newbuyer
Active Member
watch tomorrow TD bank will lower it's 3 and 4 years rate by 0.15% and lower some the other terms as well.
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How much can the variable rate rise in 5 years? (Variable vs Fixed)
- Thread starter Goodyer
- Start date
Torontotony
New Member
The discount lenders are charging versus Prime Rate is increasing. We were at Prime + .30% last month, and we are now at Prime - .10%. This trend will continue well into 2010. That said, if you jump into a Variable today, you may find in 6 months time, you will be paying a substantial rate premium over the prevailing Variables.
We are advising clients considering the VIRM to look at some of the severely discounted 1 year fixed rates, with the option to convert into a variable when lender discounts become more attractive.
We are advising clients considering the VIRM to look at some of the severely discounted 1 year fixed rates, with the option to convert into a variable when lender discounts become more attractive.
Kevin86
New Member
How about if we go for Variable Open now (instead of fixed for 1 yr)? This will also give us flexibility to convert to any other form of mortgage in the next few months.
Torontotony
New Member
Good question Kevin.
The cheapest Open Variable on the market today is priced around Prime + .70-.80%. This arguement applies to anyone considering an Open mortgage (be it fixed or variable). Simply put, if you are not planning to or do not have the foreseeable capacity to repay the mortgage in full, within the term, then you are better off taking a Closed/Convertible term with some prepayment priviledges, as the cost of borrowing will be substantially reduced.
Example. TDCT is currently offering a 1 year Open mortgage at a rate of 6.55%, but their advertised "best rate" 1 year Convertible is at 3.75% with the actual street rate being substantially lower than that (2.66%). Their Open VIRM is at P+.80% whereas their Closed VIRM is advertised at Prime, but available at P-.10%.
This interest rate premium is too big a price to pay, even in the short term.
For those who are comfortable with the variable rate ride, why is now not the time to jump into a Closed/convertible Variable? Because the banks will charge you an interest rate penalty (3 months interest or IRD), if and when you decide to move out of your Prime - .10% and opt into a VIRM at Prime - .50% (for example). Why would anyone pay that penalty as you would effectively negate any advantages of the lower interest rate?
The cheapest Open Variable on the market today is priced around Prime + .70-.80%. This arguement applies to anyone considering an Open mortgage (be it fixed or variable). Simply put, if you are not planning to or do not have the foreseeable capacity to repay the mortgage in full, within the term, then you are better off taking a Closed/Convertible term with some prepayment priviledges, as the cost of borrowing will be substantially reduced.
Example. TDCT is currently offering a 1 year Open mortgage at a rate of 6.55%, but their advertised "best rate" 1 year Convertible is at 3.75% with the actual street rate being substantially lower than that (2.66%). Their Open VIRM is at P+.80% whereas their Closed VIRM is advertised at Prime, but available at P-.10%.
This interest rate premium is too big a price to pay, even in the short term.
For those who are comfortable with the variable rate ride, why is now not the time to jump into a Closed/convertible Variable? Because the banks will charge you an interest rate penalty (3 months interest or IRD), if and when you decide to move out of your Prime - .10% and opt into a VIRM at Prime - .50% (for example). Why would anyone pay that penalty as you would effectively negate any advantages of the lower interest rate?
Kevin86
New Member
I was just wondering if banks negotiate on Variable/Closed rate. My bank said they don't negotiate on the posted 2.25% that they are offering. [is it because all the banks are offering the same rate (prime)?]
Torontotony
New Member
Kevin, from what we are seeing on the street 3 of the big 5 negotiate. But there are other mortgage lenders who are providing the same "best negotiated rates" without having to jump through hoops to get it.
nfitz
Superstar
I've had no problem getting Royal or BMO to negotiate to their real bottom line in the past. But that was pre-meltdown.