tag:blogger.com,1999:blog-2012676532933262527.post3339788664877680500..comments2010-08-18T01:46:22.246-07:00Comments on The Male Storm: Mortgage Advice - Go VariableJim Somervillehttp://www.blogger.com/profile/08438509407388777099noreply@blogger.comBlogger9125tag:blogger.com,1999:blog-2012676532933262527.post-88361584798584357012008-05-18T06:50:00.000-07:002008-05-18T06:50:00.000-07:00This comment has been removed by the author.Kathy Desjardinshttps://www.blogger.com/profile/03479413773649517453noreply@blogger.comtag:blogger.com,1999:blog-2012676532933262527.post-83960698947400575202008-05-18T06:47:00.000-07:002008-05-18T06:47:00.000-07:00That is such a good idea to advise the client to i...That is such a good idea to advise the client to invest the difference between the variable and the fixed into a TFSA...when they become available. Why didn't I think of that? I almost never sell a VRM - unless the client insists! Historical data proves that VRM is always the better choice over time.Kathy Desjardinshttps://www.blogger.com/profile/03479413773649517453noreply@blogger.comtag:blogger.com,1999:blog-2012676532933262527.post-12775705972044297182008-05-09T06:02:00.000-07:002008-05-09T06:02:00.000-07:00As long as you are already maximizing your RRSP co...As long as you are already maximizing your RRSP contributions, <B>and</B> you can tolerate your mortgage payments potentially going up somewhat, then by all means put the extra money on the mortgage. The scheme of putting the extra money in a savings account was to buffer the individual who cannot afford their mortgage payments going up beyond the five year fixed rate.Jim Somervillehttps://www.blogger.com/profile/08438509407388777099noreply@blogger.comtag:blogger.com,1999:blog-2012676532933262527.post-73368690963469550902008-05-09T05:24:00.000-07:002008-05-09T05:24:00.000-07:00Michael I have to thank you for this post, I was a...Michael I have to thank you for this post, I was at a Mortgage broker last night discussing my options for a mortgage on my first home, which I purchased in January, and closes at the end of the summer. My initial thoughts were 5 year fixed, but after meeting with the broker I came to the same conclusion as you've posted here 5 year variable mortgage, and just watch the markets.<BR/><BR/>however instead of depositing the extra money into a TFSA or somewhere else, I'm simply going to be overpaying my bi-weekly payments, to what my 5 year fixed rate would have been over 20 years to hopefully pay it off a little bit more. The interest saved could do some good work being added on in the form of principal payment every month. I figure if the rates do eventually go up, well at least I took advanatage while they were low and paid more of my principal down.<BR/><BR/>Anyways thanks for giving me some more confidence with my decision.Brian Garsonhttps://www.blogger.com/profile/18181964770957377154noreply@blogger.comtag:blogger.com,1999:blog-2012676532933262527.post-20860161537748979312008-05-08T08:34:00.000-07:002008-05-08T08:34:00.000-07:00I assume that the Bank of Canada numbers are based...I assume that the Bank of Canada numbers are based on actual mortgages as opposed to advertised rates by various banks. Your 1.5% figure is definitely plausible historically. I'd like to think that it will come down as the mortgage business gets more competitive, but that may be wishful thinking.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-2012676532933262527.post-50066856688420792202008-05-08T07:27:00.000-07:002008-05-08T07:27:00.000-07:00I just obtained some real numbers. They are from ...I just obtained some real numbers. They are from the Bank of Canada and represent conventional fixed term mortgages at the chartered banks. There is no data for variable rate mortgages.<BR/><BR/>Over the last ten years, the average 1 year mortgage fixed rate is 6.05% and the average 5 year fixed rate is 6.97%. Let's just call the difference 1%. Variable rate mortgages are typically less than 1 year fixed, so an historic spread of 1.5% between variable and five year fixed is certainly believable.Jim Somervillehttps://www.blogger.com/profile/08438509407388777099noreply@blogger.comtag:blogger.com,1999:blog-2012676532933262527.post-87884677251404056932008-05-06T19:19:00.000-07:002008-05-06T19:19:00.000-07:00Nice site!Nice site!Adil Burneyhttps://www.blogger.com/profile/15716540441921591613noreply@blogger.comtag:blogger.com,1999:blog-2012676532933262527.post-34791942554192915392008-05-06T12:40:00.000-07:002008-05-06T12:40:00.000-07:00The mathematician in me would want to number crunc...The mathematician in me would want to number crunch a whole slew of sliding five year windows across, say, the last decade, beginning every month. This would be driven by tables of variable rate data, and the calculation would be to produce an effective equivalent five year fixed rate. Then compare that with the actual five year fixed rates at the beginning of each interval. Simply publishing this data would likely force the gap lower as the reality of the "insurance premium" would be now visible to the public.<BR/><BR/>In today's environment where rates are trending down or at least are somewhat stable, the risk of rates flying upward looks low, at least to me. Also, the baby boomers are mostly done with borrowing and now have savings that are seeking low risk returns, so the demand for borrowed money looks to stay quite low for the forseeable future anyway. Is a 36% interest rate premium justified? I don't think so. Is it historically this large? Again, I'd have to dig up the data and run the numbers.Jim Somervillehttps://www.blogger.com/profile/08438509407388777099noreply@blogger.comtag:blogger.com,1999:blog-2012676532933262527.post-49547395356188932882008-05-06T09:55:00.000-07:002008-05-06T09:55:00.000-07:00I got a three-year term for my first mortgage, but...I got a three-year term for my first mortgage, but went variable to get the lowest possible rate after that. Your strategy sounds interesting as a form of self-insurance.<BR/><BR/>Is the spread of 1.5% between a 5-year term and a variable rate typical? I haven't looked at this for a while. I know that this gap varies, but it seems to me that the expected amount of savings would be related to the typical gap rather than the gap today. The theory being that the size of this gap is predictive of changes in short-term interest rates. This theory may be false, though -- I've never checked it.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.com