Monday, August 26, 2013

The mortgage rate dilemma

Everyone who has a mortgage experiences the fixed or variable dilemma. When your renewal date comes around you must become a psychic futurist with a specialty in economic trends.

Now Canadian lending rates are at record lows (I remember these rates in 2003-5 too).

This is the best advice I've ever heard for a homeowner or an investor who is not cashflow driven but hoping for captial gains and banking on a huge equity paydown:

Gordon Pape thru

Did you ever imagine a scenario where a fixed mortgage was a loss-leader?

"If I was in the mortgage market right now I’d be locking in 10 years at 3.99 very happily. Even the five-year at 2.99 is very attractive. I’ve always been a believer in paying the lowest interest rate possible. I always advised my kids to choose a variable-rate mortgage, and then to pay as if you were carrying a 5% rate or something like that. So you’ve got some built-in flexibility in terms of the household budget and at the same time you’re paying down the principal faster than you normally would. But given the unusual circumstances we find ourselves in right now, and the fact that it won’t go on forever, this is perhaps the classic time to move away from the pay-as-little-interest-as-possible and lock in a very low rate for a very long time."

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