Lock ‘n load


Today’s deflationary environment will ultimately be replaced by inflation. You’ll have no trouble recognizing this when oil hits $150, a litre of gas is a buck and a half, food prices are going nuts and mortgage rates are rising monthly.

But this will not make us Argentina. Instead of hyper-inflation which wildly inflates wages, salaries, prices and asset values at the same time, this is the kind that just sees prices go up, while your income doesn’t. There are many sound economic reasons for my saying this. I’ll explain over a few scotches some time.

This inflation will also not escalate house values. Not by enough to compensate for your lost net worth, anyway.  The main reasons will be stagnant family incomes, the debilitating effect of energy prices and rising mortgage costs.

At least you can do something about one of those. And now, on to Pickering…

Hi Garth,
Really enjoy reading the blog everyday. I know you are a big advocate of variable rate mortgages.  I was wondering when you think the right time/rate is to lock-in, if ever?

Our situation is this:
-We sold and bought a house in the fall of last year.
-We chose a home that was more suited to our needs that resulted in a mortgage of $270K (20% down on $350k).  This represented a mortgage of about a third of what the bank ‘approved’ us for (seriously, why in the heck would we, or anyone else, need an $800K+ house?).
-While we did do a 35 year amortization, we also went with bi-weekly payments to accelerate the am, and we also throw everything extra we can afford toward the principle (bank allows us up to 15% per year without penalty).  So, effectively, we’re making payments as though it is a much shorter amortization.
-We secured a 5 year variable at an opportune time; our rate is prime less a half.

While prime may remain reasonably stable over the next year, we are already starting to see/expect banks to raise their mortgage rates.
While we love our current low rate, which makes our payments toward principle much better, when is it the right to time to pull the trigger and lock it in, if ever?
If there a right time, how long a term is wise to lock in for – 5 years? 10 years?
5.25% on a Scotia Fixed for 10 year mortgage is much higher than our rate right now, but we don’t want to be paying 10% come renewal time in fall 2013 either.
Thanks — Jeff in Pickering

This is a question I am asked more than any other these days. Stay variable, or lock up?

Regulars will know my propensity for variable rate mortgages, simply because they save a ton in cash flow and since loan rates have not been scary for the last decade and a half. Those people who jump on a 5- or 10-year term irrationally and pay 2% extra for half a decade or more are idiots. They would have been far better off to go VRM and dump the extra money against the principle in the form of prepayments.

But these days, long-term rates are moving higher with the bond market. And while I think rates will fall again this autumn when the blood rivulets down the gutters of Wall and Bay, there’s no doubt the cost of money over the next number of years will be relentlessly increasing.

I mean, how could it be otherwise? That Obama guy will (like that Harper guy) be monetizing his deficit and bloated debt, goosing the money supply in order to pay for the mother of all stimulus packages, health care reform and various wars. At the same time, America will be imposing a carbon tax to ostensibly rescue the environment but really to save US manufacturing jobs (sorry China) and, of course, we have peak oil coming.

Given that, a great investment strategy is this: duck.

Part of ducking is stabilizing your loan costs, and that means locking in a mortgage. So, yeah, Jeff, suck it up and call the loans officer.

And while you’re rewriting the loan, deep six that ridiculous 35-year amortization. What were you thinking? That interminable term means you pay off virtually no principle each month, since it’s meant just for dumbass first-time buyers who don’t know any better. But not you. You are here reading this blog. You are elite.

Go to the branch. Do it: five year term, bargained down to a point below posted, 25-year am, rapid paydown and prepayment options, portable, weekly pay, hold the insurance.

Strut in. Shades. Attitude. Carpe diem, dude.


#1 ottawa pete on 07.05.09 at 9:14 pm

Looks like a grow-op in a very good Kanata neighbourhood – just a few km from Scotiabank Place…


Anyone ever take on one of these?

#2 Math Major on 07.05.09 at 9:31 pm

I’m with you on locking it, but this guy says weekly/bi-weekly payments really aren’t all they’re cracked up to be and you can effectively accomplish the same thing just by increasing your monthly payments


I checked his math and he’s right, it’s only about 50 cents per month saved per $100K going weekly over monthly. Granted that’s a buck or two in your pocket every month, but it’s hardly a silver bullet.

You have miscalculated. — Garth

#3 Solitario on 07.05.09 at 9:51 pm

Looking forward for the explanation regarding inflation…first round of scotches is on me…

Until then, let’s recap…essentially 2 theories about what’s going to happen: Mises and Fisher…Fisher thought velocity is important, Mises not…If Mises was correct, the expansion of the monetary base will be matched by an expansion of the monetary aggregates, and this will lead to extreme price inflation on a scale comparable to the increase of the monetary base….If Fisher was correct, and if velocity is crucial, then we will not see an increase of prices comparable to the increase of the monetary base….until the economy picks up.
Since you don’t seem to believe in a sustained economic recovery, but you forecast inflation, that could only mean you’re in Mises’s camp…
At the same time, you do not foresee a continuation of the deflation/deleveraging/depression scare…that would only mean strong dollar and imply low bond yields and low mortgage rates…
Did I miss anything…?

#4 Glenn on 07.05.09 at 9:52 pm

‘I’ll explain over a few scotches some time.’

I like your blog but why don’t you try explaining it now?

You are prone to making grand pronouncements without backing up any of your claims with facts or analysis.

Suggest you read a little more deeply before I waste any 12-year-old juice on you. — Garth

#5 Basil Fawlty on 07.05.09 at 10:18 pm

With all the “Quantitative Easing”, digital money creation, or inflation of the money supply, something has to give. It could mean increasing prices of goods we need to live, and decreasing prices on discretionary items. Western governments are backed into the proverbial box canyon and it is now inflate or die. They have run out of policy tools wih interest rates already below the rate of inflation.
However, the really frightening scenario is hyper-inflation triggered by a currency event. The US is already being forced to purchase some of their own treasury bills, as international purchasers are reducing their investment in US debt. This is a great reckoning scenario that could reduce living standards in the West, bringing them more in line with those who now do the worlds manufacturing and resource production.
Things are likely to get real weird real soon. What was is over.

#6 dondiego on 07.05.09 at 10:36 pm

Suggest you read a little more deeply before I waste any 12-year-old juice on you. — Garth

What a riot! What a wordsmith!

#7 Torquemada on 07.05.09 at 10:44 pm

Are we headed towards inflation or deflation?

I am sick of the back and forth arguments and will settle the issue once and for all. Here’s what you can expect:

Inflation in the things you need
Deflation in the things you can’t afford

#8 glenn on 07.05.09 at 10:47 pm

I have read deeply and you’ve never provided any analysis for instance of why oil will rise to $150/bbl while demands plummets or why the stock market will rise while the world slips into depression – both obvious contradictions.

I’ll make it easy for you. You can save the scotch and we can get right to the analysis.

#9 encanto on 07.05.09 at 11:04 pm

Some of the people, some of the time, know the answer.


#10 nonplused on 07.05.09 at 11:05 pm

Peak “light-sweet” crude oil appears to have happened in July 2006, incidentally right at the peak of the US housing bubble. Either that or OPEC really is limiting supply. This guy seems to know something about it but this isn’t the best link. A web search will be very productive.


Sour and heavy oil production is up but can’t keep up with the declines in the good stuff. Fortuitously, the world economy collapsed and demand is way off, so supplies are still ample.

Primer: peak oil doesn’t mean we are out of oil. It means we are no longer able to replace declines at a faster rate and thus increase over all daily production. 20 years from now the world will still be producing as much oil as it did in the 70’s. Only problem is there are more people used to using it now than there was back then.

#11 Keith in Calgary on 07.05.09 at 11:19 pm

I was at a cocktail party yesterday for the Calgary Stampede (yes people still hold those) and it seems that the conversation turned to the economy once again……doesn’t it always.

Seems I might as well have been the antichrist during this chat for having ZERO DEBT, MID 6 FIGURES IN CASH IN THE BANK (in cash and foreign government bonds) and being a RENTER……….I didn’t have a “look at my new house” story to tell to the entire crowd………but they got to hear my “I rent a luxury condo is the tony part of town for 1/3 the cost of buying” story……..

People don’t respond well to the subject of deflation, and even worse to the topic of the inevitability of rising interest rates. The herd mentality is alive and well during the Stampede……..lemmings………they’re all lemmings…..and they know the cliff is there and they don’t seem to care.

#12 Dean on 07.05.09 at 11:22 pm

Good call. Now is not the time to get greedy. I locked in for 5 years at 3.7% a month ago. Lock that debt in and retire it. Make this recession work for you.

I’m interested in the weekly vs monthly comparison described earlier. I get paid monthly, so I just upped my payment per month to match the total over the year if you went weekly. That way I don’t end up with those months where there is an extra payment. Garth, you seem to suggest that weekly is still better — what am I missing?

Here in Alberta, the housing market has gone goofy again. 6 offers at once on the house down the block, and it is a dump. Most people I know are still in denial here, but a few have come over to the dark side recently (mainly those that own businesses). By the end of September, when everyone is back from holidays and they realize that business still sucks and isn’t picking up — that’s when I think things are going to get interesting.

I’m skipping a summer holiday this year, paying off some bills and getting prepared for this rollercoaster to take a big dive. I think oil is going to take another temporary dip when the “Driving Season” ends and that’s going to be the tipping point. I still agree with your $100 oil prediction, but I think it’s going to have one more trip to $30 before it heads there.

#13 taxpayer like you on 07.05.09 at 11:25 pm

Math minor/Garth

You just have to read the link to figure out what he is saying. The bi-weekly example he gives just says that you can do the same by increasing your monthly payment ie it is accelerated bi-weekly.

The weekly example he gives is not accel’d ($297/wk
vs. 1288/mo).

#14 confused and a little crazed on 07.05.09 at 11:28 pm

Hi Garth,

“inflation will also not escalate house values. Not by enough to compensate for your lost net worth, anyway”

are you implying housing prices will not drop further? even BC. It’s still pretty crazy here but I can still see lower mainland houses drop over 50 k from last year and we still have olympics. I wonder how much jobs we will have afterwards. I guess the 40-60 billion Can stimuls plan worked . CAn home price declined has slowed to a crawl.

oh well…this would mean a rapid increase in stock prices…maybe?I learned one lesson here is nothing else …don’t get to hung up on material items and try to make your $$$ work for you
i made 50 k after selling house in approx 2 yearsbuying stocks but housing went up 100 k in the same time. but no mowing lawn or other maintenance . locking up alll that $$$ in one asset with no return unless you sell is limiting. This could be an historic increase in stocks if this the end of the recession and being of inflation.

the good and bad in every situation

#15 Solitario on 07.05.09 at 11:31 pm

…What I don’t get is how are we going to get to $150 oil in absence of economic recovery
– with demand 2.5mbd lower then last year
– with 6mbd (and growing) spare capacity
– with US and China’s SPR full, Cushing nearly filled, US and OECD commercial inventories near all time high
– with more than 100mb of crude and products in floating storage
– with a glut of natural gas to last 100 years at $5 ?

#16 taxpayer like you on 07.05.09 at 11:34 pm

Oops sorry. Might have typed “Math minor”.

Attack the post not the poster, I know, I know…

#17 Sue on 07.05.09 at 11:40 pm

@ Jeff in Pickering:

A few suggestions, re: your mortgage –

PC Financial generally has rates as good as or better than any bank or credit union, and the best terms –

We went with weekly mortgage payments on a VRM –

We were permitted to increase them by a specific percentage (can’t remember exactly what) once each year (which we did) –

We also maxed out our lump sum payments – PC Financial allows you to make them at any time during the year, up to 20% of your mortgage amount –

It was a no-brainer for us. The no-fee banking and free groceries were nice, too. We’ve recently killed our mortgage, and are enjoying reallocating those payments to take advantage of currently market conditions.

Good luck!

Garth, are you a single malt man?

#18 robert on 07.05.09 at 11:51 pm

Just when you thought green shoots were poking through, reality comes along and stomps on them – http://www.latimes.com/business/la-fi-foreclosure4-2009jul04,0,5145254.story. Looks like the second shoe is about to drop in Cal. Of course, here in Canada, with our economy so interlinked with the US, we’re magically immune and so will coast through this one with historic housing prices intact. Can’t wait to read the second chapter of this fairy tale.

#19 LS on 07.05.09 at 11:51 pm

I don’t get the hatred towards 35 year mortgages for this guy. If you have a 35 year mortgage but make payments as if it was 25 years (which this guy seems to be doing, more or less), then isn’t it the same thing? And if the shit hits the fan you can fall back to paying the 35 year monthly rate, which might be the difference between you keeping or losing your house.

#20 Math Major on 07.06.09 at 12:14 am

You have miscalculated. — Garth

I don’t think so, here’s an example

$200,000, 25 year amortization at 6%

Weekly payments – 297.12
Monthly payments – 1288.60

In a year, weekly you’d pay a total of 15,450.24, and monthly you’d pay a total of 15,463.20… a total savings of $12.96 in a year, just over a buck a month.

The savings are an largely an illusion, it’s accomplished because they take their monthly payment and divide it by 4 and make 52 a year, where as monthly they were only effectively making 48 (12 months times 4 weeks).

The correct weeky payment would be $322. You have miscalculated. — Garth

#21 Sean in E-Town on 07.06.09 at 12:52 am

“Suggest you read a little more deeply before I waste any 12-year-old juice on you. — Garth”

Twelve year old? Imagine my good timing to be sipping on a bit of 15 year old Dalwhinnie right now. I managed to buy it from someone who’s rather illiquid for about a third of the hundred dollar sticker price. Viva la liquidity.

At any rate, I think you might want to tell the boys and girls in blog land out there that what you’re forecasting is the demand shock to be followed in the medium term by a resumption of the supply shock that started the demand shock, already in progress. Otherwise, you really can double the monetary base and still see prices drop (See United States 1930’s, Japan 1990’s.)

The only way the economy could do what you’ve predicted is if the equivalent of 1973 came along in he equivalent of 1934. It’s possible, but it may amount to little more than a microeconomic pressure in a macroeconomic downturn. Anyway, it’s perpetually interesting to read someone who seems equal parts Schiff and Krugman.

PS: I should ask loyal readers for their opinion on a weightier matter than the price of debt: Scotch (And equivalent whiskies) should be drunk:

1. Neat

2. On the rocks

3. With water

4. With water and ice

5. Poured into a half-empty bottle of Coke Zero, shaken, and lustily chugged.

#22 TheFirstRick on 07.06.09 at 1:01 am

#1 ottawa pete on 07.05.09 at 9:14 pm Looks like a grow-op in a very good Kanata neighbourhood – just a few km from Scotiabank Place…


Anyone ever take on one of these?
Was it a grow op or just an incredibly bad paint job??

#23 Oil Bear in BC on 07.06.09 at 1:03 am

I have read your books and blogs and I respect you and your style of informing the faithful. That said, I can’t understand why you feel oil will be anywhere close to $150 in the near future. I am currently sitting on cash in Victoria while the suckers suckle the swollen teat of the real estate market here and am having some fun playing ETF’s. I am bearish short-term on oil for obvious reasons. When do you feel oil will hit $150?

#24 Nostradamus Le Mad Vlad on 07.06.09 at 1:18 am

Lock ‘n Load is a terrific Bob Seger & The Silver Bullet Band rocker.

“. . . when oil hits $150, a litre of gas is a buck and a half, food prices are going nuts . . .”

Oil and gas were close to those prices last summer, but the food prices are the ones that are starting to pinch, and that is where deflation / inflation are dividing equally — i.e., they are getting further and further apart.

With less disposable income, wages holding steady or deteriorating and layoffs abounding, the problems aren’t the ones at present — there will be major effects in the New Year.

Come spring 2010, most of the western world will have started their freefall — they are choking on their debt loads.
Well well. The wheels may be falling off. Two links re: GS, so there should be further info. later Monday. — http://tinyurl.com/qtzb9yhttp://tinyurl.com/qrjm7p
It’s interesting to see what will unfold as the gulf from higher taxes, combined with less fiscal resources to pay these taxes continues to widen. — http://tinyurl.com/n65hwb
Comment by wrh.com is good. — http://tinyurl.com/r4m2ep

“On the contrary; Israel’s PLANNED goal for an attack on Iran is to trick the US and Russia into a mutually destructive world war that will leave Israel and its nuclear arsenal in control of the Mideast oil fields, which means economically in control of most of the world.

“The whole world will be Palestine after that!”

#25 Munch on 07.06.09 at 1:18 am


Garth, back to your insulting ways – take no prisoners and definitely NO STUPID QUESTIONS!


Keep it up!

#26 S on 07.06.09 at 4:03 am

Worth a read:

#27 Canadian Army Guy on 07.06.09 at 5:11 am

I do not agree with locking in now for 5 years.
I would still ride the VRM for the short term, say October at the soonest.

For sure, looking two years ahead rates BOC prime will be still low but banks don’t care about the BOC rates. So look for lenders to be at least 3 pts over the BOC.
What you can ride on a VRM now for say 3% will be set at 5% in two years. So lock in sometime in between… But you’ll be at the same rate. Regardless. Now or later…. your choice.
To lock in now is to buy yourselves pure peace of mind.

#28 Canadian Army Guy on 07.06.09 at 5:15 am

You can lock in now with President’s Choice for a 5 year close at 4.44%… Or take their 5 year variable for 2.85%


#29 Alex on 07.06.09 at 7:26 am

The correct weeky payment would be $322. You have miscalculated. — Garth

322 X 4.33 = 1,394.26. Not 1,288.60.
Are we switchig the discussion to math? How about the market?

There is no benefit to taking a monthly payment and dividing it by the number of weeks in a month and then making it weekly. Duh. As I am others have pointed out for the last 20 years, the only way to calculate a weekly mortgage is to divide a monthly by four – then you will not only make the equivalent of one extra monthly a year, but by paying more each week you accelerate amortization and drop accumulated interest charges. Try a little research. Then type. — Garth

#30 Chris L. on 07.06.09 at 7:45 am

To lock in or not has more to do with safety than math in my opinion. The math says you shouldn’t hold debt, any debt, so by keeping it open, you can make additional payments. If that’s not a possibility, then there’s not much point in keeping it open, despite the rate. Lock in for the maximum amount of payments you can make and then not much else you can do. If your income is variable or you can sometimes make double payments, then stay variable and get rid of debt. If everyone else is swimming in debt and your the only one without debt, you are going to appear very wealthy by comparison. Taking on a house when it costs you 25 years is pure insanity, even 15 years is nuts. 10 years is the most you should be paying on a house and 5 years if you are smart like old people. It should only take 5 years worth of salary from one income earner to do it and you should live off the rest. Then you can turn to allocating the extra income to investments, but only after you take care of number one and that is shelter. With no paid for shelter you’ll always struggle.

#31 wayupnorth on 07.06.09 at 8:05 am

So far everyone has missed the most important point in the letter – the fact they were pre-approved for an $800,000 mortgage. If you use the 3 times salary mark that means around $270,000 a year salary??? At 20% for a down payment that would mean over $170,000 down not $70,000. If these are the benchmark numbers used traditionaly in calculating mortgages and they don’t have that much salary from the sounds of it how can the bank pre-approve them for that much?

For the same reason so many get in over their heads in mortgages it’s called the CMHC and most countries with real estate problems today have a similar program. If there was no government backing of any mortgage then they would would have been lucky to get what they did, forget any $800,000. No bank in it’s right mind would lend that kind of money under those conditions unless someone else is taking the risk. Since that is the case in most mortgages then the skies the limit and let the commision cheques flow like wine. Heck lets go 0% down and 40 year mortgages and not worry too much about job security etc. gotta keep those commision chegues flowing after all the government is covering the tab.

And anyone wonders why house prices are out of whack today when compared to wages?

People in the U.S. have fallen off their bike and got their faces planted and now realize a few facts of life. First no matter what gimmicks there are the traditional 20% down and 3 times salary is the only way to long term home ownership. Second there is a definate relationship between house prices and income especially when incomes are going down. Third in a survey recently over 85% said houses were NOT investments despite what infomercials and the housing porn channel says.

Garth mentioned that the U.S. is going into a carbon tax as a way of slowing down Chinese imports without attacking free trade directly. Well I never thought in my lifetime I could say “I told you so” but it has happened now because I predicted on Garth’s old blog this scenario would happen about a year ago when I first heard him say he would impose a carbon tax as soon as he got in office. Obama didn’t lie and this has been rammed forward faster than I thought was possible. What is equally interesting is how China is racing to clean up its act because they know that the only reason the U.S. is pursueing this is to establish a world price on carbon they can hide behind to tax goods coming in and to build a new economy with its entailing jobs while the third world is still pursueing the old economy. The difference between the U.S. and us is that they are already calling it a depression and acknowlege that it might take a decade or more to recover. More importantly “business as usual” is being replaced with the words new economy because they have had a face plant into the reality that the way of life over the last twenty years is over FOREVER and the world we are entering is a new one.

#32 Rhino on 07.06.09 at 8:17 am

#21 Sean in E-Town on 07.06.09 at 12:52 am

NEAT! of course

Keep your water and ice for the chaser.

Unless you are paying $10 per quart, then use the Coke Zero if you really must… Ahhhhh… the “American Way”… Back to the trailer park!

#33 Jonathan on 07.06.09 at 8:26 am

News flash to the world.. world can’t afford peak oil theory.

The price of oil would be so high that the world economy could not afford it.

Can you think of one country in the world that would not be in deep recession – if not depression – if gas was $2.50C/L?

Think emerging countries can afford that price?

The fact is, as soon as specualtion drives the price of oil up again, we will go in to a deep recession, and demand will drop – exactly as it has in 2008. It will continue to drop until peak oil hasn’t arrived yet!

Forget the boomers, forget the massive monetization and the potential failure of the greenback, forget the massive deficits, lack of savings and lack of real investments. Just peak oil alone will ensure that the economy will constantly retract until we can find alternative mobile energy sources.

#34 molson cdn on 07.06.09 at 8:27 am

take the 35 year amortization- and pay down the mortgage asap.

if for example, your spouse decides to split, you can always ease the pain and then start paying the 35 yr.
if you lock in on the 25 yr amortization ,you are committed to the 25 yr payment.

I didn’t hear him mention his spouse. Are you speaking form experience? — Garth

#35 Jeff in Pickering on 07.06.09 at 8:35 am

Thanks Garth for taking the time to respond, and to all for the input.

#19 LS is correct in what we are trying to do. In fact, although we have a 35 year am on which we can fall back if something terrible were to happen, we are paying it off at a rate that would actually take less than 25 years.

A question for Garth and/or the number crunchers:
If we are already accelerating our own payments -via going bi-weekly on the mortgage, regular extra payments (couple hundred bucks a month) and ocassional lump sum payments – such that we are already looking at repayment under 20 years, does it still make sense to deep 6 the 35 year term?

I think right now we might wait until at least the fall to go fixed, and rather than waste another 2-4% by redoing it now, we’ll make a few more accelerated payments.

#36 john on 07.06.09 at 8:38 am

Math major is correct.

An “accelerated biweekly” payment is the equivalent to increasing your bi-weekly payment by roughly 8%. You can increase your monthly payment by 8% and achieve the same result.

I did not recommend a biweekly payment. — Garth

#37 BM on 07.06.09 at 8:39 am


I presently have an open 5 yr variable for prime +0.85, 20 yrs amtz. I was planning to stay VRM. I am little confused. Are you suggesting that everyone change from VRM to fixed to ride out this increase of rates that will take place in the coming years. Or is it just for those who would want to stay safe and convert to a fixed term to ride the storm out.
Great post by the way. I appreciate that you take time to reply to your readers

VRM is always the best long-term option, since you can convert at any time to fixed if the lights go out. But in the case of this reader, this strategy mitigates the mistake he made with his dumb am. — Garth

#38 Jeff in Pickering on 07.06.09 at 8:47 am

#31 is certainly right on. The banks (and CMHC) are out of their frigging minds. So yes, in addition to ‘why on earth would we ever need an $800K house or mortgage?’, even with our high income they would have to be idiots (and ruthlessly unethical and greedy).

We bought for $350, put $70 down (i.e. 20%) , and were left with a $270K mortgage. The $270 mortgage represents less than twice our annual gross family income of $175000.

#39 Alex on 07.06.09 at 8:48 am

…by paying more each week you accelerate amortization and drop accumulated interest charges. (-Garth).

So you’re talking about accelerating. Not about weekly, mothly, yearly…

Garth, I’ve made up my mind about RE a couple years ago. I didn’t laern it from you but I found what I want to hear here. Now, as you’re getting (excuse me) a little bit nervous, I’m affraid I made a wrong decision not to buy few months ago. (Not to blame you).

Actually, a weekly-pay mortgage is the best single mortgage strategy in existence. Other than not having one. Nervous? I have yet to experience that emotion. Describe it for me… — Garth

#40 Alex on 07.06.09 at 9:04 am

I see… So greater fools are not those who bought recently but those who don’t pay weekly.
I could be wrong. Maybe not nervously, but calmly getting out of it…

Huh? — Garth

#41 Herb on 07.06.09 at 9:27 am


I salute your #7:

“Inflation in the things you need
Deflation in the things you can’t afford”

That is the reality that already is being imposed on us. Neat, isn’t it?

#42 guava.ca on 07.06.09 at 9:32 am

I would go fixed for new or lock in prime+ mortgages but personally, I would keep the prime-0.50 for the next 4 years.

Toronto June numbers are out:


#43 john on 07.06.09 at 9:42 am

The interest savings between a weekly and monthly payment are negligible.

You are demonstrating your inability to calculate it. — Garth

#44 Chris L. on 07.06.09 at 10:12 am

Oh boy, tough luck for new buyers in Toronto…you know, buying at peak, in a recession. Is anyone okay? lol


“In June 2009, Greater Toronto realtors reported a record 10,955 sales, up 27 per cent from June 2008. The seasonally adjusted annual rate of sales in June was 100,700.1 “The record result in June is testament to the fundamentally sound housing market in the GTA,” said the Toronto Real Estate Board’s newly appointed President Tom Lebour. “An increasing number of households have been confident in purchasing a home in the region’s affordable and diverse resale housing market.”

#45 Slice on 07.06.09 at 10:12 am

Ottawa Pete: Looks like a grow-op in a very good Kanata neighbourhood – just a few km from Scotiabank Place…


Anyone ever take on one of these?

I’m sure they will disclose the decor reasons to you – probably a grow op. You have to factor in the cost of finishing the interior ($25K ?). If I was going to stay there 20 years who cares I would buy it. But most people don’t stay that long and you would probably have to disclose when you sell – which means you would lose 90% of most prospective buyers, which would force the price down, as you see in the current listing…

ps: unless you go to a lot of hockey games, it’s a bitch to live near that arena – traffic is misable during game nights.


#46 Ben on 07.06.09 at 10:35 am

RE: the math debate. Seems both Math Major and Garth are saying the same thing, but in different ways. Having read both your posts, I am completely convinced you both understand the principles, but to clarify for the rest of the gang:

1. Making half the payment, twice as often, has only the small benefit from “time value of money” calculations. Making a payment a little earlier in the billing cycle does save a few pennies/dollars, but not enough to care about. So if you are making biweekly mortgage payments, you would save only a small amount of money by going to a weekly payment. Not really worth the effort.

2. Now, “making half the payment, twice as often” is NOT generally the situation when we compare monthly and biweekly mortgage payments. Here, the amount of the biweekly payment is exactly half the monthly payment, but it’s paid MORE than twice as often. 26 biweekly payments in a year is then the equivalent of making 13 monthly payments – you’ve snuck in an extra monthly payment by paying more frequently. And that is the value of making biweekly payments. Noting also that concept from #1 also applies here.

Summary: main benefit from biweekly vs. monthly is that you are actually making an extra monthly payment that goes straight to the principle. Other than the time-value benefit of breaking this extra payment into smaller, more frequent chunks, you could accomplish ALMOST the same thing by making an extra monthly payment once a year.

You do not fully understand amortization. The benefit of weekly payments is (1) making the equivalent of one extra monthly a year (simple enough to comprehend) but, more essentially, (2) to retire principal on a weekly basis thereby substantially reducing the total amortization period over the course of several years by partially arresting the accumulation of interest. Therefore, weekly trumps biweekly which trumps monthly and annual prepayments. This is an argument one cannot refute. — Garth

#47 Alex on 07.06.09 at 10:49 am

#44: I am completely convinced you both understand the principles – Ben

Ben, you’re wrong about Garth’s understanding.

#48 Jonathan on 07.06.09 at 11:07 am

Nice post from above worth reading, thanks WS:


About the current boom in real estate, noone has made the wrong decision not to buy. That is what is fueling the market right now – emotion, not logic.

Flaherty created the 150 mortgage fund for high risk mortgages. So now the banks are lending out 800K to people with 130-140K gross family incomes. They are lucky to clear 90K after tax. The banks would NEVER loan this money out if the government wasn’t purchasing them from them. Once CHMC makes the purchase, all the losses will be on CHMC books – not the banks. The bank takes zero risk and gets to collect 40-100K in profit from the loan. So of course the banks are all in a rush right now to lend as much as possible so they can get the biggest share of this 150 billion pie (which Flaherty wants to expand).

This is worse than subprime.

But we all know how this risky ending lends.

#49 Wesley Moxam on 07.06.09 at 11:19 am


Oh, wow, there are some all-time June highs in there. Yet new listings are still way down. What the heck is going on? You’d think that more people would be looking to cash out.

#50 Davinci on 07.06.09 at 11:21 am

“Like a drug addict, people exposed to irredeemable currency do not regard it as a dangerous and undermining narcotic agent. Even the loss of purchasing power does not disturb them to any great extent. Their response is to demand more money, and they take pride in the fact that the government listens sympathetically to their demand. They welcome the soaring stock indexes and real estate prices, and put great stores on them. Heavy taxes and burgeoning debt are not regarded with anxiety. A frequent and common agitation is for ever more government spending.”


Greater fool, describes holders of debt paper.

#51 Canadian Army Guy on 07.06.09 at 11:28 am

To #45 Slice on 07.06.09 at 10:12 am:

Yes it looks very much like a grow op…

The thing is, by law the realtor must disclose that it was a grow op.

A few precautionary measures must be initiated: fumigation, inspection of structural damage by humidity, mold inspection, how’s the insulation, etc.

Usually purchasing a grow op from a bank is way too complicated, not worth the risk. Unless they pay for everything. Those sales are usually “as is”…

#52 Keith in Calgary on 07.06.09 at 11:31 am


Long term interest rates to double on US debt exposure…….we’re next folks.

Precisely what I have predicted. — Garth

#53 D from London, ON on 07.06.09 at 11:48 am

Onemorething (aka Da HK Kid)

Do you think the S&P 500 will test your 878 today?

#54 BobF on 07.06.09 at 12:43 pm

Garth said…
You do not fully understand amortization. The benefit of weekly payments is (1) making the equivalent of one extra monthly a year (simple enough to comprehend) but, more essentially, (2) to retire principal on a weekly basis thereby substantially reducing the total amortization period over the course of several years by partially arresting the accumulation of interest. Therefore, weekly trumps biweekly which trumps monthly and annual prepayments. This is an argument one cannot refute. — Garth

The example here from the link in post #2 starts out wrong. 200K$ at 6% for 25 years has a monthly payment of $1,279.61 and not $1,288.60. This is because Canadian mortgage interest is calculated “semi-annually not in advance”. The figure quoted is for monthly compounding.

Garth is wrong to attribute significant savings to increased payment frequency alone. For this 200K example the figures for the payments and total interest for a 25 year period at 6% interest are as follows

Frequency Payment Total Interest Saving
Monthly $1,279.61 $183,883.97 0
Weekly $294.74 $183,156.91 $727.06
Daily $41.97 $182,970.17 $913.80

Increasing the monthly payment to $1,386.36 (that is by (13/12)*1279.61) ends the mortgage after 253 payments or 21 years and one month. The total interest paid is then $150,748.09 for a saving of $33,135.88.

I’m not sure how many times I have to say this: Dividing a monthly payment by an average number of weeks has little material benefit. Dividing a monthly payment by 4 has great benefit. You accelerate principal repayment and arrest interest accumulation. There is a right and wrong way to calculate weekly payments, a fact which seems to have escaped most here. — Garth

#55 Sally on 07.06.09 at 12:45 pm

As another long time reader with a ‘subprime’ variable mortgage (prime -0.60), I am currently enjoying a rate of 1.65% which has allowed me to knock off almost $20,000 of my principal in the first year.

I am nervously watching the rates, the bond markets, the inflation theories, etc. and debating when to lock in but even Garth’s predicted doubling of rates in the next year or two (moving the bank prime from 2.25% to 4.50%) would still leave me with a rate well below what I can fix at (3.90% v. ~5% for a fixed).

Given that I am in the first two years of my mortgage (unfortunately I found Garth’s blog about 15 days after we closed on our home!), the impact of even a point or two of a higher interest rate changes the amount of overpayment I can make (we currently ‘overpay’ about $600 a month above the obligatory payment amount and through a few extra thousand a year on when we get our annual bonuses).

Hence my internal debate:

1. Does it make more sense to ride the (terrifying) variable party train and knock off whacks of principal at the highest balance point of my mortgage with a ‘once-in-a-lifetime-rate’ with the potential to pay it all off in about 10 years or so?


2. Should I fear the potential increase in interest rates enough to lock in for the remaining 4 years at around 5% – likely stretching my amortization out past 20 years again…but avoiding a hypothesized interest rate hike within the next 4 years to 10%, 21%, etc.?

Blog Dogs? Garth? All advice welcome :)

#56 queenbee on 07.06.09 at 12:55 pm


It was only a month ago you recommended people stay with the VRM. What has changed?

Read all the responses. I said VRM is a great consistent strategy, which I would personally follow at this point. However the letter I responded to was from a person with a stupid am, therefore my recommendation. — Garth

#57 lgre on 07.06.09 at 1:02 pm

I was visiting a friend in Toronto, he had a flyer for a new subdivision in the area, they gave you a 3 year mortgage with all principal no interest…they never mentioned prices but that payments started at $1420/m, all PRINCIPAL..what happens after 3 years? $2500 month?

#58 Maureen on 07.06.09 at 1:02 pm

Just some thoughts. A 35 year amortization is just a framework…an artist’s palette. As a consumer you have the opportunity to create the terms of your mortgage within that framework. Let the lender register a 35 year amortization at the land title office. This may be selling feature down the road if the mortgage is assumable.
Within that framework, exercise your option to prepay
and accelerate payments. There are more important questions to ask when negotiating your mortgage. What is the prepayment option. In recent weeks I have seen lenders quietly cutback the prepayment option from 20% to 15%.
If you lock in, what is the penalty? I know of at least one lender who charges an interest differential penalty based on the bond rate at the time of payout rather than the reinvestment mortgage rate resulting in much higher and punitive mortgage penalties. The very best rate is not always the very best deal. Remember also that your mortgage broker gets paid more by the lender if you choose a fixed rate. The longer the term, the higher the commission to the broker.

#59 Rick on 07.06.09 at 1:03 pm

People selling now are so lucky they don’t have to go bankrupt since the end result would be just that in a FREE MARKET which the Canadian government hates. I want to see FREE MARKETS not this socialist FAKE economy which will crash and then everyone will cry WHY? or HOW?

#60 jess on 07.06.09 at 1:09 pm

lots of bucks going into defense contractors

who funds the super funds?

Built to make aluminum cylinder heads for the Chevrolet Corvair in the 1950s, it generated PCB sludge and waste from hydraulic fluids.

“It was created by GM dumping hazardous waste on the banks of the river, such that the waste oozed into the water and the land,” …
11 GM sites that have contamination or “ongoing environmental compliance obligations” such as cleaning up soil, sediment, surface and groundwater and long-term monitoring, including property in Syracuse, Rochester and Buffalo. “

#61 Jeff in Pickering on 07.06.09 at 1:11 pm

#55 Sally,
Sounds like we are in very similar situations.
The big question mark is just what are the actual mortgage rates going to be in 4-5 years?

We could hammer down our principle balance in that time thanks to our current below prime rates.

But what happens if the real mortgage rate in 4-5 years does creep towards 10%?

Plus, to redo a 5 year right now still brings us to the same dreaded time-frame for renewal.

#62 Alex on 07.06.09 at 1:11 pm

Dividing a monthly payment by 4 has great benefit -Garth

Sure. Why not by 3? And then pay it 4 times a month. The benefit is even greater.

Of course. Duh. But try finding a lender with a 10-day acceptance rotation. This conversation has become inane. — Garth

#63 Alex on 07.06.09 at 1:12 pm

… but it is not monthly vs weekly.

#64 Maureen on 07.06.09 at 1:15 pm

With respect to payment frequency. The lender can offer bi-weekly and accelerated bi-weekly payments.
A bi-weekly payment is the payment that would be required to fulfil the selected amortization. An accelerated bi-weekly payments take the monthly payment and dividesit in two. On the scenario above.$100000. 6% biweekly over 25 years $294.90. monthly payment over 25 years is $639.81, therefore accelerated bi weekly payment would be $319.90. After 5 years, the accelerated biweekly payment would have paid down the principal by an extra $3777.02 and the remaining amortization would only be 16 years 1 month rather than 20 years.
You could argue you have saved 47 payments of $639.81 or $30071.
The effect of bi weekly accelerated is diminished as interest rate drops. for example, using a 3% rate on the above scenario would reflect a remaining amorization of 17 years 4 months after 5 years.

Why do it biweekly, and not weekly? The effect is more pronounced. — Garth

#65 Alex on 07.06.09 at 1:17 pm

Actually 4.33 times a month (once a week).

#66 cs on 07.06.09 at 1:18 pm

To: #55 – Sally:
We just went thru this and decided to ride the VRM train for now. For us, the large amount of principal being paid off is worth the risk of watching for awhile longer and seeing what happens. We broke our mortgage and paid the penalty some time back when we were at 5.35% to go to the low VRM, and I don’t think we will see our VRM at that 5.35% rate for quite some time. You have to decide what your risk appetite is – if you are losing sleep, then lock it in.

#67 Samantha on 07.06.09 at 1:20 pm

Re: Mortgage renewals – reducing the length of amortization for each renewal = another way to save.

Example: First term was 5 years on a 25 year mortgage.

When you renew for the next term ensure the amortization is 20 years. You have already gone 5 years into a 25, so the next term is less the 5 which equals 20 years.

#1 Ottawa Pete –

These days it isn’t just former grow ops that are a risk to the buyer. There are also former meth labs and/or houses where lots of it was consumed. Either way big time toxins.

Doesn’t look like there is any insulation. Electrical and possibly plumbing might have to be redone (you would need to check on the total refit for a former meth house – lots of toxins in the mix).

I wouldn’t touch it without an independent inspection for mold, and would also want to know what exactly was produced (if something was) in that house. Meth houses can apparently be cleaned up, but frankly I wouldn’t want to sleep in a former toxic waste dump. I would want to see some hard facts on the thoroughness of that type of clean up i.e. are any toxins left after clean up as in a minimum tolerance level(s).

Another issue is former associates that may not know the previous owners have moved. It does happen.

One last point, make sure you can get property insurance. If the insurance companies have the ability to flag anyone declined for life insurance and share that information on their databases, it would not surprise me if they might be doing the same thing with former drug houses. Many are rentals and if the owner claimed on his insurance…?

#68 TJ on 07.06.09 at 1:24 pm

US lurching towards ‘debt explosion’ with long-term interest rates on course to double.


As retailers cut back cities confront ‘ghostboxes’

Excess Space Retail of Lake Success, N.Y, specializes in real estate disposition and lease restructuring for retailers, including Home Depot, Wal-Mart, JC Penny and Kmart. The company has seen a more than 30 percent jump in the number of empty retail locations in the past year, he said.

“We are handing in excess of 2,000 locations for some 50-odd retailers, said Michael Burden, a principal with Excess Space Retail. “The square footage is in the tens of millions.”


More than 500,000 Canadians at least 90 days behind on credit payments as delinquency rate rises 19%


Canadian banks fail to make top 30 of global ranking.
CIBC ranks 15th in world for worst losses


** Maybe it’s time for some of that 12 year old single malted.

#69 dd on 07.06.09 at 1:30 pm

#43 john

“The interest savings between a weekly and monthly payment are negligible.”

True for a month. Try 25 years and see what you come up with.

#70 Samantha on 07.06.09 at 1:31 pm

#68 TJ –

PC (President’s Choice Financial) and CIBC are a joint venture….


No longer partake, but ah yes….neat and a Cuban (or nice Dutch) cigar.

#71 Ben on 07.06.09 at 1:59 pm

Garth @ #46 says: “You do not fully understand amortization. The benefit of weekly payments is (1) making the equivalent of one extra monthly a year (simple enough to comprehend) but, more essentially, (2) to retire principal on a weekly basis thereby substantially reducing the total amortization period over the course of several years by partially arresting the accumulation of interest. Therefore, weekly trumps biweekly which trumps monthly and annual prepayments. This is an argument one cannot refute. — Garth”

You are spot on with your response to my post, and I agree with every word (save one). You’ve actually managed to say, in fewer words and perhaps more succinctly, exactly what I said in #46. Weekly is better than biweekly is better than monthly. Everyone should go weekly – the savings are not tremendous, but they do exist.

The one word I do disagree with in your response is “substantially”. I would also apply your use of the words “more essentially” to the concept of the additional payment instead, for it is here that the benefit is truly seen. The effect of “partially arresting the accumulation of interest” is indeed present, but of much lesser magnitude than the effect of the additional payment.


First, let’s ISOLATE the effect of “Arresting the Interest” alone, as Garth puts it:
$200,000 mortgage at 5%, 25 year amort.

Monthly Payments
-payment is $1163.21 monthly, 25 year amort.
-interest savings calculated below are in reference to this baseline case.

Bi-Monthly Payments (divide monthly payments by 2, and pay twice a month)
-payment is $581.61, 25 year amort.
-saving on interest of $710.63 over 25 years ($28/year)

Bi-Weekly Payments (divide monthly payments by 2.166666, and pay every 2 weeks)
-payment is $536.87, 24.9 year amort.
-saving on interest of $1,917.69 over that time ($77/year)

Weekly Payments (divide monthly payments by 4.33333, and pay every week)
-payment is $268.44, 24.8 year amort.
-saving on interest of $2,245 over that time ($90/year)

The above examples illustrate the ISOLATED effect of “time value of money” (my point #1), or “arresting accumulation of interest” (Garth’s #2), ie. paying the same amount of money annually, but at more frequent intervals. The savings do exist, but are not large. The amortization has not been reduced “substantially”.

Now, we’ll talk about ACCELERATED payment plans (my point #2, Garth’s point #1), which combine the small benefit from paying more frequently with the large benefit of paying more money annually. Using the same figures as above:

Accelerated Bi-Weekly Payments (divide monthly payments by 2, and pay every 2 weeks)
-payment is $581.61, 21.4 year amort.
-saving on interest of $25,042 over that time ($1170/year – now we’re talking!)

Accelerated Weekly Payments (divide monthly payments by 4, and pay every week)
-payment is $290.81, 21.4 year amort.
-saving on interest of just over $25,318 over that time($1183/year)
-interesting to note that for those of you who pay on the accelerated bi-weekly schedule (probably the majority), you stand to save only $13/year by going accelerated weekly.

Perhaps the back-and-forth today between various posters and yourself, Garth, is caused by differing understandings of terminology, but I thought I’d give a full-formed picture to clear it up for everyone.

When people ask whether they are accomplishing pretty well the same thing by making an additional lump sum payment once per year, the answer is yes, for all intents and purposes. You get the major effect of retiring a lot of principle, just not the minor effect. A caveat: a lot of people lack discipline to actually save that lump sum over the course of the year, so it is far wiser for everyone to go to the accelerated bi-weekly or weekly payments.

So Jeff, the 35 amortization is absolutely no issue at all, as your aggressive payment schedule and healthy family income make it irrelevant. You are doing it for the right reasons, ie. fallback plan in case of financial emergency. It is those that do it for the wrong reasons, and stretch themselves thin just to make that smaller payment, who need to be careful.

You have way too much friggin’ time on your hands. — Garth

#72 Bones_from_Star_Treb on 07.06.09 at 2:03 pm

I guess it’s eyes wide shut around here. Let’s all hunker down and discuss mortgage payment theory while the TREB numbers just came out with the best June EVER!… Yes EVER!!!!


Hey Garth, any idea when we can start talking about Real Estate prices again instead of this sideshow stuff?

2006 and still waiting for the crash.. this is sad.

#73 613 Happy where I am on 07.06.09 at 2:14 pm

Meanwhile, in Ottawa, the real estate market is booming (at least, that’s what the OREB is saying….)


#74 Ben on 07.06.09 at 2:24 pm

Garth says: “I’m not sure how many times I have to say this: Dividing a monthly payment by an average number of weeks has little material benefit. Dividing a monthly payment by 4 has great benefit. You accelerate principal repayment and arrest interest accumulation. There is a right and wrong way to calculate weekly payments, a fact which seems to have escaped most here.”

There are 2 ways to calculate weekly payments, and that seems to be from where the confusion has stemmed.

Banks offer both payment options, and both are equally valid. One has to be clear on which option we are discussing, and I have been clear in my new post at #71.

Weekly Payment: take monthly payment, divide by 4.3333, and pay this amount every week.

Accelerated Weekly Payment: take monthly payment, divide by 4, and pay this amount every week.

Again, the major benefit is from the additional money that is being directed at the mortgage on an annual basis. Put more money toward your mortgage every year, and yes, the amortization will be shorter.

The minor benefit is seen from more frequent payments. Put the same amount of money toward the mortgage every year, but make the payments in smaller, more frequent amounts, and you will save some, but not much.

One experiences the best of both benefits by choosing the ACCELERATED weekly payment, which Garth is descibing when he says: “Dividing a monthly payment by 4 has great benefit.”

There was absolutely nothing wrong with my post at #46 today, but you took it upon yourself to say that I do not fully understand the concept of amortization, and came back with a set of less-than-accurate statements in your response to that post.

As frustrated as you may be, trust me, it is the rest of us with whom the frustration lies. When this many people are telling you that you are missing something, maybe you should take a look back at exactly what you’ve said, and what we are saying.

#75 S on 07.06.09 at 2:33 pm

To #66 cs: What was the penalty for breaking your mortgage to go to a VRM? I’m just wondering how much the savings from switching to a VRM compare to the amount of the penalty and the resulting savings had that penalty been used to pay down the principal (over the life of the mortgage)

#76 Nostradamus jr. on 07.06.09 at 2:39 pm

Garth is 100% correct…weekly vs bi weekly or monthly is the fastest way to pay down mortgage…annimversary principal paydown is an added bonus for those who can afford to.

>>US lurching towards ‘debt explosion’ with long-term interest rates on course to double.<<

…How is this possible?

All foreign currencies, gold, silver, copper and other commodities continue to drop vs the U.S. Dollar.

Since the major world countries carry trillions in U.S. Treasury debt.

…Before the U.S. goes bankrupt, the rest of the world will go bankrupt first.

#77 VOODOO on 07.06.09 at 2:45 pm

This is a must-read for all Canadians perusing Garth’s blog (note the location, hidden away at the bottom of the webpage):


“Canadians are going broke at a faster clip and on a grander scale. The picture is so bleak that personal bankruptcies are on track to be worse than the last recession in the early 1990s, even when the growth in population is taken into account”

“We have the most amount of debt relative to assets on record,”

“Credit counselling services are busier trying to mitigate those losses in the downturn. Our phones are ringing off the hook,” said Galit Osadtsuk of the non-profit organization Consolidated Credit Counselling Services of Canada Inc. Their call volume has increased by more than 200 per cent since last June.”

#78 TorontoBull on 07.06.09 at 2:58 pm

first, I want to thank Garth for the wonderful work he’s been doing.
However, it seems to me that many are missing the point as to why prices and sales continue to climb (see GTA). It is credit availability. People still have relatively easy access to money/credit in Canada compared to other developed countries. And to quote Seinfeld “people don’t turn down money; it’s what separate us from the animals”. That is the reason why Garth has been wrong in predicting the timing of a real estate collapse (reminder he claimed at the end of last year/beginnning of 2009 that there will be real estate deals within a year… NOT SO MUCH!).
Also we have to admire the work done by the real estate lobby. Many here were claiming that it is impossible to reflate a bubble. Well, they have been proven wrong.
just my 2 cents

#79 Mark on 07.06.09 at 3:32 pm

I find people’s inability to do simple math (such as the Ben guy) INCREDIBLY worrying. Probably why we’re in this mess to start with.

#80 victoria reader on 07.06.09 at 3:38 pm

This weekly or biweekly argument is getting really dumb. Obviously it is better to pay weekly.

#81 $fromA$ia on 07.06.09 at 3:38 pm

Gath, Mortgages and owning is all good if you have a job.

Things are getting worse and so is unemployment.

#82 $fromA$ia on 07.06.09 at 3:40 pm

Which brings me to my next question, why would you want to own a home if you know your job future is unstable and house prices are going to be softening.

Maybe Jeff should be selling and to save the shades and attitude if he sells his house.

#83 Live in Ontario on 07.06.09 at 3:43 pm

Okay, I think the problem with the calculations is that Garth is talking about Accelerated Weekly payments and Major Math is talking about Accelerated Monthly payments.

To calculate an Accelerated Monthly payment you divide the regular Monthly Payment by 4, multiply it by 52 and then divide it by 12. So a monthly payment 1288.61 becomes an Accelerated Monthly payment of $1395.99.

However, you will still save more money doing Accelerated Weekly Payments instead of Accelerated Monthly Payments over the term of the mortgage, you just will not save as much as you would if you compare Accelerated Weekly versus Regular Monthly payments.

#84 Jason on 07.06.09 at 3:46 pm

For anyone still needing help with the monthly vs. weekly/bi-weekly calculations, ING has one of the best calculators going. Check the Amortization Schedule tab to see exactly what you’ll be paying each year.


Of course a Rent vs. Buy calculator is more useful for myself in loonie tunes Vancouver. Conclusion is a resounding RENT.

#85 john on 07.06.09 at 3:53 pm

Garth you’re hurting my brain
Face rate of mortgage = 6%
The monthly equivalent interest factor is
((1+6%/2)^(2/12)-1) = 0.004938622

To get an annual rate multiply by 12
0.004938622 * 12 = 5.93%

The weekly equivalent interest factor is
((1+6%/2)^(2/(365/7))-1) = 0.001134405

To get an annual rate multiply by 52.14
0.001134405 * (365/7) = 5.92%

So the interest savings between a monthly and weekly payment is exactly 1 basis point. Big Deal

Over the life of the mortgage
mortgage 250,000
Interest = 6%
amortization = 25

monthly payment = 1599.52 amort 25
weekly payment = 367.36 amort 25
“accelerated” weekly = 399.88 amort 20.87
“accelerated” monthly = 1743.42 amort 20.83

Interest paid over the life of the mortgage
monthly payment = 229,853.64
weekly payment = 229,029.77
“accelerated” weekly = 185,648.19
“accelerated” monthly = 187,573.35

The net savings over 25 years is between 823.87 and 1,925.17

There is basically zero difference between payment frequencies.

Read the previous responses. A weekly mortgage payment does not equal 1/52nd of the total of annual monthly payments. — Garth

#86 Shocked!!! on 07.06.09 at 3:55 pm




#87 Denis on 07.06.09 at 4:07 pm

Setting ourselves up for a greater fall? Definition of a Bear Market Rally?

“An increase in prices during a primary trend bear market is called a bear market rally. A bear market rally is sometimes defined as an increase of 10% to 20%. Bear market rallies typically begin suddenly and are often short-lived. Notable bear market rallies occurred in the Dow Jones index after the 1929 stock market crash leading down to the market bottom in 1932…” (wikipedia)

Alarming Imbalance in Toronto’s Real Estate Market:

The combination of the 27% increase in sales and the 30% decline in inventory means we are in the middle of a very unbalanced seller’s market.

We can see this imbalance by looking at the sales-to-inventory ratio for Toronto’s market. The sales-to-inventory ratio measures the balance between supply and demand. During a balanced market we would expect to see roughly 2 sales for every 10 homes available on the market or a sales-to-inventory ratio of 20% (Related: Lessons from Toronto’s Real Estate Crash ). Toronto’s sales-to-inventory ratio jumped to 59% in June 2009 moving us even further into Seller’s market territory.

A 59% sales-to-inventory ratio may not mean that much to the average home buyer, but it really is an alarming number. Consider this, June 2009’s sales-to-inventory figure is the highest we’ve seen in the past twenty years. This means that the imbalance between supply and demand – favouring sellers – was greater in June 2009 than any other month in the past twenty years, including Toronto’s real estate bubble in the late 1980’s.

#88 Patrick on 07.06.09 at 4:12 pm

Great slideshow

Take a peek


#89 New tune? on 07.06.09 at 4:56 pm

Is this the sound of a Garth changing its tune?

“This inflation will also not escalate house values. Not by enough to compensate for your lost net worth, anyway.”

I won’t suggest that I (or most people) could have predicted what we’re seeing now, but the question is, in light of the current reality… Do you see house values rising or falling nominally over the next few years?

That quote makes it look like you expect the nominal value to rise, with the “real” value falling.

The sentence is clear. — Garth

#90 Fencesitter on 07.06.09 at 4:56 pm

Garth – commend the patience you have with the math conversation – love the blog – i think you were trying to explain the following on amort. periods if they go to term:


I’m not going to help explain the weekly benefit to the supposed math major

#91 Maureen on 07.06.09 at 5:09 pm

I think we need to change our mindset on this whole variable rate option. Using vocabularly like “risky” and “terrifying” to describe a variable rate is just wrong. Lenders know the average life span of a mortgage is 3.2 years. We do not take a mortgage and keep it for 30 years as the previous generation did. Our lives today are in flux either a result of internal or external influences. So I say the greater risk is locking in and finding yourself in a situation in 2 or 3 years where you need or want to sell and can’t because of the punitive mortgage penalty that comes with a fixed rate. With a variable rate, alway be cognitive of what the 5 year fixed rate is and mirror your prepayment to reflect that rate. The extra funds will reduce the principal at a quicker rate. If you need to sell you are faced with a maximum penalty of 3 months.

#92 wayupnorth on 07.06.09 at 5:40 pm

Check out Mishes economic analysis site and you will see that he agrees with everything Garth has been saying. Canada hasn’t felt any pain…..yet!

#93 Maureen on 07.06.09 at 5:45 pm

A lot of talk about accelerate this or that. Mortgage payments…whatever the frequency work like a seesaw. Increase the payment = reduce the amortization=save money.
An accelerated payment, is like making one extra monthly mortgage payment per year whether its by way of 2 extra bi weekly payments or 4 extra weekly payments. Pay monthly and apply the equivient of one extra monthly payment in the form of a lump sum per year and you will have the same effect as choosing an accelerated payment frequency. Truth is most clients are not disiplined to do this so choosing the accelerated payment works best for them.

#94 rory on 07.06.09 at 5:55 pm

Hi all …just listened to GT at howestreet.com

I have a question for all or any … I have more economic advice coming out my ears but no real specific strategies …does anyone subscribe to any subscriptions that actually are affordable, have a good track record that you can actually make or safeguard your money following their recommendations…or at least some good money manager firms – not individuals but firms.

#95 OttawaCynic on 07.06.09 at 5:56 pm

Eric Sprott’s recent market commentary…

#96 MikeB on 07.06.09 at 6:06 pm

Toronto Real Estate June numbers rivalling 1989 numbers. well that should speak volumes… Some of those buyers who bought in 89 did not see a return on their “investment” for 10-12 years if at all. Young buyers figure… hey I got a job and I like the house and I qualify so here I go… not too complicated that is for sure.
Yet if you look at the MLS you have a sea of red dots of houses in excess of 1 million .. It is first timers leading the pack… and some of these crazy mcmansions for sure not as many.
Heard from a broker today that alot has changed in the mortgage market indeed…. no more prime minus variables and some deals are falling through because the banks are resistant to take on more business when they are making such paltry returns. Perhaps that means that the banks want to keep more money in the vaults than loan it out on real estate. Maybe they know something other people don’t…. they do not want to see another US balance sheet fiasco on their hands. Money is tight and they don’t want to waste it on a paltry 3.5% house that they know is overpriced.
When the market goes from famine to feast in but a few months then you know something is up…

#97 john on 07.06.09 at 6:08 pm

Read the previous responses. A weekly mortgage payment does not equal 1/52nd of the total of annual monthly payments. — Garth

Your right a weekly mortgage payment isn’t 1/52 of the total annual monthly payment also it isn’t equal to 1/4th of a monthly payment.

It is whatever payment is required in order to repay a mortgage in 25 years.

Dust off you’re financial calculator
i = ((1+6%/2)^(2/(365/7))-1) = 0.001134405
n = the number of 7 day periods in 25 years = 1304
pv = 250,000
fv = 0
pmt (Solve for payment)

If the number you come up with equals 1/4 of a monthly payment I owe you a beer.

But it won’t

You are both wrong and inconsequential. Converting a monthly into a weekly equal to one quarter of a monthly will save a homeowner thousands in interest and retire a mortgage years before the amortization sked indicates. What else matters, propeller head? — Garth

#98 Dan in Victoria on 07.06.09 at 6:12 pm

My rule of thumb was,The more you borrowed,for the longer time,(smaller payments) was the most expensive.The shorter time,the smaller amount borrowed(pay principal down fast),was cheaper.I always felt it was like a rental store.Mmmm….scotch, back in the day my buddy used to take the top off, throw it over his shoulder and say you guys have too stay and finish this with me.Great times.

#99 Onemorething (aka DaHKkid) on 07.06.09 at 6:25 pm

#53 D from London

While we did see 886 and change but a finish 898. 878.78 is major downside resistance. We could test it for weeks before we break it. I am confident by end of July this will happen. Q2 earning coming out and a sniff at July jobless claims.

When we do, you better be sold!

#100 Fencesitter on 07.06.09 at 6:31 pm

I lied – for the discussion on accelerated payments – it isnt rocket science. Use your mouse – input $200K @ 6% and then see the interest saved (and reduced payment period for the loan) by using an ‘accelerated’ weekly or bi-weekly payment:


#101 Bottoms_Up on 07.06.09 at 6:45 pm

#94 rory on 07.06.09 at 5:55 pm
The mantra is that if you can find someone whose correct 60% of the time, they’re golden. I think Garth’s advice in previous posts is pretty solid (look back to his May/June posting on ‘where money is safe’).

#102 BobF on 07.06.09 at 6:48 pm

Why is there so much dispute about this? Mortgage interest is calculated “semi-annually not in advance” not monthly, weekly or daily (like Revenue Canada). Therefore if your monthly payment is P, the difference between paying P/2, 26 times a year and paying P/4, 52 times a year is minor. The gain comes almost solely from the increased money paid out each year because (P/2)*26 = (P/4)*52 is greater than 12*P.

In the case of 200K$ at 6% over 25 years, the total saving by writing twice as many cheques is $394. The P/2 mortgage will be paid off in 21.03 years, the P/4 mortgage in 21.01 years. If the transactions are all electronic and free it is worth it, otherwise probably not.

#103 Nostradamus jr. on 07.06.09 at 6:51 pm

As we speak, civil unrest in China, Iran, Spain, U.K., Germany, it’s growing…where’s next…California, Florida, Kapuskasing?

…I’m moving to North or West Vancouver…

#104 Alex on 07.06.09 at 6:51 pm

I’m dissapointed how many people here can’t understand what the others say, but just talk about some calculators. Using mouse rather than brain. They read something somewhere and there is no need to think about it. The proof will come up when you click the mouse somewhere.
I believed Garth that we’re elite here and that was wrong.

#105 Ben on 07.06.09 at 6:55 pm

Well, you got me there – definitely too much friggin’ time on my hands! My posts are a bit ridiculous, I have to admit, but not wrong. I rest easy having defended my honour!

GT @ 97: “Converting a monthly into a weekly equal to one quarter of a monthly will save a homeowner thousands in interest and retire a mortgage years before the amortization sked indicates.”


And Mark @79: give your head a shake, and try to dig beneath the surface once in a while.

#106 timbo on 07.06.09 at 6:59 pm


Some other predictions… boss-napings? That should fix unemployment.

#107 Nostradamus Le Mad Vlad on 07.06.09 at 7:02 pm

#72 Bones_from_Star_Treb at 2:03 pm — “2006 and still waiting for the crash.. this is sad.”

Good point. However, things are warming up in The Financial WhizzBangKids Land. First two links involve GS; all relate to the bubble in some way.


Scroll down to the chart — para. below reads:

“Bank of America has total credit risk in this sector to the tune 169 percent of its capital; Citibank, 216 percent; JPMorgan Chase, 323 percent; HSBC Bank USA, 475 percent; Goldman Sachs, a whopping 1,048 percent, or over TEN times its capital.”

Comment from third post link by wrh.co.:

“The US Government took trillions of dollars from the American people and gave it to the banks so they could loan it back to the American people at interest. And STILL there is a credit crunch because the banks just put that money into their own pockets.

“Do they WANT the economy to crash and drive the general population into abject poverty? Are they THAT afraid of the Middle Class?

“P.S. Will the person who borrowed the blueprints for the guillotine please send back a copy?”
One reason why mining of precious metals is going up. — http://tinyurl.com/ntugr4

#108 JO on 07.06.09 at 7:29 pm

Garth, what do you think of the Manulife bank mortgage account? I believe in going fixed right now and for the next month or two..you are right, most of the time, a variable is th ebest long term…not now IMPO, bond market is headed toward a disastrous bear market starting around fall/late 2009..i expect at least 8 % 5 yr renewals/fixed rates by end of 2010…anyhow, Manulife product basically combines your chequiing acct and mortgage in one…when your pay is deposited, it temp reduces your mortgage balance, then you make the “payment”. If someone is VERY DISCIPLINED, it can work wonders I think. It can reduce the amort significantly.


#109 timbo on 07.06.09 at 7:35 pm

Market manipulation?


#110 Jonathan on 07.06.09 at 7:47 pm

Home price graph – Canadian home prices have doubled since 2001, mortgage debt has doubled since 2002, yet even with huge leverage, GDP growth has been dismal. That’s what happens when you invest in real estate.


#111 joel brico on 07.06.09 at 7:59 pm

Thanks for all the attention to the weekly payment topic

I’ll be getting a weekly when I consider a mortgage – may in 2-3 years if property prices are sane in Calgary.

I was at the bank repo car auction on the weekend. Quite a few cars and trucks up for auction. Not many successful bids as the reserves were too high. Even in the car auction sector – everyone is waiting or prices and expectations to fall.

#112 905er & Spouse on 07.06.09 at 8:10 pm

What a strange world we live in. These 2 articles were posted side by side:

Record for GTA home sales in June

Deficit to be much worse than projected: Report
Ottawa not likely to balance budget by 2013-14 as promised, report to Parliament says.


“In other economic developments, the Conference Board of Canada issued a new report card on Canada placing it a lacklustre 11th in a ranking of the world’s 17 richest countries in 2008, unchanged from the previous year.

Canada, with a “B” grade on its performance, “remains near the back of the class among its peer countries,” the Conference Board said.

“We cannot take for granted that Canada will come through the recession better than its peers,” it added, noting that Canada is still lagging on key indicators of sustainable economic growth.“”

#113 John on 07.06.09 at 8:24 pm

You are both wrong and inconsequential. Converting a monthly into a weekly equal to one quarter of a monthly will save a homeowner thousands in interest and retire a mortgage years before the amortization sked indicates. What else matters, propeller head? — Garth

Yes converting to a weekly AND increasing the payment will decrease your amortization. Or you could just increase your monthly payment and save just as much money. You are absurdly ignorant of mortgage calculations

If you increase your payments you will pay off your mortgage faster and pay less interest. with almost no difference between payment frequencies

The only reason that people think weekly payments pay down mortgages faster is because they are using extremely bad math when converting between monthly and weekly payments.

But don’t take my word for it. Send an e-mail to a finance professor they will agree with my calculations and profess your ignorance

You are wrong. But who cares? I forgive you. Hug? — Garth

#114 John on 07.06.09 at 8:35 pm

#93 Maureen
. Pay monthly and apply the equivient of one extra monthly payment in the form of a lump sum per year and you will have the same effect as choosing an accelerated payment frequency.

They could also increase their monthly payment by roughly 8% and do the same thing no discipline required.

#115 John on 07.06.09 at 8:44 pm

#69 dd on 07.06.09 at 1:30 pm

#43 john

“The interest savings between a weekly and monthly payment are negligible.”

True for a month. Try 25 years and see what you come up with.

I did see post 85

#116 DaBull on 07.06.09 at 8:47 pm

Direction of rates in Canada

10 year

5 year

#117 kc on 07.06.09 at 8:53 pm

“”wayupnorth on 07.06.09 at 5:40 pm Check out Mishes economic analysis site and you will see that he agrees with everything Garth has been saying. Canada hasn’t felt any pain…..yet!””

No KIDDING!!!! Global national tonight stated that Canada’s newest Deficit is expected to ballon upwards of$150 Billion let me repeat $150 Billion ove rthe next 3 years…. the 80’s were a shitty time…. but this one coming at us with double barrels fully cocked and loaded is going to be real PAIN and is going to be taking out many, many families. hold on tight to your ass cuz the Feds are gunning for you. wait till U6 in canada hits 20%


#118 John on 07.06.09 at 9:02 pm

#100 Fencesitter

Play around with the calculator until you come up with a monthly payment that repays in the mortgage in 21 years. compare the amount of interest paid between the weekly and your newly calculated monthly amortization. The difference will be less than 2k.

The Scotia calculator is changing both the payment frequency and amortization period. You can’t really make valid comparisons when your changing two variables.

Another issue is that the Scotia calculator and all bank calculators are completely opaque. There is no way for you to independently verify it’s calculations.

Back away from the calc and the am tables. Slowly. Put your hands where we can see them. We’re taking you in. — Garth

#119 Popeye the sailer man on 07.06.09 at 9:06 pm

What do people think about the Manulife one program?

What are some pros and cons?

Would this be good if We are expecting a large windfall this year?


I would love to hear from some that are on the program.

#120 Jonathan on 07.06.09 at 9:08 pm

Has anyone visited downtown Oakville these days?

For anyone out of province, Oakville downtown is a premium location in the Toronto suburbs. Largest house in Canada at 54,000 sq ft is on lakeshore, neighbouring hundreds of other homes 10,000-50,000 sq ft.

I took a drive down there yesterday and was blown away on the number of for sale signs. Every street had a home for sale. Back in fall I could barely find any homes in prime real estate.


I drive by the construction of this 18,000 square foot mega mansion on Mississauga Road every day. Beautiful location. Now the guy is selling it for $10,800,000. Tough market to make that sale in – something must be wrong:


#121 [email protected] on 07.06.09 at 9:11 pm

using the above calculator, take the monthly amt and multiply by 12 months to get payment per year. Now divide by 52 to get weekly payments.

then take the weekly amount above and set the calc mode to amortization – the savings is approx 2 months of payments over 25 years when compared to above, mortage amount does not matter.

#122 John on 07.06.09 at 9:12 pm

You are wrong. But who cares? I forgive you. Hug?

Give Jacques Maurice at Carlton University a call he’ll set you straight

Does he need a hug, too? — Garth

#123 john on 07.06.09 at 9:31 pm

#121 [email protected]

yes awesome

Now try dividing by (365/7)= 52.14 instead of 52 and you will get even closer

#124 Ultraman on 07.06.09 at 10:15 pm

The optimum payment frequency regardless of amortization period is the one that match you pay period. It makes absolutely no sense whatsoever to pay weekly if you get paid bi-weekly.

Where is the money coming from for the weekly pmt between pay period? It comes from last week pay and has been sitting in your account doing nothing while it could have been applied to your mortgage a week earlier and save you interest.

#125 Dan in Victoria on 07.06.09 at 10:33 pm

Man I’m glad I payed attention to the three”Rs”Reading, Writing,ARITHMETIC.Those bashed knuckles from the yardstick were apparently worth it.Thanks Miss “K”

#126 nonplused on 07.06.09 at 11:05 pm

The interest rate on a mortgage isn’t really “locked in” when you select a 5 year term on a 35 year amortization. If I count correctly it will be reset 5 times over the regular course of the mortgage. Some of those resets will end up in your favor, some in the bank’s favor, but all mortgages in Canada float to a certain extent. When buying a home on a 35 year mortgage, people should look at interest rates over a 35 year historical period for some sort of idea what can happen.

Bottom line is if you can’t carry the mortgage at 7 or 8% you are sure to be out of the house at some point down the road. Might not be for many years, but sooner or later the eventuality is rates will rise and you will face a reset. Eventually. Wage growth may help mitigate the situation if you foresee that happening. But wage growth is taxable at your highest marginal rate and might actually move you up a margin, so more wage growth is required than mortgage cost growth to keep the family finances in line.

In the US you can actually lock in for the life of the loan. I am sure you could do that here too, but I don’t know if anyone actually does.

Bottom line is that it doesn’t make much difference variable or 5 – 5 year resets to the average rate you will pay over the life of the mortgage so if you have the stomach you save a little going with variable, because it is usually less than the 5 year rate. “Locking in” is a timing game, and will only save money if this is the “5 years” in which rates rise. Which might be a good bet.

#21 Sean in E-Town

The better the bottle the lower the number, except 5 which is for whisky that comes in plastic bottles.


I don’t think that some of the posters like the “accelerated” part of the “accelerated weekly payment” program. It means paying more now to save even more money later, which isn’t the North American way. So let them argue over the interest savings on exactly the same annual outlays for various payment frequencies and let’s move on.

#127 Denis on 07.06.09 at 11:05 pm

#95 OttawaCynic on 07.06.09 at 5:56 pm
Eric Sprott’s recent market commentary…
Wow! The Solution … is the Problem. Sprott is definitely pointed in his thoughts about the political pundits stating that we’ll turn this recession around by the end of this year.

“As we hope the breakdown above has revealed, the future solvency of the United States as a
nation state is currently in jeopardy. It is in far deeper trouble than the mainstream press cares to admit. There are simply not enough new buyers of debt on this planet to support the spending programs of the United States government – and it appears that current holders of debt are beginning to sell. Because it is impossible to balance the budget from outside sources
of capital, the only source of funds left for the US, in all reality, is continued money printing.

The Federal Reserve’s policy of Quantitative Easing is failing. The US budget is ludicrous, spending is out of control, spending promises are out of control, the world knows it – and we know it. For all the pundits who see the economy improving over the next year, we invite you to explain to us how this debt crisis will resolve itself without significant turmoil. We’ve tabulated the numbers above – and they do not lie. As we wrote this past January, welcome to 2009.”

#128 dd on 07.06.09 at 11:10 pm

#118 John

Maybe the whole calculation is based on 26 payments a year instead of 12? If that is the case then savings are great.

#129 R1200C on 07.06.09 at 11:40 pm

well, that proves it…

in this world there are three types of people:
the ones that know how to count, and the ones that don’t.

#130 Ben on 07.07.09 at 7:17 am

GT @ 97: “Converting a monthly into a weekly equal to one quarter of a monthly will save a homeowner thousands in interest and retire a mortgage years before the amortization sked indicates.”

You seem to get it with this statement, and are describing the accelerated weekly payment which of course is the best payment plan. Please remember though, that it is the “accelerated” aspect, ie. paying more on an annual basis, rather than the weekly vs. monthly aspect, that is knocking off the lion’s share of the amortization.

In general, you seem to be attributing more of the benefit to the weekly vs. monthly schedule, and this is what is getting people’s knickers in a knot.

From my example at #71: monthly vs. weekly alone, while keeping total annual payments the same, saves only 0.2 years amort.

Monthly vs. accelerated weekly, which effectively adds another monthly payment once per year, saves 3.6 years. Subtract the frequency benefit of -0.2 amort. that is also built in here, and this leaves -3.4 for the accelerated aspect.

Relative contribution of the frequency compared to the accelerated amount is 0.2/3.4=0.06, or 6%. Peanuts.

Oh well. I guess we can move on. You may never admit this truth to the pack, but I know you to be an intelligent man, and will rest easy.

#131 john on 07.07.09 at 8:36 am

#128 dd on 07.06.09 at 11:10 pm

maybe isn’t a calculation. Look at the numbers

#132 leper on 07.07.09 at 8:48 am

#118 John

Maybe the whole calculation is based on 26 payments a year instead of 12? If that is the case then savings are great.

All the numbers are in the posts.

Choose not to critically examine them in order to maintain your ignorance.

#133 john on 07.07.09 at 8:57 am

#130 Ben on 07.07.09 at 7:17 am

Listen to Ben his posts aren’t being deleted

Nobody with something of (even marginal) value to say gets deleted. — Garth

#134 john on 07.07.09 at 9:32 am

Nobody with something of (even marginal) value to say gets deleted. — Garth

So you say.

Anyone called you tedious yet today? — Garth

#135 john on 07.07.09 at 9:33 am

Nobody with something of (even marginal) value to say gets deleted. — Garth

I’m just an accountant I don’t understand the finer points of rhetoric

#136 Dan in Victoria on 07.07.09 at 12:08 pm

Oh my, sometimes I wish that Phineas J Whoopee and his 3 D blackboard were still around.

#137 [email protected] on 07.07.09 at 5:02 pm

i tried the calc with dividing by (365/7)= 52.14 instead of 52…I get 25 years.

Conclusion: paying weekly vrs monthly does not save you thousands, its the mere fact of paying down on the principle which “saves” you.

Wrong. — Garth

#138 Ben on 07.08.09 at 7:15 am

Amidst all the back and forth and partial truths resulting from half-formed thoughts (’tis the difficulty of communicating via the written word, I suppose), Garth in the end did actually manage to sum up the main truth very tightly:

GT @ 97: “Converting a monthly into a weekly equal to one quarter of a monthly will save a homeowner thousands in interest and retire a mortgage years before the amortization sked indicates.”

For the masses out there who can’t be bothered with how and why it works, do exactly what this sentence says, and you will save a lot of money.