Author Topic: Mortgage Renewal Canada - Hedging  (Read 1527 times)

Reynolds531

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Mortgage Renewal Canada - Hedging
« on: August 05, 2017, 07:45:18 PM »
So I renewed this week going for another five year term. I owe $120k now at 2.64 percent locked in for five years.

All other aspects of my finances are in good shape. I was paying it off aggressively but at this rate I can't justify that.
All tax deferred accounts are maxed but I have some TFSA room. I'm wondering if the members have any comments on the idea of buying something with income potential that hdges against higher rates in five years.
Rate reset preferred shares for instance have limited market risk and pay higher yields than my interest rate. I would get a capital gain if rates rise that I can put down on the mortgage in five years.

Thoughts? I'm overthinking? Just buy an index?

Goldielocks

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Re: Mortgage Renewal Canada - Hedging
« Reply #1 on: August 06, 2017, 09:27:23 AM »
I find that if your portfolio is large enough, you have no advantage with the protected returns or second tier of complexity of items like rate reset.

Instead, just balance out your own portfolio to the asset mix you want, and hedge with your diversification strategy to match what the product you are interested in is trying to do.

If your product is based on partially working options, then just buy a few options yourself, etc.

This way, you save quite a bit on fees, and the way the income is distributed to you is very clear and simple to understand -- you get the income when and the amount that you expect.  I been burned by surprise fees, restrictions on selling, or slower trading adjustments that reduce returns on the other products in the past, so I avoid them now.

RichMoose

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Re: Mortgage Renewal Canada - Hedging
« Reply #2 on: August 06, 2017, 01:53:20 PM »
I think your best hedge is simply a fat portfolio. Rate reset prefs are a fine component of a possible portfolio, especially in retirement for the tax advantage dividends.

However, I wouldn't invest in them just for the purpose of hedging against rate changes.

Are you really concerned about not being able to pay a higher mortgage payment? Will the remaining balance after 5 more years be worth the hassle of messing around with your portfolio?

Worst case scenario, if mortgage rates go up to 6-7% or something, you can always cash out your TFSA and just pay the mortgage off.

If it was me, I would try cram those tax advantaged amounts full first with stocks and bonds as appropriate to your risk tolerance.

Reynolds531

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Re: Mortgage Renewal Canada - Hedging
« Reply #3 on: August 06, 2017, 02:57:48 PM »
You two are right, I'm over thinking it.  It's the emotional need to maximize every stinking dollar and never ever overpay.

I need another hobby.

meghan88

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Re: Mortgage Renewal Canada - Hedging
« Reply #4 on: August 06, 2017, 03:37:26 PM »
You two are right, I'm over thinking it.  It's the emotional need to maximize every stinking dollar and never ever overpay.

I need another hobby.

Ah, you have the same disease as me.

RichMoose

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Re: Mortgage Renewal Canada - Hedging
« Reply #5 on: August 06, 2017, 03:48:04 PM »
It's the emotional need to maximize every stinking dollar and never ever overpay.
Nothing wrong with that, I call it maximum financial efficiency. It sounds very Millennial and financially acute. 😊