last Updated:
  • Sep 5th, 2015 5:16 pm
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Sr. Member
Feb 10, 2015
606 posts
228 upvotes
I just took a three year variable. IMO a shorter term than 5 years is better.
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Apr 17, 2005
11025 posts
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Brampton
Definitely variable!
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Aug 2, 2010
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Here 'n There
patrob wrote: Definitely variable!
Another guy with a crystal ball
Deal Guru
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Apr 17, 2005
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Brampton
eonibm wrote: Another guy with a crystal ball
OP is asking for opinions and variable is what "I" would choose! And don't assume everyone here is a guy ;)
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Deal Addict
Mar 12, 2008
1631 posts
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Toronto
WGretzky wrote: Take variable but keep the payments as if you were payi 5 year fixed!
best advise in this thread
Deal Expert
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Jun 9, 2003
24704 posts
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Markham, ON
ShadowVlican wrote: I've read that the U.S. Federal Reserve Bank could raise interest rates as early as September.. Would Canada follow?
also read today about the possibility of QE in Canada if the economy continues to stall ....that would push down rates (5-30 yr rates) for sure..
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Jul 5, 2004
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redzone wrote: best advise in this thread
Agreed, unless the OP has other debt, in which case he'd be better off working on erasing that debt first.
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Jul 5, 2014
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Toronto, ON
Shaner wrote: Agreed, unless the OP has other debt, in which case he'd be better off working on erasing that debt first.
what happen Us increases rate? will canada play the same game?
Deal Addict
Mar 12, 2008
1631 posts
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Sassi4ss wrote: what happen Us increases rate? will canada play the same game?
what ifs will always be there. statistically variable has been the way to go for 30+ years. Think about it. With variable rate You are taking risk away from the banks. with fixed banks arnt going to loose money so there going to build in a good buffer to make sure the risk is manageable.
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Aug 10, 2015
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Elgin, ON
I'm quite risk adverse, so I went fixed.

The way I see it, rates right now are pretty darn low. They may fall a little, but they are obviously not going to go down 3%. Right now, it certainly does not look like the rates are going to increase sharply in the next 5 years, but it is possible that they could climb.

*I'm not an expert on the subject.
Member
Jul 7, 2012
276 posts
47 upvotes
Kanata
WGretzky wrote: Take variable but keep the payments as if you were payi 5 year fixed!
Ditto.
More money goes to principal - shorting a bit the original amortization period
Have a reasonable buffer in terms of interest to take on any increase in the future

Will see where it goes
Deal Addict
Oct 12, 2008
1876 posts
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Markham
The interest rate isn't going to go up anytime soon. The interest rate is a lot less complicated than real estate prices, and it's not a 50/50 gamble in a casino. While real estate prices are a complex set of data, which means tons of guess work, interest rate is set by the central bank. That means a bunch of economist crunch largely the same numbers as other economists (the experts who predict short term interest rates in major newspapers). While sometimes you get conflicting information, right now most economist agree that Canada's economy isn't doing very well. Anyone who has taken intro economics in university should know that lowering interest rates is one of the ways monetary policy can be applied to increase economic growth.

With the way Canada's economy is performing, even if we are recovering slightly, I doubt the government would rush to increase the interest rate, and I don't even think we're recovering. Chances are very good that the interest will either lower or remain the same.

Tl;dr: Get variable and lock into fix only when you can't afford it if the interest rate increases more. Otherwise, get variable, it's statistically more likely to save you money.
Newbie
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May 6, 2014
95 posts
5 upvotes
Aritzia wrote: I got 1.95% from one of the big banks for closing this month.
I got 1.95% also. I guess mortgage brokers get paid on commission based on some function of that rate. I love it how brokers give you 'just enough'. Broker A tells you 2.2% is their best rate, then you go to Broker B and tell them you got 2.2% and then they come up with 2.1%, go to Broker C next with the 2.1% and they find 2.0% (maybe because I've been talking to independent brokers). There are lower rates but they don't actually give these rates. This was my experience. You have to go to every bank and get them to beat the rates. By the way it helps if your credit and income is good.
Sr. Member
Feb 28, 2009
567 posts
394 upvotes
Ottawa
1.85 5 yr variable and 2.39 5 yr fixed are widely available through brokers on this site posting in the mortgage rates thread. My renewal is coming up and lowest my bank (national) would go is 2.69 for 5 year fixed even with weitten proof that I was getting lower rates. However Rbc was more competitive offering me 2.54 for 5 year fixed or prime - 0.75 = 1.95 for 5 yr variable (same as you). I think my strategy will be to choose a variable rate and like I've said earlier in the thread keep my payments as if I were paying the 5 yr fixed rate.
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Feb 1, 2009
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divx wrote: yes, eventually, so go variable now and when that happens lock in to fixed rate
Do you pay a penalty doing this?
Deal Addict
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Feb 1, 2009
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flatblack wrote: I got 1.95% also. I guess mortgage brokers get paid on commission based on some function of that rate. I love it how brokers give you 'just enough'. Broker A tells you 2.2% is their best rate, then you go to Broker B and tell them you got 2.2% and then they come up with 2.1%, go to Broker C next with the 2.1% and they find 2.0% (maybe because I've been talking to independent brokers). There are lower rates but they don't actually give these rates. This was my experience. You have to go to every bank and get them to beat the rates. By the way it helps if your credit and income is good.
Do you mind mentioning which bank help you?
Sr. Member
Feb 28, 2009
567 posts
394 upvotes
Ottawa
aokec wrote: We are planning to take a 300k mortgage for 5 years.

Is it better to take a fixed mortgage at 2.69% or a variable at 2%?

Over 5 years, the difference would be 17.6k assuming biweekly accelerated payments and no pre-payments.

Nobody can predict how rates will go, but 5 years seems like a lot of time for interest rates to go up?

Thanks
So what did you decide?
Deal Addict
Jun 11, 2005
2660 posts
319 upvotes
Dave510 wrote: The interest rate isn't going to go up anytime soon. The interest rate is a lot less complicated than real estate prices, and it's not a 50/50 gamble in a casino. While real estate prices are a complex set of data, which means tons of guess work, interest rate is set by the central bank. That means a bunch of economist crunch largely the same numbers as other economists (the experts who predict short term interest rates in major newspapers). While sometimes you get conflicting information, right now most economist agree that Canada's economy isn't doing very well. Anyone who has taken intro economics in university should know that lowering interest rates is one of the ways monetary policy can be applied to increase economic growth.

With the way Canada's economy is performing, even if we are recovering slightly, I doubt the government would rush to increase the interest rate, and I don't even think we're recovering. Chances are very good that the interest will either lower or remain the same.

Tl;dr: Get variable and lock into fix only when you can't afford it if the interest rate increases more. Otherwise, get variable, it's statistically more likely to save you money.
Interest rates determination are a bit more complicated than what you described. The bond markets determine the fixed rates, whereas the short term rates are based on BOC decisions.

I went with a 5-year fixed recently but part of the decision was based on the high leverage for the property.

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