Should I switch to fixed?
- Thread starter dpierre
- Start date
mrsphilp09
New member
@dpierre Do the math. What’s your penalty? What’s your interest cost savings?
When I did it, it was less than $2k savings over the 3 years to switch to fixed over the remaining term. And that’s factoring in a hike this week. The math didn’t make sense for me as rates could go down next year, which would then eliminate basically any savings, they could also go up, but I’m ok with holding for now.
When I did it, it was less than $2k savings over the 3 years to switch to fixed over the remaining term. And that’s factoring in a hike this week. The math didn’t make sense for me as rates could go down next year, which would then eliminate basically any savings, they could also go up, but I’m ok with holding for now.
resjudicata
New member
variable gang!@hassack There is nothing saying rate cuts need to be 25 bps. I’m not saying they are going down or up, but historically speaking they usually drop quicker than they go up.
If it can go up 400 bps in a year it can certainly go down 75 in a year. Nobody knows.
The only way you’d catch me locking in a fixed now is if I was at the brink of affordability or needed the mental break.
Prime -1.4 is a really good discount.
If it can go up 400 bps in a year it can certainly go down 75 in a year. Nobody knows.
The only way you’d catch me locking in a fixed now is if I was at the brink of affordability or needed the mental break.
Prime -1.4 is a really good discount.
@flipflip but what if it stays where it is now for 6 months, then they match rates for 2 years. Will 6 months at, idk, effectively 4.95 make up for paying 5.95 vs 5.3 for 6 months? Probably not.
It's also no guarantee they stop with one 25bps hike. They might do another if inflation remains sticky for even longer...
It's also no guarantee they stop with one 25bps hike. They might do another if inflation remains sticky for even longer...
@keeley120 Again, nobody knows.
It could increase by 200 bps and you’d look like a genius.
It could drop by 100 in the next year and you’d look like an idiot.
You can what if it to death but ultimately you’re trying to time the market and giving up a huge discount. If that makes sense for you then you should do it. Personally I think it doesn’t make sense, if you were going to do this you should’ve done it a year ago.
It could increase by 200 bps and you’d look like a genius.
It could drop by 100 in the next year and you’d look like an idiot.
You can what if it to death but ultimately you’re trying to time the market and giving up a huge discount. If that makes sense for you then you should do it. Personally I think it doesn’t make sense, if you were going to do this you should’ve done it a year ago.
@flipflip Unless there is a systematic event...otherwise the drop will be very orderly to get a soft-ish landing. At least that's what the central banks are looking for. The big issue is the fiscal deficit that is stimulus for the economy. And we also have record immigration and visa students to push food and rental higher for longer.
Anyway, I agree that nobody knows. That's why I ain't locking into 5yr. A 3yr term at the current rate differential is reasonable to me. If it takes about 1.5yrs to cut 1%, I win. After all, I can use prepayment to lower the interest cost.
Anyway, I agree that nobody knows. That's why I ain't locking into 5yr. A 3yr term at the current rate differential is reasonable to me. If it takes about 1.5yrs to cut 1%, I win. After all, I can use prepayment to lower the interest cost.
janmarietn
New member
brothermichael
New member
@brothermichael -0.9 seems to be about the best 5 year I can see offered at the moment, I would say it’s not amazing, but not terrible.
If you were going to switch to fixed you sort of missed the boat in my opinion. The only reason I’d switch is if another rate hike would make you financially destitute. If you can ride it out, I would.
Again, just my personal opinion, I don’t know your situation.
If you were going to switch to fixed you sort of missed the boat in my opinion. The only reason I’d switch is if another rate hike would make you financially destitute. If you can ride it out, I would.
Again, just my personal opinion, I don’t know your situation.
resjudicata
New member
@dpierre I only locked in because we were up for renewal, it was before the last rate hike and the rates didn't seem too bad. We were 5.7 before the last hike variable and we were offered 4.9 for 3 year fixed or 4.65 for 5 year fixed. I didn't want to be locked in for 5 years however I went with fixed this time because variable renewal would have put us over 6 percent (because we went from prime -1.15 to prime -.6). At the time I did not feel that the boc would go through 8 rate decreases over the next 3-5 years. And if they did, it wouldn't have been soon enough for it to make sense financially.
You are in an interesting spot because your variable and fixed rates don't have much of a spread currently. I do think rates will go up a bit more and then hold steady before coming down. Although likely not significantly. If you can afford a few more rate hikes then it might be worth holding on. I think that's what I would do in this situation.
You are in an interesting spot because your variable and fixed rates don't have much of a spread currently. I do think rates will go up a bit more and then hold steady before coming down. Although likely not significantly. If you can afford a few more rate hikes then it might be worth holding on. I think that's what I would do in this situation.
darklighta
New member
@dpierre This is really 2 questions: Do you think you can guess future interest rates better than the bank? Can you afford to be wrong?
Over the long term, variable rates tend to be lower than fixed rates because you assume the risk rather than the bank, as with all financial products, higher risk profiles lead to a likelihood of higher rewards.
If you can afford that risk, you're better off in most cases staying variable. The only real exception is if you have some reason to think you can predict future rates better than the many specialists the bank has hired for exactly that purpose.
That said, if you can't afford the risk, then locking in will guarantee your rate, and make it a lot easier to plan around, at least until renewal. Remember that the locked in rate will only last until renewal, and at that time you will be vulnerable again, just like if you were on a variable rate.
Over the long term, variable rates tend to be lower than fixed rates because you assume the risk rather than the bank, as with all financial products, higher risk profiles lead to a likelihood of higher rewards.
If you can afford that risk, you're better off in most cases staying variable. The only real exception is if you have some reason to think you can predict future rates better than the many specialists the bank has hired for exactly that purpose.
That said, if you can't afford the risk, then locking in will guarantee your rate, and make it a lot easier to plan around, at least until renewal. Remember that the locked in rate will only last until renewal, and at that time you will be vulnerable again, just like if you were on a variable rate.
@dpierre I literally deal with this question several times a week (I am a broker in Ontario). The answer comes down to what I call “the sleep at night factor”
If you are going to lose sleep if prime continues to rise (regardless of the fact that it is projected to go down some time over the next 18 to 24 months) then you should lock it in. If you are comfortable riding the wave, and are going to not lose sleep, leave it. There is a pretty strong likelihood that if prime does drop it will be pretty steep and you’ll probably come out ahead, but there is no guarantee and your mental health should come first. Hope that helps.
If you are going to lose sleep if prime continues to rise (regardless of the fact that it is projected to go down some time over the next 18 to 24 months) then you should lock it in. If you are comfortable riding the wave, and are going to not lose sleep, leave it. There is a pretty strong likelihood that if prime does drop it will be pretty steep and you’ll probably come out ahead, but there is no guarantee and your mental health should come first. Hope that helps.