Author Topic: Canadian Mortgage : Variable or Fixed  (Read 1591 times)

frugalamber

  • 5 O'Clock Shadow
  • *
  • Posts: 45
  • Location: GTA
Canadian Mortgage : Variable or Fixed
« on: May 14, 2014, 07:56:12 AM »
Hi All,
We have a mortgage of $280000 on a $500000 house. Our current mortgage as 2.79% 5 year closed and we are 1 year into it. We just got another mail from Investor Group for mortgage transfer deal of variable closed 3 year rate of 1.99% or prime less 1.01%. Our current mortgage holder has a penalty clause of 3 months interest payment to leave the mortgage. May interest for the loan was - $651.71.
I have done the calculation that if mortgage rate remains the same for the next 3 year; we will save $4000+ in next 36 months even after paying the penalty.
Can the experts on the board please chime in with their opinions?
Note: This is our only debt and we are saving close to 50% of our net salary (maxing RRSP, TFSA and other saving goals). We are also exploring the idea of investment property in next 1 year.

blueeyetea

  • 5 O'Clock Shadow
  • *
  • Posts: 28
Re: Canadian Mortgage : Variable or Fixed
« Reply #1 on: May 14, 2014, 12:54:36 PM »
The $4,000 you'll save is if, and only if, you get to keep the 1.99% rate for the entire 36 months, when the likelyhood that the rate will go up over the next three years is very high.  You might get away with keeping your rate of 1.99% for the next six months, but what about the next 2 and 1/2 years?   Anytime the prime rate will go up, your potential $4,000 saving will shrink.    Along with that, you run the risk of getting a higher mortgage rate at the end of the 36 month term, when you can enjoy the 2.79% rate for an extra year.   

For that amount of money (not that much when you think about it) and the hassle involved of switching your mortgage to another bank, I'd stay with the fixed rate of 2.79% for the 4 years that are left.   

amandamechele

  • 5 O'Clock Shadow
  • *
  • Posts: 7
Re: Canadian Mortgage : Variable or Fixed
« Reply #2 on: May 27, 2014, 07:09:31 AM »

I ran the numbers for our mortgage too, when this low rate was introduced. Our savings, after breaking our variable rate (prime minus 0.5%), fixed term (18 months left), was only about $1300 (over the course of the whole 36 months).

So I agree with blueeyetea, keep your current mortgage. It is a good one.

Here is an article that convinced me not to switch:
http://business.financialpost.com/2014/05/14/a-sub-2-interest-rate-but-be-ready-for-some-surprises/

MorningCoffee

  • 5 O'Clock Shadow
  • *
  • Posts: 98
  • Location: Ottawa, Canada
Re: Canadian Mortgage : Variable or Fixed
« Reply #3 on: May 27, 2014, 07:43:42 AM »
If you do decide to break, make sure you double check the fine print of your current mortgage. Some bank's penalties are for a minimum of 3 months interest or the remaining term's interest, whichever is higher. Ouch.