I read your blog daily and love it. I am concerned that there’s been a lot of talk about fixed rate mortgages rising, but what of variable? I bought a house 3 years ago near Kitchener and got a 5 year variable rate from ING (ING Prime minus 0.65). The rate hasn’t moved at all since December of 2010 (it’s been 2.35% since that date). I’ve been reading a lot on your blog about fixed rates and how they are only going to rise (already started). So when do variables follow suit? I have a 10 year rate hold at 3.69% that’s about to expire early next week and I’m thinking of pulling the trigger on it, but I’m just trying to understand what variables are going to do in the short, medium and long term. I realize it’s all speculation, but do you have an opinion on when these are going to start to creep up? Tough to add another 1.34% if speculation turns out wrong.
Ace question. Lots of people been spooked by the back-up in rates lately. My mortgage buddies tell me 10-years are as popular as duct tape at a Conservative caucus meeting. Without a doubt, a decade-long mortgage at anything less than 4% will look ridiculously cheap half way through the term, but that does not necessarily mean it’s wise to cash in your 2.35% gift for something far more costly.
Fixed-rate mortgages jumped because of the bond market, not the central bank. Best thinking now is that the economy sucks enough the Bank of Canada won’t jump its rate until at least this time next year, and then the moves higher will be incremental. That means locking in to a long-term commitment with a substantially higher monthly makes no sense. Let it expire. Your best bet is to wisely invest the extra money you would’ve put into the 10-year payments over the next two years, then slam it against the principal upon renewal. Make the bank hate you.
Hi Garth: I read your site and I like it quite a bit. Despite that I did buy a house a couple of years ago. A cheap house (relatively). I live in Winnipeg and don’t make a ton of money (35k a year), but unless you’re living in rough areas rent is usually more expensive then a mortgage.
So I looked and looked, avoided “hot” areas, set my price and stuck to it. 120k in on a 950 house with a double lot in a good area. 24 year mortgage and I actually had 20% down. The house was whatever the opposite of “a pig with lipstick” is. A physically abused model after a night of binge drinking and a fist fight with her boyfriend? Structurally stable and livable but some love and care was needed.
I generally think I did all right and that this sort of purchase wasn’t the general “insanity” that we see. From reading your articles you often swing between everything being a lost cause and there still being a “good” way to buy a house. I guess I’m wondering, did I manage to avoid the traps? Some days when I read your article I feel like I did all right. Other days I get a sinking feeling in my chest. Is there still a good way to buy a home? Is it possible to get wet without drowning? Do I need a life jacket? Thanks Garth. From Dave
Calm down. It’s a cheap house. The mortgage carries for around $400 a month, and even with property tax and insurance, that’s at least two hundred bucks less than the average rent of $770 in The Peg. Of course, to get it you gave up $25,000 in savings so make it a priority to try and recover that as soon as possible. Open a TFSA and dump that $200 a month in there, and not in a damn GIC.
Relax, Dave. You and the abused model make a fine couple. Just don’t let her be too demanding.
I read your blog everyday and I would like to say thank you for what you do. I was just wondering if you have any quick links to charts and graphs on interest rate and house price historicals. I have been in some heated arguments with friends and family on how Canadians are house horny and the path that our country is on is unsustainable. The masses are demanding charts and graphs to back up what I say. So just wondering if you have anything. Actually I debate my wife the most. She thinks a simple rise in interest rates will only raise the average mortgage payment by 10 bucks. Talk about a laugher. I imagine she gets her info from a real estate agent. Can you help? Ryan.
Whether interest rates rise or not, housing is dangerously overvalued, since the link between prices and incomes has been broken. That’s resulted in a record level of household debt and a now-stuttering economy. The savings rate has declined, as has investing. Four in ten families have trouble paying monthly bills and now CIBC says almost 60% of people are retiring with unpaid loans. Almost three-quarters of people are without pensions, and yet seven in ten have houses. If it were not for 3% mortgages, house values would be at 2007 levels – which means when rates normalize, that’s what your wife should expect.
But if you’re writing to a blog for help and charts, hell, just buy her a house. You’re cooked.
Hi Garth, my friend just told me about your website, it’s awesome! I have so much to learn. I’m not sure if this is correct protocol but I have a question for you. My partner and I rent a home in Vancouver, B.C, $1200 a month. We are both self employed and make about $17,000 – $23,000. I have a consolidation loan paying out $600 per month for the next 4 years, he (my partner) has a credit card debt of $12,000 (11.5 % interest rate) and a line of credit debt of $15,000 (7% interest rate). Here’s my question, I just received a $30,000 settlement for a car accident, what is my best game plan with that money? My partner thinks investing it but I think we should at least pay off his credit card then do something with the remainder. Any suggestions? Thanks for your consideration!
We have a third family member, a beautiful rescue mutt named Buster Reeko, and he thinks we should spend the money on squeaky balls.
It ain’t sexy, but the best thing you can possibly do with the money is to pay down debt with non-deductible interest of 11.5% or even 7%. The odds of you making after-tax returns to rival that are about zero. So just do it.
And what’s with your partner having consumer debt equal to an entire year’s income? I hope this is an old wound, and no indication he’s spending more money than he makes. Because if that’s that case, I’m with Buster. Keep the dog. Dump the squeak.