What could be the situation on mortgage rate after couple of years...?
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Posted on: 10-02-12 11:40:18
Hello CD's,
any prediction, What could be the situation on mortgage rate after couple of years?
Right now, i have a mortgage of lets say $250,000 @ prime - 0.6% (i.e. - 3.00% - 0.6% = 2.4%) closed variable. remaining year for mortgage is 4 years.
One of my friend just got rate from BMO for 4 years fixed closed at 2.89%.
Question is:
is it advisable to switch mortgage now for fixed closed at 2.89% or not?
if yes, what additional fee i am looking for braking the mortgage contract with Bank?
How much roughly lawyer fee?
as first time home buyer, is it good to switch mortgage now or wait until finish first mortgage term?
it looks like, in near future prime will be go high, any prediction, What could be the situation on mortgage rate after couple of years?
your input would be much appreciated.
Rgds
The deal that you got is no doubt is the bestest...(I know not right word). If you go in the market now, you will be lucky get prime even for variable rate. No one has a crystal ball as you know about the rate but since fixed rate depends on Bond market which in itself is a huge field, I would recommend going to an experinced mortgage broker who has been in the field for quite some time. They may be able to give you better guidance.
Mostly with variable mortgage it is 3 months interest as a penalty. Fixed mortgages are difficult to break and I think the interest is typically calculated semi-annually. But to remain safe I think there is no harm in going for 4 year fixed with the rate of 2.99 but find out what the terms are for that rate. I would rather go with .1% to .2% more for flexibility than a rigid contract for 2.89 or 2.99 rate.
Hope that helps. Good luck!
Quote:
Originally posted by RBO
Hello CD's,
any prediction, What could be the situation on mortgage rate after couple of years?
Right now, i have a mortgage of lets say $250,000 @ prime - 0.6% (i.e. - 3.00% - 0.6% = 2.4%) closed variable. remaining year for mortgage is 4 years.
One of my friend just got rate from BMO for 4 years fixed closed at 2.89%.
Question is:
is it advisable to switch mortgage now for fixed closed at 2.89% or not?
if yes, what additional fee i am looking for braking the mortgage contract with Bank?
How much roughly lawyer fee?
as first time home buyer, is it good to switch mortgage now or wait until finish first mortgage term?
it looks like, in near future prime will be go high, any prediction, What could be the situation on mortgage rate after couple of years?
your input would be much appreciated.
Rgds
As another posted has mentioned, no one has the crystal ball to predict the rates in future and that includes both the Feds and our own BOC. Having said that, the indications are that prime rate and fixed rates may remain low for some more time and since your variable rate has a discount of 60 bps from prime, the prime has to jump at least by 50 points to come close to the fixed rate what your friend from BMO got. And this may take any time from 6 months to an year or more. So, enjoy the savings till it lasts. If you are worried than why not increase the payments a bit more so that the interest savings are more. So, if you have some risk tolerance, I would not advise to change it to fix rates. On the other had if some one wants a mortgage now when variable is not much discount to prime, I would suggest that person to go for a fixed rate term.
However, if you want to break the mortgage the penalties could be around $1500 if your mortgage is from a reputable lender as they would charge only 3 months interest penalty on your remaining balance at the existing rate. BUT YOU DO NOT need to break the mortgage as most likely your present lender would gladly convert to fixed rate term without any penalties and may offer you competitive rate. If you go this route there would be no penalties and NO lawyer fees. Even if you switch the mortgage from present lender to some one else, you only pay penalties but no legal fee (till such time you are not changing the terms of the mortgage and/or the loan amount).
Switching has got nothing to do with you being a first time home buyer. Contact a mortgage professional and discuss your situation and find out the best course of action for you.
Once again there is NO accurate prediction can be done for rates though it may remain low but nut at the present levels.
Good Luck.
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Pramod Chopra
Senior Mortgage Consultant
Mortgage Alliance Company of Canada
Hi, The rates will be slowly heading up in the coming years. As your current rate is 2.4 % , I think you are better off at this time and keep your eyes open regarding any news about the Prime.
In my opinion, if prime starts to go up once or twice(usually around .25 points) and any indication by Bank of Canada that prime will again go up in the future, then you can simply lock in the fixed rates from your current lender itself without any penalties and other fees( pls make it sure that you currently have a convertible closed variable at this time)
Rajesh Thomas
Mortgage Agent
Northwood Mortgage
It is rather a question of little bit of prediction and more of a math :
I got interested in the topic and thought of best way to predict gain/loss.
Ideally, the var prime may not go up steeply within next 4 years such that (prime-0.6) will over power 2.89%. Agressively (berseck situation!) if it goes up by 0.05 % every quarter it will take atleast 6-9 qaurters (arnd 2 yrs) to reach 3.3.
and 3.3-0.6 = 2.9 when you come at par with fixed rate. but remember in those 2 yrs you might have saved few bucks in interest.
You should calculate the gain or loss considering following factors
ADD
1. savings you are making as of today being on variable 2.4 % (prime - 0.6) vis a vis on fixed at 2.89% .
i.e, 2.89-2.4 % as of today.
2. Time factor - maximum Savings you would have made in difference for next 4 years assuming no change in rates.
3. factor in the loss of amt in penalty i.e, 3 months interest.
add that amt to savings
4. factor in loss of admin / lawyer fee in the change over.
add that amt to savings.
SUBTRACT
5. last ten yrs average of prime is 4.2% , take rounded 4% as last rate and calculate the difference between 4% vis a vis 2.89 % for next 4 yrs. That will be the last predicted loss you can bear if not changed to fixed tomorrow.
I may be missing few unknowns or may be wrong in some of above thoughts, but that should be one way of taking informed decision.
if above calculations are too much for you then you know your answer , do not take this headache of change over. let it be.
my lazy Jat mind says , I wont do it ! the caluclations ! rather spend my time on thinking how to make more money or improve on marketable skills !
Lunchtime over, back to work ...
A complete bouncer but Impressive!!!
Quote:
Originally posted by san-hugo
It is rather a question of little bit of prediction and more of a math :
I got interested in the topic and thought of best way to predict gain/loss.
Ideally, the var prime may not go up steeply within next 4 years such that (prime-0.6) will over power 2.89%. Agressively (berseck situation!) if it goes up by 0.05 % every quarter it will take atleast 6-9 qaurters (arnd 2 yrs) to reach 3.3.
and 3.3-0.6 = 2.9 when you come at par with fixed rate. but remember in those 2 yrs you might have saved few bucks in interest.
..................... ...
Hi San Hugo,
No Offence but the very foundation of your hypothesis is not correct and hence the end result by your calculations can not be accurate.
Banks generally base their PRIME RATE on the Bank of Canada's overnight lending rate. The add a 'spread' over this rate and come up with their prime rate and generally all the big banks have the same prime rate. BOC takes decision on their overnight lending rate 8 times in an year and can either keep the same unchanged or move up or down depending on how it sees the economic condition. However, every move is generally for around 25 bps or 0.25% or if aggressive can be around 50 bps 0.50% and thus the movement in PRIME RATE would be similar. I am pasting Bank's PRIME RATE for the last 10 years below and you would notice that at no point of time the movement was by 0.05% as you noted and done the calculation on that basis which is not correct. You would also notice that prime rate was 6.25% in November, 2007 and went down to 2.25% by April, 2009, meaning went down by full 4 percent points in just around 16-17 months time. So, if things can come down drastically they can also go up soon, though not as drastically because we are still not out of recession but none the less the movement upward can be much more in 4 years as predicted by you.
PRIME RATE
YY - MM Rate
2002-02 3.75
2002-03 3.75
2002-04 4.00
2002-05 4.00
2002-06 4.25
2002-07 4.50
2002-08 4.50
2002-09 4.50
2002-10 4.50
2002-11 4.50
2002-12 4.50
2003-01 4.50
2003-02 4.50
2003-03 4.75
2003-04 5.00
2003-05 5.00
2003-06 5.00
2003-07 4.75
2003-08 4.75
2003-09 4.50
2003-10 4.50
2003-11 4.50
2003-12 4.50
2004-01 4.25
2004-02 4.25
2004-03 4.00
2004-04 3.75
2004-05 3.75
2004-06 3.75
2004-07 3.75
2004-08 3.75
2004-09 4.00
2004-10 4.25
2004-11 4.25
2004-12 4.25
2005-01 4.25
2005-02 4.25
2005-03 4.25
2005-04 4.25
2005-05 4.25
2005-06 4.25
2005-07 4.25
2005-08 4.25
2005-09 4.50
2005-10 4.75
2005-11 4.75
2005-12 5.00
2006-01 5.25
2006-02 5.25
2006-03 5.50
2006-04 5.75
2006-05 6.00
2006-06 6.00
2006-07 6.00
2006-08 6.00
2006-09 6.00
2006-10 6.00
2006-11 6.00
2006-12 6.00
2007-01 6.00
2007-02 6.00
2007-03 6.00
2007-04 6.00
2007-05 6.00
2007-06 6.00
2007-07 6.25
2007-08 6.25
2007-09 6.25
2007-10 6.25
2007-11 6.25
2007-12 6.00
2008-01 5.75
2008-02 5.75
2008-03 5.25
2008-04 4.75
2008-05 4.75
2008-06 4.75
2008-07 4.75
2008-08 4.75
2008-09 4.75
2008-10 4.00
2008-11 4.00
2008-12 3.50
2009-01 3.00
2009-02 3.00
2009-03 2.50
2009-04 2.25
2009-05 2.25
2009-06 2.25
2009-07 2.25
2009-08 2.25
2009-09 2.25
2009-10 2.25
2009-11 2.25
2009-12 2.25
2010-01 2.25
2010-02 2.25
2010-03 2.25
2010-04 2.25
2010-05 2.25
2010-06 2.50
2010-07 2.75
2010-08 2.75
2010-09 3.00
2010-10 3.00
2010-11 3.00
2010-12 3.00
2011-01 3.00
2011-02 3.00
2011-03 3.00
2011-04 3.00
2011-05 3.00
2011-06 3.00
2011-07 3.00
2011-08 3.00
2011-09 3.00
2011-10 3.00
2011-11 3.00
2011-12 3.00
2012-01 3.00
However, as RBO still has good rate, I would not advise to change right now if he has risk tolerance and can increase payment even more now then wait for the prime to go up.
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Pramod Chopra
Senior Mortgage Consultant
Mortgage Alliance Company of Canada
