# Which mortgage to take - 2.69% 4 year or 2.89% 5 year?



## reef (Oct 12, 2012)

Hi all,

Contemplating one of the two, a 2.69% 4 year fixed vs. a 2.89% 5 year fixed.

They are both great options (although yes, not the lowest out there), but I can't decide.

Any thoughts - which would you take and if you have the time to share your thoughts, why.

Thanks all, much appreciated!


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## Mortgage u/w (Feb 6, 2014)

I am a strong beleiver in variable rates.....so if you are contemplating a third option, I would choose variable.

From the 2 choices you provided, definately 4 year at 2.69%.


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## none (Jan 15, 2013)

Are you sure you didn't mean to write 3.69 & 3.89?

The best method I think is to take the variable (now at 3%) but pay it off at the fixed rate of 3.89% (even steven right?)

I made a spreadsheet to show you how that insulates you from interest rate hikes.


https://www.dropbox.com/s/e5l2is1zcrutkqh/mortgage_optimize.xls?dl=0


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## Mortgage u/w (Feb 6, 2014)

none said:


> Are you sure you didn't mean to write 3.69 & 3.89?
> 
> The best method I think is to take the variable (now at 3%) but pay it off at the fixed rate of 3.89% (even steven right?)
> 
> ...


3.69% and 3.89% are non-existent right now.


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## none (Jan 15, 2013)

I was going from this: http://www.tangerine.ca/en/borrowing/tangerine-mortgage/index.html


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## Mortgage u/w (Feb 6, 2014)

those are posted rates.....no one gets those as are always discounted. Posted rates are used to calculate penalty when you decide to break your term.


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## lb71 (Apr 3, 2009)

Mortgage u/w said:


> I am a strong beleiver in variable rates.....


Usually, so am I. However, in this environment where you can find fixed rates lower than variable, I would go with the fixed. 

No one can predict where interest rates will be in the future. They are not at historic lows, but close to it. If anything, I would bet on them going up than going down. And if they stay flat, you come out ahead anyway.


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## Mortgage u/w (Feb 6, 2014)

lb71 said:


> Usually, so am I. However, in this environment where you can find fixed rates lower than variable, I would go with the fixed.
> 
> No one can predict where interest rates will be in the future. They are not at historic lows, but close to it. If anything, I would bet on them going up than going down. And if they stay flat, you come out ahead anyway.


That would be timing the market. If you believe in variable, then you believe they will be your best bet regardless if you think rates go up. I'm not a betting man so I always chose the best or lowest rate at the present time - not future. Currently, variable can be found as low as 2.35% - similar to a 2 year fixed rate at best, otherwise there is no other fixed rate even close to that.

The variable vs fixed rate argument is an endless debate. But one thing is for sure.....a variable rate will always be less than a fixed rate.


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## My Own Advisor (Sep 24, 2012)

I have to renew next year. Thinking of going variable, 3-year or 2-year product FWIW.

If those are your only choices above, I'd go shorter-term, 4-years 2.69% vs. 2.89% 5-year fixed.


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## lb71 (Apr 3, 2009)

Mortgage u/w said:


> But one thing is for sure.....a variable rate will always be less than a fixed rate.


At inception perhaps (depends on the bank). But there is no guarantee that the variable rate will stay below the comparable fixed rate for the same term. So you are making a bet. Fixed does buy you some piece of mind. 

2.35% is pretty low though. Is that for a 5 year closed? Are there any restrictions on that? (eg limited prepayments).


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## none (Jan 15, 2013)

I've never understood this reasoning. By taking the fixed rate you are ensuring that you are starting a losing position. You need to win pretty big to make the fixed worth it.

I would also argue that if you really need the peace of mind that a fixed offers over a variable you probably should really be buying a house anyway.


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## lb71 (Apr 3, 2009)

none said:


> I've never understood this reasoning. By taking the fixed rate you are ensuring that you are starting a losing position. You need to win pretty big to make the fixed worth it.
> 
> I would also argue that if you really need the peace of mind that a fixed offers over a variable you probably should really be buying a house anyway.


Well, I'm not sure if the 2.35% is comparable to the fixed rates out there. If it is, then it would be harder to argue for fixed. When I was shopping earlier this year I found the variable rates were in line with some of the 4 or 5 year fixed rates. Of course, maybe I should have done some more shopping around. 

I took a five year variable in 2007. I benefited from the drop in rates. The thing with variable rates though, is that the automatically recalculates your mortgage payments when the prime rate changes. If you want to stick with a certain mortgage payment, you have to be on top of things. I was with Scotia. When the rates fell, I was able to login online and reset my mortgage payment. (ie, increase it back to what I was paying). However, a couple of times rates went up. This caused my mortgage payments to increase. I was not able to decrease my payments online. Had to go into the bank, talk to the mortgage specialist. They had to verify that I was eligible to reduce my payments, then process the change in the branch. Some people may not be eligible for a decrease in their payment, as they may have maxed out on their amortization period.

And I think you meant "you probably should not really be buying a house anyway"


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## none (Jan 15, 2013)

Whoops, yes.

I've never experienced that. Even when I was on variable, regardless of where it went my payments never changed. The only thing that changed is that amount that the principle goes down. Is it just me?


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## lb71 (Apr 3, 2009)

It could have been how your mortgage was structured. The Scotia mortgage I was in automatically changed the payments. I would have preferred yours.


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## none (Jan 15, 2013)

Maybe, one strategy I did was although I wanted a 15 amortization I set it up to be a 25 but payed it off at the 15 year level. Maybe that's what did it?

Anyway, I find that way offers you payment flexibility of you should need it and it costs nothing so why the hell not?


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