HELP! Variable or Fixed Mortgage, need answer today by 2pm!

[PurpleMonkey]

I am meeting the RBC manager at 2pm and here is what is offered on the table:

4.09 FIXED CLOSED 5 YRS

2.15 VARIABLE CLOSED 5 YRS

Which one should I sign?

Thank you guys/gals!

 

[james t kirk]

split the difference.

Half in one, half in the other.

(Don't let them tell you they can't do it - they can)

 

[fuji]

Neither. You can get lower rates elsewhere.

http://www.banking.pcfinancial.ca/a/rates/theUnbeatableMortgageRate.page?refId=sidenav

Print that out, your RBC mortgage manager ought to be able to beat it. If not, why would you sign when lower rates are available elsewhere?

As for variable versus fixed, first can you make the payments in the worst case? If variable rates went up to 8% or so could you pay? If not then go fixed just for peace of mind. If you would still be able to pay in the worst case then it comes down to which is a better bet, and odds are variable is a better bet. Rates will PROBABLY not rise by 2% over 5 years, but who knows they might.

 

[Tetra1]

Every one agrees that interest rate will go up beginning this summer but nobody can say how fast with certainty. My rule of thumb is: If you think the variable rate will be 6% or higher at the end of the 5-yr term, go for the fixed rate. By the way 4.09% is not such a good deal. Some banks even waiver the usual appraisal fee and the lawyer fee which typically are about $700.

http://www.ratesupermarket.ca/?_vsrefdom=googleppc&gclid=CKLp09vayZ8CFRE55QodmjUO3A

 

[PurpleMonkey]

Thanks James, but if I had to make an ultimate decision to just choose one which one is better do you think? Or it is purely a game of gamble?

I haven't checked the variable rates in the past 5 years but I had it at 4.25% fixed closed...if I was then back in 2005 to switch it to Variable, would I have been better off?

 

[danmand]

I am meeting the RBC manager at 2pm and here is what is offered on the table:

4.09 FIXED CLOSED 5 YRS

2.15 VARIABLE CLOSED 5 YRS


Which one should I sign?

Thank you guys/gals!

Mathematically, if you think the interest rate is going to stay under 6% in the next 5 years,
take the variable, if you think it will go higher than 6% in the next 5 years, take the fixed.

 

[fuji]

Thanks James, but if I had to make an ultimate decision to just choose one which one is better do you think? Or it is purely a game of gamble?

I haven't checked the variable rates in the past 5 years but I had it at 4.25% fixed closed...if I was then back in 2005 to switch it to Variable, would I have been better off?

Historically variable almost always beats fixed, but there are a few cases where it doesn't. The bigger issue is what would happen to you in those few cases where variable rates shot up really high? Unlikely, but you probably don't want the small chance of being busted, so go fixed if the payments are near the limit of your ability to pay, and go variable if you would still be able to afford a much larger payment.

e.g., if you are amortizing for 10 or 12 years you can afford variable as if all hell broke loose you could reamortize it back to 25 years and not lose the house.... but if you can barely make the payments on a 25 year already you should be fixed until you get it down to a level you can manage.

 

[Hurricane Hank]

If you have to choose one, go variable. Any rise in rates will be minimal until unemployment decreases significantly.

 

[fuji]

Counter-intuitively, historically the years in which fixed beat variable were years in which you were locking in a HIGH interest rate. That's because of that bout in the 1980's where the high rates jumped up to super high rates. It was one of the few cases when fixed beat variable, and oddly it was at a time when people considered rates to be historically high already. It's just that they went a lot higher...

In almost every other year over the past 50 variable beat fixed over a 5 year period.

The ONLY benefit fixed offers most of the time is peace of mind to people who struggle with a large payment. It's comforting to be able to budget for the mortgage payment accurately in those cases.

 

[Shades]

Agree...5 year variable is still good if you can get a good rate. I'm not sure the one on the table is the best variable rate you can get.
Something to think about though...by April the banks will be really tightening down on mortgages with the help of their lap dog named flaherty!
Good deals are going to be harder to find over the coming months.

 

[RamsesIII]

I just sent you a PM.

We can do Variable at Prime minus .30 = 1.95% and 5 year fixed at 3.69%. Some lenders have a quick close special (funding within 30 days) where you can get 3.29% for 5 years.

 

[toguy5252]

Firtsly whatever the manager has offered you it is highly likely they will do better.

The spread between the fixed and variable is almost 200 basis points (2%). The BOC has said that it is unlikely that rates will rise before July of this year. Although inflation is picking up here it is quiet in the US. The BOC will not want to get too far out of line with the US as it will have the effect of boosting the Canadian Dollar which it would like to avoid.

In any event your variable rate mortgage will reset every 6 months. The first six you are probably fine. Unless inflation gets totally out of control a 2 % increase in prime is not likely over the next 5 years. There are still pressures keeping rates down and unless there is significant improvement in employment levels the BOC will be juggling higher rates vs. employment. If you take the weighted average of the cost of your mortgage over the next 5 years it will likely favor the variable. Inflation here and in the US is always the unknown.

 

[Cycleguy007]

I can't believe I'm saying this... but...

Fuji is right!

ALWAYS negotiate your mortgage rate... and sign with the one with the lowest. Like Fuji said print off the rates and use this as a negotiating tool. If you have good credit, you can get a mortgage at ANY bank and there are banks EVERYWHERE falling all over themselves to give mortgages to people like that! I have had my mortgage at 2 different banks as a result (1st time when it was up for renewal, the original bank wouldn't "play ball" so I moved it... then when it was up for renewal again, the original bank jumped at the chance to take me back with the lowest rate! Hee hee!)

 

[PurpleMonkey]

Thanks everyone....I have 1 hr to go and I think I'm leaning towards variable. I don't mind changing banks BUT I really hate the application process, lawyers, home evaluation, etc etc. I just want to get RBC to give me the best rate. I will bring all your points and printouts to the meeting. From 2.15 to 4.15 (2% increase) within a 5 year period looks good, but ofcourse one cannot guarantee. It's better than being fixed up at 4.09 now right? More cash next month for SPs, YEAH!!!!!!!!!!!! and the month after, and the month after that, I will go Tiger Woods because of this!

Sincerely, thanks guys you guys are the greatest!!!!!!!!

 

[Brandon123]

Always go variable.