# Living History.......lowest 5 year rates ever.



## sags (May 15, 2010)

I heard the latest interest rate drop for 5 year fixed rate mortgages sets them at the lowest rate in history.

Too bad we don't have 30 year fixed mortgages, so people could lock in for the entire term.

One piece of information from Garth Turner's blog is that 10 year fixed mortgages are open after 5 years.

Might be an option to consider for those coming up for renewal soon.


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## carverman (Nov 8, 2010)

sags said:


> I heard the latest interest rate drop for 5 year fixed rate mortgages sets them at the lowest rate in history.
> 
> One piece of information from Garth Turner's blog is that *10 year fixed mortgages are open after 5 years*.
> 
> Might be an option to consider for those coming up for renewal soon.


It's a crap shoot right now with mortgage rates being historically low. But I can't really see mortgage rates going any
lower at this point..because the banks and investors still have to make money from mortgages.
More than likely the rates have bottomed out and may start to climb up again in the future. 

http://www.whichmortgage.ca/article/mortgage-basics-fixed-versus-variable-118752.aspx


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## sags (May 15, 2010)

It is a great time to buy, perhaps the best time in history..........IF............

People live in places that haven't seen a big housing price rise, and there are lots of places outside of the major urban centres where prices have been flat for years.

(Windsor, Chatham, St. Thomas, London, Ontario.........rural Saskatchewan......northern Ontario)

People can find a home that is undervalued in a major market...........like an estate sale the heirs want to sell quickly or a relative who would sell for less to family.

People only buy what they can afford and have secure employment.

What is sometimes lost in the discussion is that even if home prices fall, while interest rates are rising...........the payments may remain the same.

I checked out the new rate against our last new home purchase back in 1991.

We had a $130,000 mortgage and our payment was over $1000 a month. Interest rate was 7.9%.

Today, the payment on a $200,000 mortgage is less than that, due to lower interest rates.

Way back in time, we had a $70,000 mortgage and were paying $1000 a month. The interest rate was 19%.

We also have more income in retirement today to service the $1000 payment, than we did from working way back then.

People just have to be careful not to get overextended or pay too much.

And don't do what we did.............move too much. Everybody (realtors, lawyers, banks) made lots of money but us.

Buy a comfortable home, lock in the historical low rates, stay put, pay cash for improvements, and pay it off............is the way to success.

And never........ever.........ever..........borrow against the equity in the home.


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## carverman (Nov 8, 2010)

sags said:


> It is a great time to buy, perhaps the best time in history..........IF............
> 
> People can find a home that is undervalued in a major market...........like an estate sale the heirs want to sell quickly or a relative who would sell for less to family.


My son , will be 40 this year and married with 3 kids. He bought a palatial 3800 sq ft house in the village of Blair, part of Cambridge (Hespeler/Galt) where he commutes into Waterloo, working on a new job that he found last year. 

Back in 2003, a graduate from Ryerson with a Comp Science degree, he bought his first house north
of Toronto (Keswick for 217K. It doubled in price when he sold it in 2013..10 years later. 
What prompted him to move was he found a better jobs, wanted more space than the previous houses as well as fed up with the travelling and the traffic congestion from work to Richmond Hill, where he worked for a big insurance company as systems analyst for about 10 years. 

Now this new house is HUGE...Finished in a stucco/southwest style ranch. It was listed for $695...certainly with a lot of "old world" German style construction. Lots of oak everywhere including the ceilings and a deluxe curved oak banister staircase upstairs from the foyer.

I have never seen such construction in my life..it is reminiscent of the California million dollar plus homes, but he owns it now in the village of Blair, which is now part of Cambridge. 



> People only buy what they can afford and have secure employment.
> Buy a comfortable home, stay put and pay it off............is the way to success.


That is my philosphy as well. I never liked having a mortgage. I had a $70k mortgage with CIBC back in 1996.
Don't remember now what the interest rate was, but it was about 5.x % and I only took it out for 15 years, expecting to pay it off sooner with lump sum payments.
The payments were around $595 a month, but with all the churn going on at Nortel from 2002/2003,
(mass layoffs every 6 months), I started to get very nervous about my job security, even though
I had over 20 years of service, and started to cash in my savings plans and RRSPs and paid off the mortgage much sooner than I intended. 

I was retired in the fall of 2003...so whether that was premonition or not..it worked out for me as I only paid another 24 payments from my pension at the time..before it got reduced in 2010. 

After paying mortgage payments for about 10 years, I got the discharge in 2006 and been mortgage free every since.

I'm old school.I just hate owing any money to anyone, even the CC bank. :biggrin:


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## OptsyEagle (Nov 29, 2009)

sags said:


> One piece of information from Garth Turner's blog is that 10 year fixed mortgages are open after 5 years.


I am not an expert in mortgages but I do not believe that is exactly the case. I never read what Garth Turner says but it was my understanding that in 5 years your bank can no longer charge an interest rate differential for breaking the mortgage, but can still charge a 3 month interest rate penalty as a maximum...and I suspect they would.

Not quite an open mortgage but a lot better then trying to break a 10 year mortgage BEFORE 5 years. I am sure that can be quite painful in a falling interest rate world.


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## Jagt Mirage (Sep 29, 2014)

sags said:


> It is a great time to buy,
> 
> And never........ever.........ever..........borrow against the equity in the home.


kinda.. I'm in the market right now and it's freaking crazy. Houses that went for $850K less than 4 months ago are selling over well over $900. A house we were considering went $70K over asking in 3 days. I guess I can take some comfort in that my own house has probably gone up as well.

As for never borrowing against equity, I agree if you're spending it, not if you're investing it. You can still get long term investments with higher yield than a mortgage.


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## Cal (Jun 17, 2009)

sags said:


> And never........ever.........ever..........borrow against the equity in the home.


Unless it is tax deductible. :friendly_wink:


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## My Own Advisor (Sep 24, 2012)

It all just seems so crazy...prices going up thousands of dollars within weeks in some markets...

I agree with the comment: nobody talks about prices falling, interest rates rising and what happens next?

Our game plan:
-continue to slay the mortgage dragon while rates are dirt low, and
-invest where we can when not killing the mortgage debt.

We are avoiding borrowing against our house at all costs.


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## RBull (Jan 20, 2013)

I'm not for anything that makes it easier to buy a house. Retirement savings funds raided for house down payments, 5% down payment houses, rates at record low rates, life mortgages (30 years) have driven house prices up and made people far too indebted.

If I was looking at buying in a lot of markets I would have to seriously consider renting and forgetting about buying. More house, less dollars and greater flexibility in an increasing number of areas.


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## RBull (Jan 20, 2013)

MOA, wise plans.


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## CharlesF.Donahue (Jan 7, 2015)

It is a really a great plan for the retirement, you are going to secure your future in present. These plan will become a great deal for you in future through which you can raid from the saving funds.


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## crazyjackcsa (Aug 8, 2010)

The best time was really 3-5 years ago. Low rates today and lower prices when you purchased.

That's where we are right now. We bought 8 years ago and had to deal with 5.1%. That wasn't much fun so we blended and extended down to 4.7 after two years and we hammered away until we had the mortgage at about 1/2 of the original principal. Our interest rate is 2.45% now and we went with a 25 year amortization again. That brought our monthly payments down to less than 1/3 of what we were paying (and overpaying) We're pushing the difference into education savings for the kids and for our retirement savings. When rates rise again, we'll adjust accordingly.


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## sags (May 15, 2010)

crazyjackcsa said:


> The best time was really 3-5 years ago. Low rates today and lower prices when you purchased.
> 
> That's where we are right now. We bought 8 years ago and had to deal with 5.1%. That wasn't much fun so we blended and extended down to 4.7 after two years and we hammered away until we had the mortgage at about 1/2 of the original principal. Our interest rate is 2.45% now and we went with a 25 year amortization again. That brought our monthly payments down to less than 1/3 of what we were paying (and overpaying) We're pushing the difference into education savings for the kids and for our retirement savings. When rates rise again, we'll adjust accordingly.


Yea but you are doing it the right way. Pay down debt when it is cheap and you can pay more principal off or diversify your investments.

Most people, the overwhelming majority of people in fact, are using cheap money to borrow and spend more.

I think something is definitely wrong when a family member couldn't pay cash for a new couch...........but bought a $750,000 house.


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## My Own Advisor (Sep 24, 2012)

sags said:


> I think something is definitely wrong when a family member couldn't pay cash for a new couch...........but bought a $750,000 house.


That is nuts. 

What is wrong with people? #math101


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## Emjay85 (Nov 9, 2014)

My Own Advisor said:


> That is nuts.
> 
> What is wrong with people? #math101


Some people love living off credit. Cash poor, credit rich. As long as they can make the monthly payments its good for them. Not my cup of tea. I don't know how they do it sometimes.


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## My Own Advisor (Sep 24, 2012)

I guess so Emjay....I like using credit but only temporarily, i.e., pay off credit cards every month. If I couldn't I wouldn't use them. 

I don't know how folks can survive paying 19%+ interest on stuff they buy.


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## crazyjackcsa (Aug 8, 2010)

You know they don't pay 19%. Every couple of years they just roll it into the mortgage. Keep making the mortgage payments forever and when you die, who cares!

Sometimes I sit here and wonder if that's actually the way to do it? Especially with low interest rates.

I could go out and remortgage my house and extract 90K in equity. My payments over 25 years would actually be the same as I was paying when I bought the house 8 years ago. A payment which was supremely manageable in the first place. I'd still have the place paid for by 60.

I could put that new kitchen in I want, I could get my new outbuilding and heck, maybe even buy a second hand boat and a motorcycle! I get all that stuff while I'm "young" and live life. Instead, I scrimp and save, I go without and wait for a day that may never come. Or if it does, I may have suffered an injury or health crisis and can't enjoy my remaining years.

Maybe we have this backwards? Live now, pay later.


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## Emjay85 (Nov 9, 2014)

My Own Advisor said:


> I guess so Emjay....I like using credit but only temporarily, i.e., pay off credit cards every month. If I couldn't I wouldn't use them.
> 
> I don't know how folks can survive paying 19%+ interest on stuff they buy.


Don't get me wrong, I do the same. Major purchases go on the cc but paid off right away. But many people, at least in my small circle, sign up for monthly payments on whatever it is they want or need, like the couch example, because they can make that monthly payment like all the others as well, instead of saving their minimal amount of extra cash for the long term, or at very least, save it until they can buy whatever it is with cash.


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## Terminator (Dec 17, 2014)

crazyjackcsa said:


> Our interest rate is 2.45% now and we went with a 25 year amortization again. That brought our monthly payments down to less than 1/3 of what we were paying (and overpaying) We're pushing the difference into education savings for the kids and for our retirement savings. When rates rise again, we'll adjust accordingly.


This is interesting. So you kept the amortization the same as your previous mortgage amortization? Essentially just reducing your monthly payments instead of the years left on the mortgage?

I always looked at my mortgage as something I wanted to pay down as fast as possible. Other than the low interest rates, is there any reasons why you chose the same amortization, instead of 20 years? I would think that since rates are so low, it would be easier to reduce your amortization and not pay that more per month (when comparing 25 years vs 20 years)

I'm still new to all this stuff, so I'm just genuinely curious.


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## sags (May 15, 2010)

Oh yea, that is a very popular move, or at least it used to be.

Just wait until the house goes up in value, go the bank and remortgage for a longer term and voila........big pile of money and the payments remain the same.

It is like a renter going to the landlord and getting a fat cheque for all their rent back.......every 5 - 10 years or so.

It actually isn't that bad an idea, if you aren't interested in ever actually owning the house,.... unless interest rates skyrocket.

But in the worse case scenario, there is always the "tactical bankruptcy" option should the need arise.


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## crazyjackcsa (Aug 8, 2010)

That's exactly what I did Terminator. My wife wouldn't go for a Smith Maneuver, or an investment loan so this was our agreement.

We spent 7 years making prepayments while rates where "high". It ended up equaling 39 bi-weekly payments a year. Everything else took a back seat. RRSPs, RESPs were left alone.

When our mortgage was up, our rate dropped from 4.7 to 2.6 (and now down to 2.45) and we pushed it back out to 25 years. We didn't alter the principal, but our monthly mortgage costs went from about $1050 to less than $275 a month. 

We take the difference and put it into our RRSP. Then we take that annual refund and put that into our kids' RESP.

We'll do that until rates rise to 3.5% (Which isn't a highly scientific number. I wanted to wait until at least 4%, she wanted a 3% cut off). At that point it will flip again, we'll go back to paying off the house and have that done in 5 years. If rates remain below that threshold when it comes time to renew, we will again push out to 25 years without adding to the principal.

I think one thing worth mentioning on this plan is that the mortgage currently sits at about 1.25 times the household net income and there is no other debt.


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