will interest skyrocket? advice please! - Page 2

[sanguine_speed]

Originally Posted by StarJune

Bank of Canada just announced that the recession is over . Rates will start creeping up now for variable. Hopefully they will keep the promise of no changes till early next year.

Now would be a good time to get a pre-approval/commitment so that you can lock in a rate for the next couple months... just an idea.

They already have. Variables have been prime PLUS for quite some time. Fixed rates are on the way up for sure.

[Delicateflower]

Originally Posted by Dandelionkid

So strange- I don't understand the whole interest first/principal later thing.

I know this is an old thread, but if you come back...

The reason so much of your early payments are interest is because you pay interest on the full amount you owe every month. And the difference between the set payment amount and how much interest is due that month goes to principal, meaning that the next month you owe slightly less in total, the interest amount is correspondingly slightly smaller and so slightly more goes to principal.

From the first three months of payments in this example you can see it happening.

With a monthly payment of $1811.89
Balance......Interest Amt......Remaining Amt
$319,113 ......$1,462.60......$349.29
$318,764 ...... $1,461.00..........$350.89
$318,413........$1,459.39.........$352.50

[Novella]

Another indicator is the spread between the short-term locked-in mortgage rates (or variable mortgage rates) and the long-term locked-in mortgage rates.

Right now, for example, my chartered bank is less than 2% spread between a 1 year closed and a 7 year closed.

That means that whatever expert economists are doing predictions for the bank think that although rates will start to rise, they are expected to stay low and stable. The bank doesn't feel the need to build in a lot of "fudge room" in case they end up being wrong and having handed out way too many 7-year mortgages at rates that are "too low/cheap" once interest rates would go up.

[StarJune]

Originally Posted by sanguine_speed

They already have. Variables have been prime PLUS for quite some time. Fixed rates are on the way up for sure.

I meant BofC prime rate that they set (not variable). Apparently they have commited to not raising it till June 2010.

[sanguine_speed]

Originally Posted by StarJune

I meant BofC prime rate that they set (not variable). Apparently they have commited to not raising it till June 2010.

I see what you mean, but people getting new mortgages are not getting low rates on variable-rate mortgages anymore. We're all about variable-rate mortgages, but only because historically they do better over time than fixed-rate mortgages. But in these times, one would be crazy to choose a new variable-rate mortgage. But for the lucky ones that have a prime minus mortgage, I'd start thinking about locking in a fixed rate when your term expires, rather than signing up for another variable-rate mortgage.

[Dandelionkid]

Originally Posted by Delicateflower

I know this is an old thread, but if you come back...

The reason so much of your early payments are interest is because you pay interest on the full amount you owe every month. And the difference between the set payment amount and how much interest is due that month goes to principal, meaning that the next month you owe slightly less in total, the interest amount is correspondingly slightly smaller and so slightly more goes to principal.

From the first three months of payments in this example you can see it happening.

With a monthly payment of $1811.89
Balance......Interest Amt......Remaining Amt
$319,113 ......$1,462.60......$349.29
$318,764 ...... $1,461.00..........$350.89
$318,413........$1,459.39.........$352.50

Wow- that's so nice of you to answer my question. That makes a lot of sense- thanks!

[Dandelionkid]

Originally Posted by StarJune

I meant BofC prime rate that they set (not variable). Apparently they have commited to not raising it till June 2010.

Let's hope

Originally Posted by sanguine_speed

I see what you mean, but people getting new mortgages are not getting low rates on variable-rate mortgages anymore. We're all about variable-rate mortgages, but only because historically they do better over time than fixed-rate mortgages. But in these times, one would be crazy to choose a new variable-rate mortgage. But for the lucky ones that have a prime minus mortgage, I'd start thinking about locking in a fixed rate when your term expires, rather than signing up for another variable-rate mortgage.

Yes- we decided to stay with our variable rate. Our banker said he had the same rate and was going to leave it also for now. We will lock in at fixed next year sometime.

[Dandelionkid]

Originally Posted by StarJune

Bank of Canada just announced that the recession is over . Rates will start creeping up now for variable. Hopefully they will keep the promise of no changes till early next year.

Now would be a good time to get a pre-approval/commitment so that you can lock in a rate for the next couple months... just an idea.

Thanks for this idea- I never knew we could do this. Ill be looking into it for sure.

Originally Posted by StarJune

I would absolutely NOT lock in with the rates that you have. These are historic lows that we may never again see in our lifetime. The variable rate is linked to the rates set by the Bank of Canada. They have said that they do not plan to increase them till early next year. So I would hang on to your rates and work on paying down as much principal as you can to maximize your low interest rate. If I were you, I would pay your mortgage as if I had a 5-yr fixed and you will be saving thousands in interest.

Fixed rates are tied to the bond market which is changing and influences the increases that we are seeing in those rates. You will still be saving in the long run even when you lock in later at a higher rate. Let your mortagage broker or banker do the calculations for you.

Personally, I would feel better psychologically being mortgage-free and having a bit of that line of credit.... so pay your mortgage down as much as possible and then imagine the kind of money you can pay the LOC off with to eliminate it. I know that it makes sense to pay off the higher interest first, and I would still continue to agressively pay it down but would be more focused on the mortgage because we just will not see deals like this again anytime soon!

Exactly what our banker said Thanks.

[StarJune]

Some mortgage companies will hold their pre-approval rate for up to 180 days (think new construction) so it pays to "shop" in advance and let them hold your rate in case it goes up in between.

And if you don't want multiple pulls on your credit report, go online and request it yourself which is a soft enquiry and bring that with you when you meet your banker/broker. It only costs $15-25. They can use that as long as it is recent. Then you can find the best rate.

..... And get it in writing once you have found the company that you want to deal with. I have heard of some doing a bait and switch.

[sanguine_speed]

On new construction, some lenders will guarantee up to 18 months (we're closing on a new build soon). About the BoC rates though--they've said they are going to hold the rate, but they have given themselves an exit to this commitment, and some economists are predicting they will have to fall back on this 'out'. Just keep an ear.

[StarJune]

I am not surprised about the "out" sanguine_speed. Not at all.

[StarJune]

Bank of Canada may increase rates tomorrow. First increase in 3 years. At least they kept their word.

Here we go.

[Poddi]

I wouldn't lock it in if I have a prime - rate. You can't get such things anywhere now. We have a prime + 1 and we don't plan to lock it either.