# Mortgage Rates: Fixed or Variable?



## Letran (Apr 7, 2014)

I have a property closing soon, early May. It is a new mortgage. I'm torn if I should lock it in a fixed or variable rate.
My Scotia mortgage broker can give me 2.15% 5-Year Variable
He is suggesting to keep it in variable and not fixed but with all the news and articles I'm reading I'm currently undecided

Most of my mortgages are variable. Frankly I've been riding the variable rate for the last 20years and it has paid off.
I'm just wondering if it is time to consider fixed. Are the outlook on future rates on a 3-4 year timeline going to go higher than 4-5%

I think there is a 1-1.5% or even 2% difference between the fixed and variable rates right now.

Your input is appreciated. Cheers


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## KaeJS (Sep 28, 2010)

Not sure if it was the right move, but I renewed last week for a 5 year 3.69% fixed.

I'm not sure how high the rates will go, but I do know one thing for sure.... The difference between the variable rate and 3.69% is not that large. But the upside is theoretically unlimited on how many rate increases can happen. We know the 2.15 variable will not stay at 2.15, and because of that, I chose to lock in a little bit higher to reduce any potential large moves.

Maybe I made a mistake. But even if so, what am I really losing out on? MAYBE 0.5% after all the math of blended rates over the next 5 years? Maybe? I think variable will go over 3, for sure.


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## AltaRed (Jun 8, 2009)

We don't know how high and for how long, overnight rates need to go to get inflation tamped back down so it is a roll of the dice. My best guess would be continued rate increases through 2023 when BoC hopes CPI will trend back down in the 2-2.5% range at the end of 2023. The question is whether they are any better at crystal ball gazing than anyone else but if reasonably correct, then some reductions may start to occur thereafter. 

One suggestion might be to look at a 3 year fixed term if you can get it for closer to 3-3.25%. Best 3-year fixed mortgage rates - Canada mortgage rates - Ratehub.ca That way, there may be a possibility of catching a new rate on the way back down, particularly if the current trend of rate increases trigger a recession. I don't think I'd want to commit 3.69% for 5 years though (my gut feel).


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## MK7GTI (Mar 4, 2019)

I went with a 5 year variable at 2.85% last week. I was offered 5 year fixed at 3.79%. Taking my chances I guess but I also plan on hammering the mortgage over the next 5 years.


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## birdman (Feb 12, 2013)

Letran said:


> I have a property closing soon, early May. It is a new mortgage. I'm torn if I should lock it in a fixed or variable rate.
> My Scotia mortgage broker can give me 2.15% 5-Year Variable
> He is suggesting to keep it in variable and not fixed but with all the news and articles I'm reading I'm currently undecided
> 
> ...


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## birdman (Feb 12, 2013)

I think it depends on the size of your mortgage and ability to afford payments should rates just happen to go very, very high. I was involved in the business when the prime rate hit 22.75% and I think the lowest mortgage rate was 17%. The current rates are still historically low and if I had a mortgage and planning on staying where I was I would lock in for 5 yrs. Just my opinion.


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## KaeJS (Sep 28, 2010)

I think it's foolish to NOT lock in.

Generally, variable rates have always been the best option long term. However, if there was ever a time to go fixed... That time is now lol.


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

VARIABLE. ALWAYS VARIABLE!


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## Letran (Apr 7, 2014)

Mortgage u/w said:


> VARIABLE. ALWAYS VARIABLE!


Wait...I'm not clear as to what you are trying to say. 
Are you saying I should choose V A R I A B L E 

Thanks as always.
This definitely does not leave much room for my indecision. Cheers.


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## AltaRed (Jun 8, 2009)

Variable is likely the best option from strictly a financial cost point of view but it is a bit narrow minded to say 'always' when there are other risk factors, such as cash flow management, at play. Do what you feel is best for your sleep-at-night health.

Going without auto or property insurance is most cost effective too.... until it isn't.


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## Tostig (Nov 18, 2020)

Let's say the current variable rate is v1, the current fixed rate is f1, and the gap between variable and fixed is g1, (v+g=f).

If v increases for five years until v=f1, then you would have five years of savings. But guess what f2 will be, v=v2, f2=v2+g.

The gap, g can either be constant or increasing. I doubt if it will ever decrease.

Also, if v increases so much that v2 is greater than f1, then your initial savings would be reduced by the total amount of time v is higher than f1. Your fears may be realized if you have a net payout over five years instead of any savings. However, guess what the new fixed term rate will be when you have to renew? F2=v2+g. And you still would have paid less than if you had the fixed term rate all that time because of the initial gap, g1.

Let's not forget that the gap, g is set by the bank for the bank's interest, not yours. The gap is so high as to mitigate or minimize the risks the banks may have to endure for rate increases and lost potential profits.

Go with variable. Budget for the five year fixed and set aside the money saved. Then at renewal or whenever, you can dump the money you have saved into the principal. If you don't have any net money saved, you wouldn't have had any with the fixed term rate anyways.


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## MrMatt (Dec 21, 2011)

Variable if you can afford an increase.
I'd say if you can afford +5%, you're good.


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## Letran (Apr 7, 2014)

Thank you all for your input.

I'm also thinking BoC really cannot afford to make it too high or keep it there for a long time. I feel that homeowners, particularly new homeowners cannot afford much increase or any increase at all. Defaults will start to become an issue. If that happens we will have a real problem in our hands.

I also do not think that interest hikes will fix the housing problem. The underlying issue is shortage of supply Permits and construction in the municipality levels need to increase and keep up with population growth. That will require actual solutions from all levels of government, cutting of red tape, incentives to the private sector, rethinking the LTB etcetera. A mere increase of rates might lower inflation but does not fix the housing crisis.


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## james4beach (Nov 15, 2012)

Letran said:


> Most of my mortgages are variable.


Wait, you have *several* mortgages?

Why do you have several mortgages? You can probably live in just one house.

Or are you one of these guys who's making homes unaffordable in Canada by buying several properties, all of it debt financed.

Maybe you should strongly consider selling all your properties except the one you live in. Look at how high home prices still are... probably better to sell now than before interest rates go sky high.


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

james4beach said:


> Wait, you have *several* mortgages?
> 
> Why do you have several mortgages? You can probably live in just one house.
> 
> ...


Individual property investors are far from tipping the scale to "making homes unaffordable in Canada".


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## james4beach (Nov 15, 2012)

Mortgage u/w said:


> Individual property investors are far from tipping the scale to "making homes unaffordable in Canada".


I strongly disagree, Mr Mortgage Underwriter. Boy talk about bias. You worked your whole career in the mortgage industry and got rich off this.

Many individuals in this country are involved with hoarding property portfolios. @Letran appears to be one of them, but there are tons of others. It causes harm to other Canadians and deprives them of home ownership.


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

james4beach said:


> I strongly disagree, Mr Mortgage Underwriter. Boy talk about bias. You worked your whole career in the mortgage industry and got rich off this.
> 
> Many individuals in this country are involved with hoarding property portfolios. @Letran appears to be one of them, but there are tons of others. It causes harm to other Canadians and deprives them of home ownership.


i guess we will agree to disagree. 

Before you take aim at individual investors, where do you classify large property management companies?

Demand and supply are what drive prices. Not individual investors.


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## Letran (Apr 7, 2014)

james4beach said:


> Wait, you have *several* mortgages?
> 
> Why do you have several mortgages? You can probably live in just one house.
> 
> ...


Are you trying to buy a property?  
I know it could quite frustrating but no need to aimlessly shoot accusations.

But thank you nonetheless for your comment.

On the contrary -
The property that I live in is mortgage free
My mortgages are solely on investment properties.
Let me correct your assumptions
Property investors is more than likely to bring price comparisons*...*_*down*_

1. For the most part property investors do not buy properties that are inflated. It is a business, so the numbers needs to make sense. That usually means that the property would have been in the market for quite sometime and no one is interested. Sometimes vacant and needs some work. So investors would buy the property at below market therefore lowering comparables for future listings

2. Ridiculous inflated prices are usually from personal home buyers that wants the property for their personal use. They do not want to lose the property and with this blind bidding process inflates the price.

3. Thanks for your suggestion to sell but at the moment I'm trying to grow my portfolio. It is tempting, definitely not be a bad idea. But after capital gains, commissions, penalties etc. It is not worth the trouble for me. My long term goals supersedes the short term gain. But thank you for the suggestion anyway

4. As already mentioned the culprit in making homes affordable in Canada has more to do with shortage. Permits/builds not catching up with demand/population growth. Investors/builders are the one group that needs to be incentivized to bring more housing in the market. There is no one easy solution though. This mess is from decades of ignoring the issue. The pandemic just exacerbated the situation. 

If you still feel like throwing accusations I would suggest you to educate yourself with the actual facts and study the cause and effect of the policies that created this crisis.


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## birdman (Feb 12, 2013)

Letran said:


> Thank you all for your input.
> 
> I'm also thinking BoC really cannot afford to make it too high or keep it there for a long time. I feel that homeowners, particularly new homeowners cannot afford much increase or any increase at all. Defaults will start to become an issue. If that happens we will have a real problem in our hands.
> 
> I also do not think that interest hikes will fix the housing problem. The underlying issue is shortage of supply Permits and contraction in the municipality levels need to increase and keep up with population growth. That will require actual solutions from all levels of government, cutting of red tape, incentives to the private sector, rethinking the LTB etcetera. A mere increase of rates might lower inflation but does not fix the housing crisis.


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## james4beach (Nov 15, 2012)

Letran said:


> If you still feel like throwing accusations I would suggest you to educate yourself with the actual facts and study the cause and effect of the policies that created this crisis.


Hey I'm just sharing my warning. You can justify anything you want to yourself... the human mind is amazing.

Your Mortgage Underwriter friend, and others like you, can all pat each other on the back and tell yourselves that what you are doing is fine.

Go get another mortgage, buddy. Teach me a lesson. Get *two* more mortgages. Are you really going to let some stranger on the internet make you feel bad about what you do?


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

Sounds like someone is envious.


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## londoncalling (Sep 17, 2011)

I am not sure you two are even competing in the same market.

@james4beach I understand you are frustrated as it is glaringly obvious in your posts today. I hope you are just having an off day and tomorrow will be better.

Unfortunately, the reality is such that getting into the market currently requires a lot more risk. I don't think we are going to see further price inflation but I have said that for 20 years. The current situation could in fact be the early days of your greatest opportunity. Housing prices could fall 60% and you get in at lows we haven't seen in years. Who knows you may be dodging a bullet by not getting stuck with a house in the midst of a collapse. Like anything there are trade offs. Owning a house anchors people somewhat. I recently turned down a career change opportunity to move to another province. One factor was that I would have to relocate and decide what to do with my current home. Although it was not the only consideration it was one more item in the evaluation process. going back a lot further due to my own personal circumstances I bought my first house after many of my peers and as a result paid more than others and missed out on a lot of price appreciation. Sure I regret it sometimes, but what's done is done.

Are you saying that you could not afford to get into real estate right now or that it isn't a good financial move for you? I know of others that live in unaffordable cities and have opted to get into real estate in another location. The Alberta market was severely depressed the past couple years. It is starting to rebound. I am not advising you to get into the market now nor am I saying you shouldn't. Buying a property is a tougher decision than buying a stock, bond, or REIT. There are many ways to achieve what one wants. Unfortunately, they come with taking risk and making choices. I think if you absolutely wanted to own a home you would have made that your number one priority. I believe that for you personally, your choice to live near the beach outweighs owning a house elsewhere. We can often have it all, just not all at once. I hope you are just trying to vent some frustration and that you are ok.

Take care.

@Letran sorry for taking your thread off topic.


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## james4beach (Nov 15, 2012)

Mortgage u/w said:


> Sounds like someone is envious.


The boomer mortgage underwriter, rubbing it in my face. Very classy... got to love rich boomers.

How rich did you get off the mortgage boom?


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## Fain (Oct 11, 2009)

Letran said:


> I have a property closing soon, early May. It is a new mortgage. I'm torn if I should lock it in a fixed or variable rate.
> My Scotia mortgage broker can give me 2.15% 5-Year Variable
> He is suggesting to keep it in variable and not fixed but with all the news and articles I'm reading I'm currently undecided
> 
> ...


If Interest rate futures are correct/accurate then go with the fixed rate.


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## off.by.10 (Mar 16, 2014)

james4beach said:


> The boomer mortgage underwriter, rubbing it in my face. Very classy... got to love rich boomers.
> 
> How rich did you get off the mortgage boom?


DId you stop taking your meds? Have a covid induced breakdown? Did a girl leave you because you don't own 3 homes?

It might just be my memory but I don't remember you ever being that ridiculous or nasty to others. You might want to consider seeking someone to talk to about whatever is going on.


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## Letran (Apr 7, 2014)

Sorry, It took some time for me to respond I was popping some popcorn 😜

My my my, I must have tugged on some sensitive strings😁

Who would have known that having more than one mortgage would draw much ire.



james4beach said:


> The boomer mortgage underwriter,


james, james, james, dear troll child. Name calling is not necessary.😙



james4beach said:


> Hey I'm just sharing my warning. You can justify anything you want to yourself... the human mind is amazing.


Finally something we could agree on...the human mind is amazing. So is the internet isn't it?
I mean where else could you go and ask like minded people. draw from their wisdom and experience and have some stranger on the internet with nothing to contribute, derail your post making themselves feel better by name calling and spewing false statements. 

james here also discovered that it is a great way to make friends. 



james4beach said:


> Your Mortgage Underwriter friend, and others like you, can all pat each other on the back and tell yourselves that what you are doing is fine.


I guess it is not entirely inappropriate that in a money forum that one would ask how much money someone makes and present it as wrong and sinful



james4beach said:


> How rich did you get off the mortgage boom?





james4beach said:


> Go get another mortgage, buddy. Teach me a lesson. Get *two* more mortgages.


But at least he encourages you and presents you with a challenge, 

james4beach, I could see that with your 20,000+ posts you have spread lots of encouragements and made a ton of friends. You are a pillar of this community, without you Canadian Money Forum will not be as entertaining.

Wait I need to pop more popcorn


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

james4beach said:


> The boomer mortgage underwriter, rubbing it in my face. Very classy... got to love rich boomers.
> 
> How rich did you get off the mortgage boom?


Not sure who's more classy now......

James, something is clearly off with you. If you want to have a debate, I'm all for it. Name calling, inaccurate assumptions.......very childish. That hardly belongs in a playground.


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## sags (May 15, 2010)

Fain said:


> If Interest rate futures are correct/accurate then go with the fixed rate.


I agree. I am seeing credible forecasts for interest rate hikes through 2022, 2023, and 2024.

The central banks will continue to hike rates until they pound down inflation and who knows where they are going to end up.


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## Plugging Along (Jan 3, 2011)

Back to the first original question of variable vs fixed. I have always had variable. However, I did advise a friend to get fixed when they renewed last year. The person after a nasty break up and some hard financial times, needed to have the most stability while they are rebuilding. I am so glad I did. Currently their fixed rate is 2.09 until 2026 which is lower than my variable. So that should give them a few years to settle and plan for larger payments. They could not handle much now for increase. Just to remind people that generally variable is better but there are exceptions. 

I just got off the phone with our mortgage broker. Normally, I can always get ahold of him. He says people have been freaking out and calling a lot. In our case, my mortgage isn't up for renewal until next June. I considered locking in or doing an extend and blend or something. Good thing cooler heads prevailed. Our balance pretty low, we have under 3 years left, and can still make lump sums. My plan is that if the rates keep climbing, we will make a lump sum at the end of this year, and the mortgage will be paid off at time of renewal.


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## Beaver101 (Nov 14, 2011)

J4B, I agree with londoncalling's post. There may be an opportunity coming up to snag/own your own place when the RE bubble goes bust and it will just like any business cycle. Just a matter of time.


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

Plugging Along said:


> Back to the first original question of variable vs fixed. I have always had variable. However, I did advise a friend to get fixed when they renewed last year. The person after a nasty break up and some hard financial times, needed to have the most stability while they are rebuilding. I am so glad I did. Currently their fixed rate is 2.09 until 2026 which is lower than my variable. So that should give them a few years to settle and plan for larger payments. They could not handle much now for increase. Just to remind people that generally variable is better but there are exceptions.
> 
> I just got off the phone with our mortgage broker. Normally, I can always get ahold of him. He says people have been freaking out and calling a lot. In our case, my mortgage isn't up for renewal until next June. I considered locking in or doing an extend and blend or something. Good thing cooler heads prevailed. Our balance pretty low, we have under 3 years left, and can still make lump sums. My plan is that if the rates keep climbing, we will make a lump sum at the end of this year, and the mortgage will be paid off at time of renewal.


You have to consider that a fixed rate carries a large penalty should you need to break your term.

Also, you cannot compare your mortgage rate with a different period in time. When your friend locked in 2.09%, you should be comparing it to the variable rate at that time. Also, you cannot just focus on 1 rate for 1 term only. Typically, a mortgage cycle will contain 5 renewals. Therefore, its the average of all rates that you should be considering. Choosing the lowest rate at each renewal guarantees you that you will end up with the lowest average.


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## doctrine (Sep 30, 2011)

Just a friendly reminder that interest rates continue to go up on the spot market, and are setting new 10+ year highs pretty much daily or every second day, as they did today and yesterday. I believe it will take an actual recession to cool the economy, or much higher interest rates. Recent estimates of global growth are slower but still well into positive growth.

4% fixed rates are becoming a reality, and $876,000 average house prices are a different ball game at 4%, as opposed to the 2% rates that got us here. Based on 12 month forecasts today for interest rate increases, that could easily be 6% next year, with variable at 4.5%+. Rates don't have to move up any faster to get there. It's real ugly at 6% fixed. That's easily a $5,400 mortgage payment. Every interest rate increase from here is pain on housing prices. Unless something changes in the world to bring down inflation. Here's to hoping.


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## james4beach (Nov 15, 2012)

doctrine said:


> Just a friendly reminder that interest rates continue to go up on the spot market, and are setting new 10+ year highs pretty much daily or every second day, as they did today and yesterday. I believe it will take an actual recession to cool the economy, or much higher interest rates. Recent estimates of global growth are slower but still well into positive growth.


Indeed, interest rates are going up dramatically. As I mentioned in my Public Appeal post, this is something property investors and speculators should think seriously about. Do you really want to hold onto all those properties and debts if interest rates go to 6%? How about 7% mortgages in your future?

My recommendation to property investors is: it would be smart to deleverage. Considering liquidating, and reducing your mortgages.

As an additional benefit you'd be selling at an all-time high. Surely that's better than waiting for a disastrous decline and liquidity crunch.


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## sags (May 15, 2010)

_House prices in steep decline._......isn't a local media headline that creates a lot of interest in buying.


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## scorpion_ca (Nov 3, 2014)

doctrine said:


> Unless something changes in the world to bring down inflation. Here's to hoping.


I think inflation will be higher in the coming months due to the lockdown in China, increased Covid cases in Taiwan, and war in Ukraine. Central banks forecast that inflation will be lower in the second half of next year but I doubt that.


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## sags (May 15, 2010)

Inflation clocking in at 6.7%.

I expect a continued accelerated ramp up of interest rates.

The BOC has to get serious about putting the brakes on inflation and puny 0.25% increases isn't going to do it fast enough.

The increase to OAS and other social benefits is 1% for the April to June period. There are 6.7 million Canadians collecting OAS.

Inflation is starting to cost the government big dollars, and the increases are compounded onto previous increases and permanent.


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## james4beach (Nov 15, 2012)

Yup very high inflation reading. The probability of a large BoC rate hike just went up this morning.

I think it won't be very long before the bank prime rates are roughly 5%


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## MrMatt (Dec 21, 2011)

Mortgage u/w said:


> i guess we will agree to disagree.
> 
> Before you take aim at individual investors, where do you classify large property management companies?
> 
> Demand and supply are what drive prices. Not individual investors.


Supply and Demand is the aggregate of all actors.

The great toilet paper shortage wasn't institutional toilet paper hoarders, it was individuals.


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## MrMatt (Dec 21, 2011)

james4beach said:


> Yup very high inflation reading. The probability of a large BoC rate hike just went up this morning.
> 
> I think it won't be very long before the bank prime rates are roughly 5%


I think other factors will become problematic before we hit 5%.

2%-5% is about a 30% increase in mortgage payment, I think at that point we'll have risk of destabilizing the market. 
I'm all for a plateau or even decrease in housing values, but a crash isn't good. 

For most things we want boring and stable, excessive volitility is typically not great.


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

MrMatt said:


> Supply and Demand is the aggregate of all actors.
> 
> The great toilet paper shortage wasn't institutional toilet paper hoarders, it was individuals.


They hoarded because of fear of shortage - not because toilet paper was inexpensive.


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## MrMatt (Dec 21, 2011)

Mortgage u/w said:


> They hoarded because of fear of shortage - not because toilet paper was inexpensive.


My point is that it was the aggregate action of individuals. It was an excess demand problem.


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## Plugging Along (Jan 3, 2011)

Mortgage u/w said:


> You have to consider that a fixed rate carries a large penalty should you need to break your term.
> 
> Also, you cannot compare your mortgage rate with a different period in time. When your friend locked in 2.09%, you should be comparing it to the variable rate at that time. Also, you cannot just focus on 1 rate for 1 term only. Typically, a mortgage cycle will contain 5 renewals. Therefore, its the average of all rates that you should be considering. Choosing the lowest rate at each renewal guarantees you that you will end up with the lowest average.


Very true. I was bringing up an example where it's not just about the cheapest interest rate, but rather there are some case where fixed is better using metrics that aren't just financial. In the case of my friend, they were so close to the edge last renewal, any increase in expenses could have toppled them. I even questioned if they should be owning a home (probably not at the time), but when we looked at the options of selling and moving and the overall picture, staying was the best idea. If they were trying to buy based on their financial status, I would have told them no way. I would go as far as saying someone who can't afford the variability of a variable mortgage shouldn't buy a house, but that's a different discussion. 

My point for some people, if they cannot afford much of a fluctuation, then a fixed mortgage may may be an appropriate choice at the time. So variable is not always the better especially for someone on a really tight budget and renewing.


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## james4beach (Nov 15, 2012)

MrMatt said:


> 2%-5% is about a 30% increase in mortgage payment, I think at that point we'll have risk of destabilizing the market.


So what?

The housing market was already destabilized by low interest rates and a "crash" in mortgage payments. Or do you call a 25% single year price increase normal?

As a nation, if we tolerated mortgage payments halving, we also should tolerate mortgage payments doubling. It's not exactly capitalism to say that loans must always get cheaper... in fact that's a pretty twisted way to approach financial markets and debt markets.

Sometimes loans get more expensive. We aren't children who always need Daddy to make mortgages cheaper and sweeter for us.


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## MrMatt (Dec 21, 2011)

MrMatt said:


> 2%-5% is about a 30% increase in mortgage payment, I think at that point we'll have risk of destabilizing the market.
> I'm all for a plateau or even decrease in housing values, but a crash isn't good.





james4beach said:


> So what?
> 
> The housing market was already destabilized by low interest rates and a "crash" in mortgage payments. Or do you call a 25% single year price increase normal?


So what?
I think there is a concern that a 30% increase in the mortgage payment is problematic for some people.

25% price increase clearly isn't normal, but in my area it makes sense, we basically have large numbers of people leaving Toronto and buying up housing here at a fraction of the price.
Other areas also had significant price jumps, much of it is simply justified by the lack of supply and low interest rates.

Completely reasonable, not normal, but being "normal" is irrelevant. My concern is if it is problematic.


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## MrMatt (Dec 21, 2011)

FYI, my mortgage payment is up about 15%, easy to handle for me, (I budgeted on this), but for many this is troublesome.

Also I still think variable is best, if you can afford the risk.


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## Tostig (Nov 18, 2020)

Has anybody recorded the mortgage rates monthly since the beginning of this year?

The variable vs fixed debate was all hypothetical for the 20 to 30 years or so before this year. Now's the time to actually record the data and see what's actually happening.


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## Spudd (Oct 11, 2011)

Tostig said:


> Has anybody recorded the mortgage rates monthly since the beginning of this year?
> 
> The variable vs fixed debate was all hypothetical for the 20 to 30 years or so before this year. Now's the time to actually record the data and see what's actually happening.











Historical Mortgage Rates Canada | Rate Trends Over Time


Download historical mortgage rates in Canada including 5-Year fixed and variable mortgage rates, as well as discounted and posted mortgage rates.




www.ratehub.ca


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## MrBlackhill (Jun 10, 2020)

Tostig said:


> Has anybody recorded the mortgage rates monthly since the beginning of this year?
> 
> The variable vs fixed debate was all hypothetical for the 20 to 30 years or so before this year. Now's the time to actually record the data and see what's actually happening.


https://altrua.ca/variable-vs-fixed-mortgage/



> *Variable is Historically and Statistically Shown to Cost Less than Fixed*
> 
> According to a 2001 report completed by Moshe Milevsky, Professor of Finance at York University Schulich School of Business, variable mortgage rates beat 5 year fixed rates 70% – 90% of the time.
> 
> ...


On a side note, "_locking into a fixed-rate mortgage at the right time is ultimately the goal_" is also what I would call... market timing. Even more with rates that went down over the past 40 years.


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## Tostig (Nov 18, 2020)

I just googled "variable open rate mortgages" and found a result that says " 5 year variable open". Not sure what that means. If it's open, that means you can cancel at anytime without penalty. So why does 5-year come into play?


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## Covariance (Oct 20, 2020)

MrBlackhill said:


> On a side note, "_locking into a fixed-rate mortgage at the right time is ultimately the goal_" is also what I would call... market timing.


And this seems out of phase to me as an attempt to market time. Most of the time the yield curve is upward sloping. So the short / variable rate < 5 year fixed on average over a multi-decade borrowing period. Therefore isn't it too late to lock in? Wouldn't one want to lock in the long rate before rates move up? And in so doing avoid the higher short term rate while the curve flattens and inverts?

(I'm incredibly busy at the moment and post this as food for thought only but some one should look at the data and model if it is important to their financial position.)


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## Tostig (Nov 18, 2020)

Spudd said:


> Historical Mortgage Rates Canada | Rate Trends Over Time
> 
> 
> Download historical mortgage rates in Canada including 5-Year fixed and variable mortgage rates, as well as discounted and posted mortgage rates.
> ...


At the beginning of Feb 2022, 5yr fixed was about 1.5% higher than variable.
Since then variable had risen about 1.5% but is still less than the 5yr rate of Feb. So in 4.5 months, the person who signed onto the variable is still ahead. But there's still more upside as long as Russia is still attacking Ukraine. When variable passes the Feb 5yr fixed, no one knows how long it'll stay there. 

Who knows what will result at the end of 5 years. Will the war in Ukraine still be going on? If Russia suddenly pulls out this year, gas supply and sanctions will loosen and rates go down again.


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## marina628 (Dec 14, 2010)

I took a mortgage on my home in November to use as a down payment on a home for our son ,the rate was 1.3% and 30 years .Today it is 2.55% and my son has not bought a house but if i kept the payments the same it is now 37 year amortization. We have not spent the money it is just sitting in a HISA in his name but prices have dropped 20% since he started looking. It is not a huge payment or huge mortgage by most standards but I wonder how these with $500,000+ are handing their amortization realities as mortgage rates go up.


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## Money172375 (Jun 29, 2018)

Tostig said:


> I just googled "variable open rate mortgages" and found a result that says " 5 year variable open". Not sure what that means. If it's open, that means you can cancel at anytime without penalty. So why does 5-year come into play?


The variance on prime rate is fixed for 5 years. ex. You‘re guaranteed prime - x% for 5 years. Although I’ve rarely seen any discount offered on prime for open mortgage.

also, some lenders will keep your payments fixed on this type of variable rate mortgage, unless prime goes beyond the pre-calculated trigger point.


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## Tostig (Nov 18, 2020)

Unless I'm mistaken, I recall back in 2005 to 2007 when I still owned a rental house, my variable rate mortgage payments remained the same. When the interest fluctuated on a month-to-month basis, it was only the proportion that went to principle/ interest that changed while the monthly mortgage payment stayed the same.

Today, when someone speaks of variable rate, it's as if the entire monthly mortgage payment fluctuates along with the interest.

If the 2005-2007 example were still available, that would really help homeowners with their cash flow.


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

Variable rates continue to be favorable. The spread is still significant. Variable rate will always outperform the fixed when looking at the life of a mortgage. 

Qualifying for a fixed rate is becoming more difficult due to the stress test. Some are defaulting to variable for that reason alone. I suspect this will change once the benchmark rate increases to compensate for the rising rates.



Tostig said:


> I just googled "variable open rate mortgages" and found a result that says " 5 year variable open". Not sure what that means. If it's open, that means you can cancel at anytime without penalty. So why does 5-year come into play?


The difference between a variable open and closed term is that you can payoff an open term anytime without penalty. A closed term will trigger 3 month interest penalty. The "5 year" pertains to the discount obtained at the time of signing the mortgage. So in a scenario of Prime minus 1.00%, the Prime rate will vary whereas the 1.00% discount is guaranteed for a 5 year term. An open term will carry a much smaller discount or maybe even a premium added to Prime.


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## Covariance (Oct 20, 2020)

Mortgage u/w said:


> Variable rates continue to be favorable. The spread is still significant. Variable rate will always outperform the fixed when looking at the life of a mortgage.


Thanks mortgage. I assumed this was the case from my fixed income experience (as commented up thread). 

Is there any rule of thumb, or better yet historical data on street pricing for variable and fixed? I'd like to build a link to a model I have that forecasts bond prices.


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

Covariance said:


> Thanks mortgage. I assumed this was the case from my fixed income experience (as commented up thread).
> 
> Is there any rule of thumb, or better yet historical data on street pricing for variable and fixed? I'd like to build a link to a model I have that forecasts bond prices.


The problem is all these statistics are derived from Bank "posted" rates, which are astronomically high and not one customer obtains those rates. These statistics simply show the rate "trend" which is a good enough indicator to demonstrate the spreads between fixed and variable.....but not good enough to benchmark against bond prices.


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## james4beach (Nov 15, 2012)

marina628 said:


> I took a mortgage on my home in November to use as a down payment on a home for our son ,the rate was 1.3% and 30 years


Many people don't seem to realize that this is quite common. Borrow against one property, use it as a down-payment on another property.

I was astounded when I first learned that people did this. Really shows you how real estate prices (buying pressure) is fuelled by the easily availability of credit.


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## marina628 (Dec 14, 2010)

james4beach said:


> Many people don't seem to realize that this is quite common. Borrow against one property, use it as a down-payment on another property.
> 
> I was astounded when I first learned that people did this. Really shows you how real estate prices (buying pressure) is fuelled by the easily availability of credit.


James I owed $124,000 on a property worth $1,300,000 and have seven figures in the bank .YES We took the money gifted to our son and he has not bought yet ,it will make it much easier having him holding that cash when he does find a place to buy. I figure by not buying he has saved over $120,000 since we gave him the money. It is not the first time I took money from one to buy another and probably won't be the last. The mortgage payment i have is around 3 days salary


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## james4beach (Nov 15, 2012)

marina628 said:


> James I owed $124,000 on a property worth $1,300,000 and have seven figures in the bank .YES We took the money gifted to our son and he has not bought yet


I know we're getting a bit off topic here but I'm very curious. With seven figures in a bank account, why take out a new mortgage and not just use your existing cash? Seems like unnecessary use of debt to me but maybe I'm missing something.

Or maybe I'm misinterpreting what you mean by "have seven figures in the bank".

I think it's great that your son has the cash ready to go, and is waiting. I'm just trying to figure out the mechanics of this mortgage activity.


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

james4beach said:


> Many people don't seem to realize that this is quite common. Borrow against one property, use it as a down-payment on another property.
> 
> I was astounded when I first learned that people did this. Really shows you how real estate prices (buying pressure) is fuelled by the easily availability of credit.


That's how the corporate world works. You secure a loan against an asset, invest the borrowed funds and grow your business. Nothing new.


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## james4beach (Nov 15, 2012)

Mortgage u/w said:


> That's how the corporate world works. You secure a loan against an asset, invest the borrowed funds and grow your business. Nothing new.


Boy is that glossing over the details or what.

The insane levels of leverage available to amateur property people *are not* available anywhere else in the financial world. Companies can't do that with their various assets. _Even banks_ are not allowed to use that much leverage on their own balance sheets.

As a society we've created a system in real estate that allows stratospheric levels of leverage to even amateurs and nobodies. This is a unique situation to real estate and mortgages.

The leverage amounts are dangerous and not permitted anywhere else in society. Only in RE.

You don't think it's a problem when Joe Sixpack can built a hyper-leveraged real estate portfolio, using leverage multiples that even banks are prohibited from using? And when banks use leverage, there are strict rules about available capital and liquidity.

Well you're a mortgage underwriter during Canada's real estate bubble. You probably do think it's normal. Yikes.


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

@james4beach

You keep pointing fingers to the amateur investors and assume they make up the majority of RE owners. Even if they do, you can't assume they're all idiots.

What do you consider "insane" leverage? Cause I know more corporations going bankrupt for being overleveraged than property owners - yes, even the "amateurs".

Stop assuming.....just like you assume I'm a mortgage underwriter.


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## james4beach (Nov 15, 2012)

Mortgage u/w said:


> Stop assuming.....just like you assume I'm a mortgage underwriter.


You're not a mortgage underwriter? I guess I misinterpreted your user name.

And real estate does allow insane leverage. Even buying a property with 5% down is pretty nuts, but when people borrow using multiple properties and play HELOC games, that leverage can go even higher.

There's far too much leverage allowed in real estate. That, combined with chronically low interest rates, are big reasons we have a national housing bubble.

Real estate people think this is normal, though. I think that's what happens after a generation-long debt binge.


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

There is value in RE. Just like a chain restaurant owner can get more leverage than a no-name restaurant. Or a dentist vs a mechanic.

You should be more concerned with consumer debt than secured debt. That’s what makes people go bankrupt.


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## Covariance (Oct 20, 2020)

Mortgage u/w said:


> There is value in RE. Just like a chain restaurant owner can get more leverage than a no-name restaurant. Or a dentist vs a mechanic.
> 
> You should be more concerned with consumer debt than secured debt. That’s what makes people go bankrupt.


Not exactly the same quantum. RE enjoys 20+ years amortization period. Bank loans (to corporate borrowers) amortize over 5 years and only the highest quality bonds amortize over 10 years.


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

Covariance said:


> Not exactly the same quantum. RE enjoys 20+ years amortization period. Bank loans (to corporate borrowers) amortize over 5 years and only the highest quality bonds amortize over 10 years.


…..cause the risk is higher.


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## Covariance (Oct 20, 2020)

Mortgage u/w said:


> …..cause the risk is higher.


Most of the time, But the fuse has been lit.


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## james4beach (Nov 15, 2012)

Bank of America analysts think the Federal Reserve rate is heading towards 4.5% to 5.0%.
Head of Bloomberg Economics says the rate is heading to 5.0%
Deutsche Bank says 5.0%

Bloomberg News (on Friday September 16) says: Fed Swaps Price In 4.5% Peak Rate In March '23 with some derivatives pricing as high as 5%

Let's think about what that means.

BoC policy pretty much mirrors the US, so those forecasts would take the *bank Prime rate to 7%*


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

^ All bets are open. Everyone is trying to make their prediction to gain attention.

Still too early to tell. The economy is not a simple math equation. We all know it can turn on a dime.


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## Eclectic21 (Jun 25, 2021)

Tostig said:


> ... When the interest fluctuated on a month-to-month basis, it was only the proportion that went to principle/ interest that changed while the monthly mortgage payment stayed the same.
> 
> Today, when someone speaks of variable rate, it's as if the entire monthly mortgage payment fluctuates along with the interest ...


With at least three flavours of variable rate mortgages, I'd think those talking about increased payments as interest rates rise during the term have that type.









What are the Different Types of “Variable” Interest Rate Mortgages — Mortgage Sandbox


Mortgage interest comes in two forms: fixed or variable rates. This article explains the different types of variable interest rate mortgages.




www.mortgagesandbox.com








Tostig said:


> ... If the 2005-2007 example were still available, that would really help homeowners with their cash flow.


If that's the type the homeowner signed up for (or they have a reasonable option to switch) then yes.

I suspect though that this choice is made at the start of the term and doubt it can be changed.


Cheers


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## marina628 (Dec 14, 2010)

myousaf885 said:


> Hi Folks I had a question. I got my flex variable closed mortgage from scotia bank @1.9% in march 2022 thinking that my monthly payment wont change with change of interest rate by BOC. However i have seen my monthly payment rising with rise of interest rate. In contradictory to TD,CIBC ,RBC who didn't changed monthly payment but only changed amortization period. Is it happening with someone else.


I have not visited this thread in 6 months but wow a couple people were spot on what would happen .I have a friend with CIBC and she seen her mortgage amortization go to 75 years before she got a letter .Her payment has now increased over 40% .For myself the $124000 we got for our son , I paid down 20% before December 31 as the rate is now 5.3% ,a full 4% more than November 2021 .I am now paying another 20% this month as it makes no sense to pay 5.3% when I have cash. 
James Sorry I never answered you about taking a mortgage when I had cash ,at that time my cash was earning more than 1.3% so it made sense to take a mortgage .That no longer makes sense so we maxed the payment and doing max prepayment ,it will be less than $70,000 by end of the month.
My son still did not purchase a home and personally I think another 10-15% drop will occur by summer .My own home has dropped at least 20% in a year but still worth more than i paid for it in Feb 2020.

There are two types of Variable mortgages and some seem to raise it and others leave it alone. You should realize on renewal the max you can have is a 30 year amortization and to avoid having to requalify you will need to take the original amortization - years paid. If you took a 30 year on a 5 year term then you will get a offer of 25 year amortization only or have to do a new application.

My friend bought and owes $300,000 and in 2 years she has to renew .She has had a change in income and with the current rates would never qualify so she will be stuck renewing at whatever rate she can get. 

Hopefully you can manage the higher payments , I think we see another .50% increase in 2023 then it will settle down.


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## Eclectic21 (Jun 25, 2021)

myousaf885 said:


> ... I got my flex variable closed mortgage from scotia bank @1.9% in march 2022 thinking that my monthly payment wont change with change of interest rate by BOC. However i have seen my monthly payment rising with rise of interest rate.
> 
> In contradictory to TD,CIBC ,RBC who didn't changed monthly payment but only changed amortization period. Is it happening with someone else.


I have a friend who rode the higher payments for a while in 2022, until I convinced him that more BoC rate increases that means more increases to his mortgage payments were coming.

He has now locked in to a fixed mortgage, where the interest rate is higher but the payments won't change until the term ends and a new term has to be negotiated.


AFAICT, the people whose amortization is changing instead of their payments have a different variable rate mortgage than you do.


Cheers


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## AltaRed (Jun 8, 2009)

I recently read an article somewhere (G&M?) that indicated more mortgage holders are converting to fixed term mortgages both new and renewals which I would expect, BUT not as many as I thought might be doing so. After being brutalized and having their heads handed back to them in 2021, I would have thought most mortgagors would have experienced enough pain to at least go 1-2 year fixed to get over the 2023 hump in mortgage rate increases.

Regardless, I agree with post #73 that there are two types of variable rate mortgages: 1) one where payments rise with interest rate increases, and 2) ones that simply re-apportion the principal vs interest component to keep payments the same....unless and until the payment no longer covers interest, after which the payment either increases for the difference or there is negative amortization, with limitations on how much.

We are not hearing much from those who have been cheerleading variable rate mortgages these days. It has been a wonderful ride since the financial crisis going variable rate but too many mortgagors thought the fantasy ride was going to last forever. They never put the money they saved while on variable for a rainy day, or to use it to buy down outstanding balances on anniversary dates. At this juncture, it is not clear to me whether converting to fixed term at this particular point in time makes sense.....particularly if we think the BoC only has another 25-50 bp to go in interest rate increases. At the very least, I would not suggest going beyond 2 years in fixed term as I believe BoC rates will start coming down sometime in 2024.


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## Covariance (Oct 20, 2020)

How much fuse remains? See my post up thread. This is a legitimate enquiry please

Added. Less cryptically my enquiry is how bad is the current situation and owners ability to withstand the higher rates? Anyone have any data? Other than anecdotal stories of Uber drivers and million dollar mortgages there must be 100's of thousands of others that have an ability to ride it out?


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## Tostig (Nov 18, 2020)

The only mortgage rates I remember was 14% way back. I doubt that rates will get back this high but it maybe a good idea for mortgage applicants to factor-in this rate as a worse-case scenario.

Also, I'm glad that some banks are increasing the amortization period rather than increasing the required payments. They're are thinking they would rather have that income than holding a bunch of houses from defaulted mortgage payments.


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## Money172375 (Jun 29, 2018)

Covariance said:


> How much fuse remains? See my post up thread. This is a legitimate enquiry please
> 
> Added. Less cryptically my enquiry is how bad is the current situation and owners ability to withstand the higher rates? Anyone have any data? Other than anecdotal stories of Uber drivers and million dollar mortgages there must be 100's of thousands of others that have an ability to ride it out?


A lot of these borrowers were qualified at around 5.3%. So we’re close to where the bank would no longer lend…I’d bet there’s still some room to go for borrowers. Homeowners will move heaven and earth to stay in their homes. I feel like US homeowners are more willing to give up and pack it in.


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## m3s (Apr 3, 2010)

Mortgage u/w said:


> There is value in RE. Just like a chain restaurant owner can get more leverage than a no-name restaurant. Or a dentist vs a mechanic.
> 
> You should be more concerned with consumer debt than secured debt. That’s what makes people go bankrupt.


Banks are lending up to 80% of RE equity based on what a few others houses nearby sell for 

That only works until it doesn't. My landlord owns a bunch of new houses. He said his mortgage is higher than I pay in rent

How long can he survive that? He's just a normal tech guy who leveraged a bunch of new properties because his dad is a RE agent


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## Money172375 (Jun 29, 2018)

m3s said:


> Banks are lending up to 80% of RE equity based on what a few others houses nearby sell for
> 
> That only works until it doesn't. My landlord owns a bunch of new houses. He said his mortgage is higher than I pay in rent
> 
> How long can he survive that? He's just a normal tech guy who leveraged a bunch of new properties because his dad is a RE agent


I don’t know if there Is nationwide data available, but when I was lending, the vast majority of rentals were capped at 65% LTV


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## Money172375 (Jun 29, 2018)

Here are some stats. Avg LTV is below 60%









Mortgages loan-to-value ratio Canada 2021 | Statista


As of the second quarter of 2021, the average LTV ratio in Canada was 57.9 percent.




www.statista.com


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## Money172375 (Jun 29, 2018)

As of June 2021, for uninsured mortgages. 


65% or less LTV: 37.5% of residential mortgages (up from 37.1% in 2020)
65.01–75% LTV: 17.9% (up slightly from 17.8% in 2020)
75.01–80% LTV: 44.5% (down slightly from 45% in 2020)


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## OptsyEagle (Nov 29, 2009)

You basically have two effects of rising mortgage rates, but both require the mortgage payment to actually go up before you see them play out. The first, is the mortgage payment goes up and therefore household spending, on other things, must go down, to accommodate this lost income. That has a spiraling effect where business revenues decline and lay offs must be implemented to shore up the business's finances. The lay offs then implement the 2nd, double wammy, effect of rising interest rates, where even the families that could have kept their houses, by maintaining that higher payment, cannot anymore due to the lost employment income. The rising rates PLUS the lost employment creates the double wammy effect where they basically lose their houses. This then causes real estate prices to decline and all the corresponding economic fallout from both the layoffs and declining house prices and I would imagine bank write offs and lending pull backs that usually come right after that..

The question is, as @Covariance has asked, is when does the spark get to the bottom of the fuse? Or better asked, when do those mortgages come due requiring these higher payments that blow everything apart. The payments for the lines of credits and new purchase items like cars, etc., are already with us but it seems like there is still a little fuse left...just waiting for those mortgages to renew.


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## Italicum (Feb 10, 2017)

Tostig said:


> The only mortgage rates I remember was 14% way back. I doubt that rates will get back this high but it maybe a good idea for mortgage applicants to factor-in this rate as a worse-case scenario.
> 
> Also, I'm glad that some banks are increasing the amortization period rather than increasing the required payments. They're are thinking they would rather have that income than holding a bunch of houses from defaulted mortgage payments.


Personally, 19.5% in 1982 😏


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## sags (May 15, 2010)

Tidbits heard from CNBC on the radio........home foreclosures are increasing. Home sales have hit a wall and sales prices are falling.

Owners are de-listing to wait for higher prices while buyers are sitting back waiting for lower prices. The housing market is in stalemate.

In Canada, there are a lot of real estate sales people and many didn't sell a single property in 2022. 

Their "brokerage office and professional fees" are coming due and they are quitting and looking for other work.

The great housing reset has begun but will take some time to play out. People are stubborn on both sides.......sellers and buyers.


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## Mukhang pera (Feb 26, 2016)

Italicum said:


> Personally, 19.5% in 1982 😏


I recall, circa 1982, the prime rate went to 22.75%. I had a Bank of BC second mortgage on my Vancouver house at prime + 1.75. So the rate was 24%. I paid it off. At the same time, my parents were mortgage-free and were savers. They got Canada Savings Bonds for one year at 19%. I'd like to see that come back. So let the bad times roll! I'd like to see my TFSA at 19%.

A CA who I knew in those days was from Israel. He said there was no such thing as a mortgage in Israel, because inflation would render it uneconomic. He predicted the Canadian prime rate going to 40%. Did not quite work out.


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## Mukhang pera (Feb 26, 2016)

sags said:


> The great housing reset has begun but will take some time to play out. People are stubborn on both sides.......sellers and buyers.


Interesting. Can you describe what this "great housing reset" will look like? I recall a bit of a housing reset in the early 1980s. I had bought a Vancouver house for $110,000 in 1979. Paid cash to a B of M first mortgage that I assumed. It had about $62,000 left owing with 3.5 years left on the term. I was quite happy with it. It was a good deal (not a great deal, then, but good) at 10.25%.

Then the prime rate started going up by about .75% every Thursday. Went to 22.75%, as mentioned above. Probably my $110,000 Vancouver house quickly went up to about $275,000 before rates went nuts. That caused Vancouver house prices to be cut in half. My house probably dropped to about $140,000. So, a fairly significant "reset". But, still above what I had paid. But, those who bought in at the peak were crying the blues, saying things like: "That's it; it's done, we'll never see those prices again; only a fool would ever buy real estate" and on and on. 

By the time my B of M mortgage renewed, rates were down to about 12% or so. And ya' know what? The reset of those days turned out to be a bust. Very short term. I sold my Vancouver house in 1989 for $525,000...about 5 times what I had paid only 10 years before, despite the holocaust of a 22.75% prime. I took my $525,000 and bought my next Vancouver house for $770,000 in 1989. Sold it in 1991 for $620,000 (another time of "reset" that mostly passed unnoticed). Decided to move back to the old neighbourhood because VVR announced plans for a 3rd runway, one mile closer to Vancouver. The house I then had was in South Granville, on the "south slope" and the airport could already be heard. Time to get off the south slope and get back north of West 49th. Did not mind selling at a "loss" of $150,000 for a minute, since everything was down similarly, so there was really no net loss.

I note that the 2023 BC property assessments are out. That place I sold for $620,000 now shows the land as worth $3,269,000. A new house was built on it in 2002. It's valued at $1,532,000, for a total of $4,801,000.

So, back to my question. How will this great reset play out? The 80s reset was a mere bagatelle. Over in a few years. Ditto for circa 2008. Not of much moment anymore. But now, you (and I am sure many) are saying we are on the cusp of something momentous, not seen heretofore, maybe permanent. I would be interested in how it will unfold, if you care to share. Not that I really care. I have no mortgage and I have no plans to buy or sell anything in the foreseeable future. 

I still own rental property and my experience has shown that, if house prices get cut in half or whatever, rents don't follow, not at all. Will it be different this time? I would expect a great reset to affect all aspects of real estate. That should include construction costs, which have gone up a bit since I last built a house in 2007. I paid about $1 million to build. With the great reset at hand, I would think no one would ever pay $1 million to build a house that cannot be sold for a fraction of that, land included. So, labour and material costs should be about to reset on a unprecedented scale as well, n'est-ce pas?


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## MrBlackhill (Jun 10, 2020)

Mukhang pera said:


> I would be interested in how it will unfold


Real estate bubble popping to crash -30% to -40% already happened in many developed countries throughout recent history, I don't know why would we be immune to it.


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## Mukhang pera (Feb 26, 2016)

MrBlackhill said:


> Real estate bubble popping to crash -30% to -40% already happened in many developed countries throughout recent history, I don't know why would we be immune to it.


Did I say we'd be immune? Not at all.

But, what I want to know is will this be any different from what we saw in the early 80s, early 90s and, most recently, around 2008? None of those would count, in my view, as any kind of a "great reset". Just a periodic fluctuation that has occurred from time to time since time out of mind. They all passed within a short time.

What sags and others seem to be suggesting now is something not seen before, hence the term "great reset". That suggests to be something that will change things for a very long time and in a way that will impact most of our lives for, perhaps, decades. Otherwise, just a blip. I think the equities market is maybe enjoying its own reset at the moment from what I read here. I am not in that market and I don't pay much attention. I might if it was said the be a "great reset", since the effects would be so astonishing that all our lives would be affected. But, I gather, what's happening in that market is nothing worth noting. Just business as usual.


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## Covariance (Oct 20, 2020)

There is nothing unique about what is occurring at the moment. In fact it is by design - central bank tightening. The answer to your question turns on whether you believe we have a confluence of the financial cycle and business cycle. (And whether we are talking about Canada or globally.) When both cycles are in contraction there has always been a distress type situation that takes some time to recover from.


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## Italicum (Feb 10, 2017)

I agree there is nothing particularly unique that i can see in the current Canadian RE or financial landscapes and do not expect something cataclysmic going forward, though i do not exclude it since i do not have a crystal ball. Personally, rather than capital appreciation/depreciation of both RE and financial markets, at my stage in life and given my investor’s profile i am more interested/concerned about passive income from both. From that perspective things are steady as she goes.


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## Italicum (Feb 10, 2017)

Mukhang pera said:


> I recall, circa 1982, the prime rate went to 22.75%. I had a Bank of BC second mortgage on my Vancouver house at prime + 1.75. So the rate was 24%. I paid it off. At the same time, my parents were mortgage-free and were savers. They got Canada Savings Bonds for one year at 19%. I'd like to see that come back. So let the bad times roll! I'd like to see my TFSA at 19%.
> 
> A CA who I knew in those days was from Israel. He said there was no such thing as a mortgage in Israel, because inflation would render it uneconomic. He predicted the Canadian prime rate going to 40%. Did not quite work out.


Right, I do remember holding some Canada Savings Bonds paying double-digits interest back then.


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## sags (May 15, 2010)

I see more of a US style of housing crash in 2008 to the tune of 70% declines in some areas, but I understand what MP is saying.

We also muddled through 20% mortgages but fortunately had steady jobs with good incomes and steady wage increases with cola benefits and lots of overtime pay. Our home price was stagnant for a long time afterwards though.

I know people who weren't as well off and they had to walk away from their homes. They just couldn't continue to make the payments.

I used to hate looking at the piddly "equity" we had in the home after making years of big monthly payments. The mortgage barely dropped at all.

It also depends on what the government comes up with as a plan. Longer amortizations to lower the monthly payments perhaps ?

All that requires is a change in the CMHC insurance rules. There is no cost to the government to make that change, which makes it attractive to them.

If home prices fall below the equity levels, the banks may also be demanding a big chunk of cash at renewal time.

There is also a question of what happens to HELOCs and credit limits. Do the banks just let them ride on ?

Some will manage a big decline and some won't. Some people will be more determined to do so and some won't.

It really boils down to the financial status of individual home owners I think. Working.......wage increases.....other debt......and the like.


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## sags (May 15, 2010)

There is also a rather recent phenomena of people moving every so many years.

A lot of people don't buy a home and stay put anymore.......which was what our parents and grandparents wisely did.

My parents bought a 1,000 square foot bungalow and dad finished the basement. They raised 5 kids and our grandpa lived with us in that small house.

I have nieces and nephews who kept moving up and moving up into a bigger more expensive home. They now have big homes with big debts.

They end up paying mortgages for a lot longer than the original 25 years and many people are still making mortgage payments after they retire.

Home owners caught "one foot itis".........where boat owners continually move up to a bigger boat.


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## Eclectic21 (Jun 25, 2021)

sags said:


> ... I see more of a US style of housing crash in 2008 to the tune of 70% declines in some areas ...


I doubt such a large decline would be widespread. I can remember US co-workers in the late '90's talking about moving further away to cash in the gain in their house value _for the fourth time_. Plus I seem to recall qualifying for a US mortgage being insanely easy compared to the Canadian restrictions.

Time will tell.




sags said:


> There is also a rather recent phenomena of people moving every so many years. A lot of people don't buy a home and stay put anymore ......which was what our parents and grandparents wisely did ...


Maybe your family had parents/grand parents who didn't move.

For our family, both parents as well as the grand parents moved countries then houses within countries multiple times. At the grand parents level, only one of them owned a house in old age as the rest lost their houses to the lender.

For both sets of grand parents, the process to own a house was years of work:
a) paid for the lot
b) built the shell
c) finished the house
d) furnished the house with contents



Thinking about close friends of the family who have talked about their parents/grand parents - there are inter-provincial moves and more houses lost to the lender. IIRC, one friend of the family when moving from Manitoba lived in a trailer on a gas station lot for three years, before an Ontario house was bought.


Our family has pretty much avoided the "one foot itis". As my niece has complained about how university house mates wasted money by throwing out good dinnerware and spent money as new is the only way to go, I suspect she is in the same camp.


Cheers





I have nieces and nephews who kept moving up and moving up into a bigger more expensive home. They now have big homes with big debts.

They end up paying mortgages for a lot longer than the original 25 years and many people are still making mortgage payments after they retire.

Home owners caught "one foot itis".........where boat owners continually move up to a bigger boat.
[/QUOTE]


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## bigmoneytalks (Oct 3, 2014)

sags said:


> There is also a rather recent phenomena of people moving every so many years.
> 
> A lot of people don't buy a home and stay put anymore.......which was what our parents and grandparents wisely did.
> 
> ...


Family friends of our upgraded their home last year , took on 1 m in debt to do so. They are on variable mortgage too. Last summer I told them that they should lock in but they refused, saying they have always been in variable for the last 10 years and it was the smartest decision they have made yet they complain that their payments have doubled! They think rates will stop rising and reverse....Now this family earns twice as much as I do and likely can carry the extra payments but what I find interesting is despite their higher income, we are likely way ahead in terms of financial independence....i.e be able to retire early sorta thing. They complain that payments have doubled and they are likely have to work longer but the solution is simple, when it comes to homes, be reasonable. Home ownership is costly! In this case, with rates rising, most of their incomes is going to debt payments and upkeep rather retirement savings. Always prioritize retirement savings. But hey, they do enjoy that large chef style fridge!


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## OptsyEagle (Nov 29, 2009)

I have always said that the problem with most people's spending is they believe that all that stuff they buy and do is paid for with money. It is not. It is paid for with the labour and loss of freedom a person endures over their lifetime, that generates all that money. I think if more people understood the true cost of things they might spend their freedom a little less frivolously.

The best example I know is to pretend you were born a slave in the deep south. Your freedom costs exactly $1,000 and you just earned $100 somehow. Do you think you would put that away to buy your freedom some day, or would you spend it on a chef style fridge? ...and technically all but the very few rich of us are born slaves of some sort, simply because life forces us to work in order to live.


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## londoncalling (Sep 17, 2011)

I am of the mindset that rates will remain elevated (normal) for quite some time. The reality is that although sales volume is way down prices are still elevated on a longer term basis. Only those that bought in 2022 would be in the red and even then if they were not leveraged should be able to carry that mortgage with a couple of adjustments to consumption spending. Many are predicting a huge reset in Canada just as the did in 2008. I think its possible but not so sure. So far the majority of layoffs have been in tech which is a sector that Canada does not have a large market share. I do not wish to see anyone lose their job but so far the employment rate remains strong. As far as fixed vs. variable it is an uncertain which direction rates are going over the next few years. The yield curve doesn't think rates will be higher longer term.

Canadian Housing Market Report Dec. 19th, 2022 | Interactive Map - WOWA.ca


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## MrMatt (Dec 21, 2011)

I've saved so much on varible it isn't funny. I expect this trend to continue.

That being said, such a huge swing has seen my mortgage payments increase dramatically, but I was sure to budget to afford them.

The big issue is I never expected them to go this high, this fast, while within my means, it's a bit shocking. I'm not surprised others are having trouble.


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## londoncalling (Sep 17, 2011)

MrMatt said:


> I've saved so much on varible it isn't funny. I expect this trend to continue.
> 
> That being said, such a huge swing has seen my mortgage payments increase dramatically, but I was sure to budget to afford them.
> 
> The big issue is I never expected them to go this high, this fast, while within my means, it's a bit shocking. I'm not surprised others are having trouble.


Others are having troubles for a few reasons. They purchase at their upper limit and plan to increase payments with raises but never do. Few expected rate increases to ever happen after being told for years that rates would go up some day. Some day happened in 2022. I am not aware of many that actually budgeted for a change in their variable rate beyond 50 or 100 bps. Over the long haul variable usually wins.


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## AltaRed (Jun 8, 2009)

I tend to advise those that ask to go fixed term for at least the first 2-3 years, if not 5 years of home ownership, allowing themselves to build a bit of equity, a replenishment of an emergency fund and if they are lucky, higher earnings for a cushion. Then if they go variable after that, bank the difference as a form of prepayment/insurance going forward. The latter point is where many go wrong....by continuing to spend everything that comes in.


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## marina628 (Dec 14, 2010)

I bought my house in April 1992 for $160,000 and the person I bought from had sold it in July 1991 for $240,000 but then the bottom fell out of the market. They kept telling us when we seen it the 2nd viewing they lost 35% on the house in less than a year yet they bought it in 1979 for $40,000 .We kept that house 9 years and we had to put new windows in ,new siding ,replaced carpet in 3 bedroom ,new appliances ,did some updates in both bathroom paint etc plus some landscaping. We sold it 9 years later for $28000 more no gains at all except the equity we built. This was a normal market and rates were around 9% , what we have seen in past 6 years is not normal. So it would not surprise me if we do see 40-50% drop in prices in next 2-3 years. I have never paid more than $1300 a month in a mortgage payment seeing all these people saying the mortgage is $3500+ would make me sick .


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## londoncalling (Sep 17, 2011)

@marina628 Having a trades background or beign handy is definitely an advantage in the renovation game. Still I know many tradespeople that do not have the financial smarts that go along with it to either successful flip or value propoerties to determine how cashflow positive an investment they made. You have done well. I was hoping you could expand on the second last line of a mortgage payment not being more than 1300 a month vs. 3500+ a month. I think percentage of income (debt servicing) is a better way to determine how much a mortgage payment one should take on. Also amortization is an important factor. I think it would be misleading for someone to take a 30 year amortization at 1300 a month vs the same mortgage value a higher monthly payment. I am not sure how many mortgages you are carrying at the moment. In essence 3 mortgages at 1200 a month is the same cash outlay as 1 mortgage at 3600. In your view is there a fundamental risk difference? Some would see it as the same carrying cost. Some differences may include total value of the properties . Would it matter if the lone property was worth more than the other 3 combined? I think having the three properties would be more time consuming but would likely lower the risk similar to diversification of equities. 3 positions may be less risky than 1 holding. Curious to hear yours and others thoughts. I am not a landlord but like to hear about others successes in the RE world. I may dive in and buy a second property if we get a 40-50% drop in the next 2-3 years. It would likely be a recreational property or a second property for the kid when he enters post secondary.


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## Covariance (Oct 20, 2020)

3 properties gives some diversification?


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

@londoncalling Succeeding in RE requires knowledge and time. Many people will get into RE on the notion of hype. There is always someone who knows someone that made a fortune with RE. However, those stories have many holes. And they are not the norm. 

In general, RE is an investment like any other. Sure you can try to time the market and might succeed. If that was the only way in, you would never see a drop since the demand would keep the prices high.

Its important to decipher what it means when someone says the market/values/prices have or will drop by xx%. There are many variables in such a statement. A property might have dropped in value from 3 months ago - but how does it compare to 3 years ago? And what are you using to determine its 'value'? Is it from registered sales? Listings? Comparables? Opinion?


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## londoncalling (Sep 17, 2011)

Covariance said:


> 3 properties gives some diversification?


To be properly diversified one should own more than real estate. Many argue we overconcentrate our RE allocation simply by putting so much of our assets into owning a home. I don't agree or disagree as I don't place a lot of emphasis on home ownership as an investment even though it can be. For me it is a place to live. I would say owning 3 properties is more diversified than owning 1 in the same way as owning 3 Canadian bank stocks is more diversified than owning 1. assets/sectors. Hence I said some diversification, not proper diversification.

@Mortgage u/w I agree. knowledge and experience are required to be successful in any pursuit. Especially one that involves money and risk.


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## Covariance (Oct 20, 2020)

londoncalling said:


> To be properly diversified one should own more than real estate. Many argue we overconcentrate our RE allocation simply by putting so much of our assets into owning a home. I don't agree or disagree as I don't place a lot of emphasis on home ownership as an investment even though it can be. For me it is a place to live. I would say owning 3 properties is more diversified than owning 1 in the same way as owning 3 Canadian bank stocks is more diversified than owning 1. assets/sectors. Hence I said some diversification, not proper diversification.
> 
> @Mortgage u/w I agree. knowledge and experience are required to be successful in any pursuit. Especially one that involves money and risk.


No argument. I understood the question to be one property or three.


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