Real Estate

which mortgage rate is better?

  • Last Updated:
  • May 21st, 2021 8:52 pm
[OP]
Member
Jan 24, 2015
322 posts
34 upvotes
Oakville

which mortgage rate is better?

I got early renewal offer from CIBC:
1.94, 3 years fixed
1.99, 4 years fixed
2.19, 5 years fixed
p-1.06, 3 or 5 years variable

Which one is better? I don't have plans for selling or refinancing, and it could be difficult for me to switch mortgage.
Thank you.
17 replies
Sr. Member
Mar 30, 2017
959 posts
665 upvotes
variable
and shop around.
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Member
Dec 13, 2010
434 posts
519 upvotes
Vancouver
You should post your question at the mortgage rates thread - lots of good info there, and brokers there can answer your question:
official-mortgage-rates-thread-351105/


Offhand, the fixed rates seem on the high side, but it also depends if your mortgage is CMHC insured or not. Post your question in the thread above, using the templates on page 1 and you will get a good answer, and the brokers there reply very quickly.
Deal Addict
Nov 13, 2013
2896 posts
1606 upvotes
Ottawa
mastaj wrote: You should post your question at the mortgage rates thread - lots of good info there, and brokers there can answer your question:
official-mortgage-rates-thread-351105/


Offhand, the fixed rates seem on the high side, but it also depends if your mortgage is CMHC insured or not. Post your question in the thread above, using the templates on page 1 and you will get a good answer, and the brokers there reply very quickly.
This is good advice but OP is looking at an early renewal so depending when renewal is probably doesn't want to switch at this point. With rates rising theoretically the 2.19 could work out well but it's well above current market rates and very likely you will be able to get a better rate at least through end of 2021.
Member
Dec 13, 2010
434 posts
519 upvotes
Vancouver
fogetmylogin wrote: This is good advice but OP is looking at an early renewal so depending when renewal is probably doesn't want to switch at this point. With rates rising theoretically the 2.19 could work out well but it's well above current market rates and very likely you will be able to get a better rate at least through end of 2021.
Very true - but we don't know when OP's mortgage is up. If it's within 3-months they can renew with another lender without penalty; plus a few other details which would help, so I do think it's best to post in that thread with additional info.
Deal Addict
Mar 22, 2010
3050 posts
913 upvotes
If this is 30 year amortization, you are pretty much in line for 5 year fixed. For 5 year variable, I would shop around for little more discount or cashback.
Deal Guru
User avatar
Sep 14, 2003
10687 posts
608 upvotes
Mississauga
There's lots of variables here, and what's the best decision is probably up to your risk tolerance.

Historically, variable rate mortgages outperform fixed rate mortgages - however, consider that we haven't seen inflation rear its head in damn near two decades. With mortgage rates getting lower and lower over time, it's little wonder that variable has historically won.

Mortgage rate history

I, personally, believe we're on the precipice of mortgage rate increases. Inflation is being triggered by the availability of free money through CERB and other government assistance plans that people are taking advantage of. One of the key ways to combat inflation is through interest rate increases, which, combined with bond market having to adjust, makes the cost of mortgage borrowing higher. Variable rate mortgages offer you a gamble: do you want to come out 0.2% lower than your fixed peers vs. the potential of paying 1-2% more if rates go up? That same gamble has driven many many people to take the fixed premium.
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[OP]
Member
Jan 24, 2015
322 posts
34 upvotes
Oakville
The maturity date is Sep. 13. Principal balance is about $390,000. Projected years to pay off is about 17 years.

I posted in the mortgage rates thread and have got their rates. If I couldn't switch to another lender or the CIBC offer is the best I can get, which one is better? The brokers didn't answer this question. Thank you.
Member
Dec 13, 2010
434 posts
519 upvotes
Vancouver
ChristineY wrote: The maturity date is Sep. 13. Principal balance is about $390,000. Projected years to pay off is about 17 years.

I posted in the mortgage rates thread and have got their rates. If I couldn't switch to another lender or the CIBC offer is the best I can get, which one is better? The brokers didn't answer this question. Thank you.
There's no right or wrong answer here. It really depends on your risk tolerance, and what will allow you to sleep best at night. Here are some considerations:
  • CIBC's variable rate mortgage keeps your payment the same each month - if interest rates go up, more of your payment goes to interest vs. principal, and vice versa. But your monthly payment remains the same throughout your term (unless rates rise significantly, above your "trigger rate", which is usually unlikely to occur - although anything can happen)
  • If you choose a fixed rate, you are betting that rates will go up quickly during your mortgage term - for this bet, you are taking a higher interest rate on your mortgage to start
  • If you choose a variable rate, you are betting that rates will stay the same, go down, or at least not increase early on in your mortgage term. For this bet, you get a lower rate to start, but one that has the potential to increase and cost you more over the term
  • If the BOC raises interest rates, this does not mean that you lose out with a variable rate. Since you start out with a lower rate, it has to rise early and often, for it to have cost you more money. Even if rates go above what you could have gotten in a fixed, this has to occur within the first 1 or 2 years, in order for the fixed rate to win out
  • Breaking a fixed rate mortgage is significantly more expensive than breaking a variable rate mortgage. Most fixed mortgages use an IRD calculation, based on posted (not actual) rates, often resulting in thousands to tens of thousands of dollars in break penalties. Variable mortgages use 3-months interest as a penalty
  • While most people say they have no plans to break their mortgage, recent data shows that upwards of 40% of people actually do. This could be because of selling their home, moving, wanting to refinance their mortgage, or move lenders

Again, there's no right or wrong answer, it depends on what works for you individually. For me personally, the lower break penalty and the spread between fixed and variable you are being offered - I would take variable. I fully believe that rates will be going up, and will probably be 2%+ within the 5 year mortgage term. However, I also do not think the BOC will raise rates until late in 2022, and will only do so slowly - so by the time the rates are at or above the 2% mark, I think it will still have been better off going variable.

Good luck!
[OP]
Member
Jan 24, 2015
322 posts
34 upvotes
Oakville
mastaj wrote: There's no right or wrong answer here. It really depends on your risk tolerance, and what will allow you to sleep best at night. Here are some considerations:
  • CIBC's variable rate mortgage keeps your payment the same each month - if interest rates go up, more of your payment goes to interest vs. principal, and vice versa. But your monthly payment remains the same throughout your term (unless rates rise significantly, above your "trigger rate", which is usually unlikely to occur - although anything can happen)
  • If you choose a fixed rate, you are betting that rates will go up quickly during your mortgage term - for this bet, you are taking a higher interest rate on your mortgage to start
  • If you choose a variable rate, you are betting that rates will stay the same, go down, or at least not increase early on in your mortgage term. For this bet, you get a lower rate to start, but one that has the potential to increase and cost you more over the term
  • If the BOC raises interest rates, this does not mean that you lose out with a variable rate. Since you start out with a lower rate, it has to rise early and often, for it to have cost you more money. Even if rates go above what you could have gotten in a fixed, this has to occur within the first 1 or 2 years, in order for the fixed rate to win out
  • Breaking a fixed rate mortgage is significantly more expensive than breaking a variable rate mortgage. Most fixed mortgages use an IRD calculation, based on posted (not actual) rates, often resulting in thousands to tens of thousands of dollars in break penalties. Variable mortgages use 3-months interest as a penalty
  • While most people say they have no plans to break their mortgage, recent data shows that upwards of 40% of people actually do. This could be because of selling their home, moving, wanting to refinance their mortgage, or move lenders

Again, there's no right or wrong answer, it depends on what works for you individually. For me personally, the lower break penalty and the spread between fixed and variable you are being offered - I would take variable. I fully believe that rates will be going up, and will probably be 2%+ within the 5 year mortgage term. However, I also do not think the BOC will raise rates until late in 2022, and will only do so slowly - so by the time the rates are at or above the 2% mark, I think it will still have been better off going variable.

Good luck!
Your advice is very helpful to me. I would take variable also.
I selected variable (p-1%=2.7%) in Sep. 2018 and have been keeping the same payment each month just as you suggest. The early renewal offer is valid untill May 31. Do I need to accept it now or wait till Sep.? Take 3 years or 5 years variable? What would you do? Thanks a lot.
Member
Dec 13, 2010
434 posts
519 upvotes
Vancouver
ChristineY wrote: Your advice is very helpful to me. I would take variable also.
I selected variable (p-1%=2.7%) in Sep. 2018 and have been keeping the same payment each month just as you suggest. The early renewal offer is valid untill May 31. Do I need to accept it now or wait till Sep.? Take 3 years or 5 years variable? What would you do? Thanks a lot.
If your mortgage is up in September - then you are only about 1-month away from being able to renew with any lender, without penalty (usually the renewal period starts 120 days prior to your term being up).

Since variable seems like the way you will be going, I would probably wait the month - because right now it seems like there are plenty of variable mortgages at 1.20% to 1.25% (see the mortgage rates thread, lots of posts and good info there). Having said that, CIBC is offering you 1.39% which isn't too bad - the difference between 1.39% and 1.20% is about $190/year for each $100,000 owing. It might be worth asking them to lower their early renewal rate, and see if they will bite? The worst they can say is no, the 1.39% offer stands; if they do drop the rate then you can seamlessly renew and not worry for another 5 years.

The only caveat would be, if you think you may have issues re-qualifying for your mortgage (e.g. if your financial situation has changed a lot perhaps due to COVID). The one benefit of staying with your current lender, is that they don't generally re-qualify, you can just sign your renewal offer and you're good for the next 3 or 5 years.
[OP]
Member
Jan 24, 2015
322 posts
34 upvotes
Oakville
mastaj wrote: If your mortgage is up in September - then you are only about 1-month away from being able to renew with any lender, without penalty (usually the renewal period starts 120 days prior to your term being up).

Since variable seems like the way you will be going, I would probably wait the month - because right now it seems like there are plenty of variable mortgages at 1.20% to 1.25% (see the mortgage rates thread, lots of posts and good info there). Having said that, CIBC is offering you 1.39% which isn't too bad - the difference between 1.39% and 1.20% is about $190/year for each $100,000 owing. It might be worth asking them to lower their early renewal rate, and see if they will bite? The worst they can say is no, the 1.39% offer stands; if they do drop the rate then you can seamlessly renew and not worry for another 5 years.

The only caveat would be, if you think you may have issues re-qualifying for your mortgage (e.g. if your financial situation has changed a lot perhaps due to COVID). The one benefit of staying with your current lender, is that they don't generally re-qualify, you can just sign your renewal offer and you're good for the next 3 or 5 years.
I have called CIBC and this is the best rate they can give to me. If I have to stay with CIBC, do you think it would be better to accept the early off now? 3 or 5 years variable? Thanks.
Member
Dec 13, 2010
434 posts
519 upvotes
Vancouver
ChristineY wrote: I have called CIBC and this is the best rate they can give to me. If I have to stay with CIBC, do you think it would be better to accept the early off now? 3 or 5 years variable? Thanks.
If you're for sure going to stay with CIBC, and they've said they won't go lower (and you don't want to keep pushing them for a lower rate) - then may as well just renew now, save yourself a hassle.

For me, I usually change lenders at renewal, because moving to a new bank often gets you a better rate, plus incentives (like cash back, which several banks are offering at the moment).

As for 3 or 5 years - I've normally gone with 5, but for no other reason than I don't want to bother with the renewal process so soon. Some people do recommend 3-year terms, as it gives you greater flexibility, and the ability to negotiate with a new lender sooner (for lower rates or incentives). Flip a coin, I guess? Or just go with whatever feels more comfortable for you.
[OP]
Member
Jan 24, 2015
322 posts
34 upvotes
Oakville
mastaj wrote: If you're for sure going to stay with CIBC, and they've said they won't go lower (and you don't want to keep pushing them for a lower rate) - then may as well just renew now, save yourself a hassle.

For me, I usually change lenders at renewal, because moving to a new bank often gets you a better rate, plus incentives (like cash back, which several banks are offering at the moment).

As for 3 or 5 years - I've normally gone with 5, but for no other reason than I don't want to bother with the renewal process so soon. Some people do recommend 3-year terms, as it gives you greater flexibility, and the ability to negotiate with a new lender sooner (for lower rates or incentives). Flip a coin, I guess? Or just go with whatever feels more comfortable for you.
I've selected 5 years variable. Thank you.
Member
Dec 13, 2010
434 posts
519 upvotes
Vancouver
ChristineY wrote: I've selected 5 years variable. Thank you.
Great - did you go with a new lender, or just renewed with CIBC?
[OP]
Member
Jan 24, 2015
322 posts
34 upvotes
Oakville
mastaj wrote: Great - did you go with a new lender, or just renewed with CIBC?
with CIBC.
Deal Addict
Dec 27, 2007
3705 posts
1235 upvotes
Edmonton
Am i the only one that thinks 1 year mortgages are the best?
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