Posted on: 16-04-04 20:01:18
hi friends,
i wanted to know that is a fixed mortgage with 4.55 % intrest better
or a floating(open) with 3.7 % ?
There are pros and cons for either side of the argument. With a fixed rate your cash outflow on account of the mortgage repayment is fixed and effectively you've taken an insurance against any future increases in the interest rates. However, in a market where the interest rates are going down you could have paid less if you've taken a floating rate mortgage.
With the current low interest rates maybe it's better to go for a variable interest rates or alternatively take a 1 year fixed interest rate which carries a lesser interest rate than a 3-year or 5-year fixed interest rate - which is what I did as I wanted to see how this year goes and then decide accordingly. This is my opinion
Daks
Quote:
Orginally posted by saba
hi friends,
i wanted to know that is a fixed mortgage with 4.55 % intrest better
or a floating(open) with 3.7 % ?
Hi Saba,
Are you saying variable when you say floating? Because mostly the variable rate term is also closed for 3 to 5 years and vary with the prime rate. It is not an open mortgage as most people seem to believe it. The difference here is that it becomes open with either 2 or 3 months interest penalty while the fixed rate mortgage could either be subjected to 3 months penalty or Interest Rate Differential, whichever is more. If you want to know more about it you can visit my website (address below) or send me an email and I will explain in detail.
Now back to your question.
It really depends on the risk profile of the individual to take this decision. As Daks has said by taking fixed rate you are actually buying an insurance against future fluctuations (upward) for the said term and hence you have to pay a premium on the same by paying a higher rate.
Considering the low prime rate, I would suggest to go for a good variable rate ( evey variable product is not the same) and save money on interest as in the initial years of mortgage more amount of the repayment goes towards interest and you can save that by paying a low rate on a variable rate mortgage. In order to understand the variable rates and products completely, please take services of a mortgage professional which are available to every one for free (on OAC) and save your hard earned money when you go for your dream house.
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Pramod Chopra
Senior Mortgage Consultant
Mortgage Alliance Company of Canada
hi
thanx a lot for ur replies.
i am still confused a lot
i can get a variable mortgage for 3% intrest rate or closed mortgage for 4.15 % ,the intrest rate for floting is very good(3.00%) but i am afraid that it may go high and i will have to pay more n more after every 3 months,if the mortgage rates will go high!
will the intrest rates go high??
plz help
Quote:
Orginally posted by saba
hi
thanx a lot for ur replies.
i am still confused a lot
i can get a variable mortgage for 3% intrest rate or closed mortgage for 4.15 % ,the intrest rate for floting is very good(3.00%) but i am afraid that it may go high and i will have to pay more n more after every 3 months,if the mortgage rates will go high!
will the intrest rates go high??
plz help
As per CIBC & TD people the prime rate would stay put atleast till the later part of this year but likely to move up to 4.75% from the present 3.75%. However, these are their projections only as no body, not even the Governor of Bank of Canada can accurately predict what the rate would be after 1 and half years. But, if these projections are to be treated as more or less accurate then variable rate of prime - .75% would still be a better option, because if the prime moves to even 5% by December 2005, your rate would still be 4.25% and your average rate of interest for the same period would be much less than 4.15%.
I advise my client to go variable and my software tracks the rates daily/weekly and prompts me to advise client if the time is good to lock up or not. Moreover, my clients receive a weekly email giving them details of mortgage rates in the market which will serve as a reminder to them also if they wanna lock the rate. This service is available for free to every one and any one can sign up for the same from my website under 'Rate Watch' section.
I hope it clears some confusion. However, you can send me a personal email asking questions and I would be more than happy to answer them.
Thanks and regards,
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Pramod Chopra
Senior Mortgage Consultant
Mortgage Alliance Company of Canada
saba,
i was in ur shoes 2 1/2 months ago. we are very low risk takers
some of cons what i saw in
5 year variable: since we put alesser down we would not be able to refinance until 5 years but sure the interest varies with prime adn the lowest.
5 year fixed: this is rip off. for 5 years u end up paying much more but yes you have the assurance that you can afford to pay the mortage amoutn for 5 years even if the prime goes much higher
1 year: best to refinance and the rate is little more than prime
we went with the option of 1 year and went to take a risk. i don't see very much of change in prime for another year. the next time we refinance we will go with the variable. if you do a spread sheet, even if th prime goes up you end up paying much lesser in a variable then a fixed.
i would say go for it. I would have been stupid to take the 5 year closed
I want to give my own example for which I choose a fixed one last year though I hads the open in the begaining in the year 2002 but closed in 2003 sept as I feared increse in mortgage rates and now in my opinion rates are not going to drop any more and will start going up so it is your decesion to choose
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Every one has their own personality so do not comment on others. You will know better with time if you have patience.
