1.2% variable now 3.45%

[nariko]

Hello,

Looking for some advice here. I bought a condo in downtown Toronto back in January with 1.2% variable open payment, now the rate I pay is 3.45% due to the recent rate hikes. I'm on a 5 year term. When I first bought the condo my monthly mortgage payment was $2180.00 and now it's $2723.00. At the time my mortgage broker suggested I go variable, in retrospect I regret not locking in a 3% 5 year fixed, lesson learned.

I called my mortgage agent at MCAN and they said their 5 year fixed rate is 4.84% if I were to switch today.

Should I stay variable or switch over to 4.84% 5 year fixed?

How much more will interest rates rise until the rate hikes end?

When will interest rates start to come back down?

Thanks in advance.

 

[coopdawg70]

@nariko You’re in a similar boat to everyone else on this sub in a variable mortgage. No one will be able to say what will happen. Yes this sucks

 

[trendingtimmy]

@coopdawg70 It does highlight that mortgage brokers push variable rates. I went variable although my gut said fixed.

Makes me wonder if the compensation arrangement is more favorable to a broker under variable vs. fixed.

 

[coopdawg70]

@trendingtimmy I got a hot variable rate right when Covid hit. I think even if I was told to go fixed at that time I would have said no

 

[doedel]

@trendingtimmy My understanding is that you qualify for a higher amount on a variable versus fixed due to the stress test, meaning the commission was higher for the broker. But maybe OP needed as much money as possible to close the deal. It’s a crapshoot anyways.

 

[roudic]

@doedel So the stress test might actually be causing more problems than it fixes. Interesting.

 

[acecomando]

@nariko Why don't you just keep your variable rate but make your payments as if your rate was 4.84%.

It's the same effect on your monthly cash flow, but in the meantime you're paying off your mortgage faster because your current rate is lower.

 

[heartfire]

@acecomando I find this to be good advice. Take my upvote!

 

[duolos]

@nariko Up to you

Nobody knows

Nobody knows

 

[commonsensenewstoday]

@nariko I'd personally wait it out, but you do you

 

[wanderingwombat19]

@nariko The 'better' choice was to start with fixed when the variable rates were low, but now the variable rates and fixed rates are high. Just stay variable. Imagine big picture. I personally do not think the bank will keep raking rate hikes beyond 5% (Im talking 8-10% range) because this will tank the housing market and economy. Worst case scenario I see your variable rate going a bit above that quoted 4.84% (let's say 1-2 years) then lower below 4.84%.

Work out some logical or hypothetical interest rate scenarios for the variable rates and compare them against the 4.84%. Can you afford to have your variable rate go above 4.84%?

YEAR 2, 2023 - Variable 4.45% - what is your mortage payment and can you afford this

YEAR 3, 2024 - Variable 5.45% - what is your mortage payment and can you afford this

YEAR 4, 2025 - Variable 3.45% - what is your mortage payment and can you afford this

YEAR 5, 2026 - Variable 2.45% - what is your mortage payment etc

Remember super high interest rates stifle economic growth. From investopedia: "The Fed lowers interest rates in order to stimulate economic growth, as lower financing costs can encourage borrowing and investing. However, when rates are too low, they can spur excessive growth and subsequent inflation, reducing purchasing power and undermining the sustainability of the economic expansion."

I really hope this advice helps and good luck. Over the course of 20 years, this will all be irrelevant assuming you can afford any of the above interest rates you discussed. And I hope the value of your house at least doubles in those twenty years too.

 

[aieyiamfu]

@nariko you say lesson learned, but you didn't immediately buy the 4.84% fixed mortgage.

So what did you learn?

That volatility sucks but its still better than a guaranteed L?

we don't know where interest rates are going - but the five year fixed isn't a terrible guidepost.

Anyway, I have an adjustable mortgage and I will get another in five years if I still own this place. I thought interest rates would stay low longer. Now I don't bother asking my magic eight ball.

 

[pillze1524]

@nariko Variable when rates are high.
Fixed when rates are low.

I'd take variable now.
I took 5yr fixed at 1.5% 1.5 years ago.

 

[scott_1983]

@nariko Probably just wait it out, boss

 

[jared185bingham]

@nariko Historically variable rates win,…it is unlikely that prime will go higher than another 1.5% before it levels off/starts to decline late next year…just my take/opinion.

 

[tikvahshua]

@jared185bingham

Historically variable rates win,

Does your “history” cover just the period of time since the 1980s when rates are falling?

What do you suppose happens when to combat inflation rates are pushed higher and higher?

…it is unlikely that prime will go higher than another 1.5% before it levels off/starts to decline late next year…just my take/opinion.

Might what happens depend on inflation? If inflation stays above prime are lenders not taking a loss every year?

To combat inflation interest rates are pushed by federal banks above inflation rate because when below inflation they tend to make inflation worse.

Edit: The disagreement about the above has me puzzled. Possibly it says something about the comment above. Possibly about the audience. Possibly both. Hoping someone can give me a clue. Thank you!

 

[messagesoflove]

@nariko So did you learn your lesson, or are you still learning?

 

[believer144000]

@nariko Back down? Rates are down have you not looked at rate chart that spans more than a few years? Government has been screaming 5% for a long time

 

[resjudicata]

@nariko And this, kids, this is why you calculate how much house you can afford with a 5% rate to be safe. A mortgage is usually a multiple decade undertaking and there will be periods of moderately high inflation.

Would you still be fucked with 10% rates? Yeah, but less so than the morons who went all in when rates were extremely low.

 

[scarletl]

@nariko My crystal ball says switch to fixed.