5 ms·

> And our equivalent to the dot plot suggests no more rate raises this year They say this in the linked press release, though: "Given the outlook for inflation

by rinze 4y ago

> And our equivalent to the dot plot suggests no more rate raises this year They say this in the linked press release, though: "Given the outlook for inflation, the Governing Council still judges that the policy interest rate will need to rise further." I guess we'll see what happens by the end of October. I wouldn't be surprised if they keep hiking. edit: a missing space.

ryanisnan 4y ago
As a variable rate holder, I am not the most pleased.
- chx 4y ago
  I personally never understood how could anyone take a variable rate mortgage. I would never have a good night's sleep. But that's just me.
  - liketochill 4y ago
    It was cheaper than fixed for the last 15 years
    - idiocratic 4y ago
      Marginally, from a historic perspective.
    - bawolff 4y ago
      It should almost always be cheaper - you're trading risk of rate changes for lower prices on average. The person you are responding to is almost certainly aware of this.
  - koolba 4y ago
    Most jurisdictions let you repay in full without penalty so assuming you can refinance down the road or simply sell the place during the lock period, you come out ahead. It doesn’t change nightly either. It’s in fixed windows every X months (e.g. every six months) and the maximum delta per hike or drop is usually fixed as well.
  - throw0101c 4y ago
    Going with a variable rate mortgage would have been better at least 75% of the time, as possibly as much as 90%: * https://www.ratespy.com/the-most-misconstrued-study-in-mortgage-history-03105681 https://www.ratespy.com/the-most-misconstrued-study-in-mortg... * http://astarmortgage.com/pdf/moshe.pdf http://astarmortgage.com/pdf/moshe.pdf We just happening to be in a rising rate environment currently. There are two types of variable mortgages: > With a fixed payment, when prime rate rises you simply pay more interest and less principal, and vice versa when prime falls. But your actual payment stays the same (unless rates soar so much that you’re not even covering the minimum interest due, which is rare). > That’s opposed to an adjustable rate mortgage (ARM) where both your payment and interest cost vary as prime rate fluctuates. * https://www.ratespy.com/offers-fixed-payment-variable-mortgages-03275087 https://www.ratespy.com/offers-fixed-payment-variable-mortga... > With a VRM, a rise in the interest rate leaves the regular mortgage payment unchanged but the interest charged rises and the amount of the payment allocated to pay down the principal balance drops and this means it will take longer to pay-off the mortgage. A lower rate has the opposite effect accelerating your pace of mortgage repayment. > With an ARM, a rise in the interest rate results in a rise in the regular mortgage payment to cover the higher interest cost to ensure that the dollar amount allocated to pay down the mortgage principal remains intact. On the flip side, a drop in rates will drop your regular payment without accelerating the pace with which you repay the debt. * https://www.mortgagesandbox.com/news/types-of-variable-rate-mortgage https://www.mortgagesandbox.com/news/types-of-variable-rate-...
    - happyopossum 4y ago
      That kind of analysis really only works well for people who make a lot of housing purchases, and have cash reserves to cover rising rates. For most people, who get one mortgage on their primary home (which they live in), the potential downside if you’re in that 25% is ‘lose your house’, so it’s not unwise to go with a fixed rate that you know you will be able to pay for the life of the loan.
      - bryanlarsen 4y ago
        It's often the opposite, at least in Canada. In Canada, fixed rate is only fixed for 5 years. A variable rate mortgage goes up and down gradually. A fixed rate mortgage sees massive changes in rate every 5 years.
  - galdosdi 4y ago
    I felt the same way until I learned that in much of the world, super long (eg 30 year) fixed rate (no penalty for early payment) mortgages just aren't available This is apparently a weird mostly unique to the USA thing, probably driven by complex subsidies. And that's why owning a home in the USA is such a good deal-- because it's the only way to get a 30 year fixed early-repayable mortgage, which, especially at the rates that were available for the last 15 years or so, is such an insanely good deal it's pretty much free money. If you really think about it, why would any rational bank take this bet? If rates go up, you have an unfairly low rate and they can't do anything about it. If rates go down, they still lose because you can just repay early through a refinance. And 30 years is a long time to guarantee a rate. The only reason a bank would offer such a crazy bargain is subsidies.
    - rufus_foreman 4y ago
      >> This is apparently a weird mostly unique to the USA thing, probably driven by complex subsidies Before the 1930's, 5 year fixed-rate interest-only loans with a 50% down payment were typical in the US. At the end of 5 years the borrower would either have to pay off the remainder of the mortgage or negotiate a new loan at a new rate. Of course this caused a crisis during the Great Depression. During the 1930's, the Home Owners’ Loan Corporation (HOLC), the Federal Housing Administration (FHA), and the Federal National Mortgage Association (FNMA) were created to regulate and insure mortgages. Instead of 5 years, 15 years was common at first, then 20, then 30. Instead of being interest only, loans were amortized to pay off principal, instead of a 50% down payment, 20% or even 10% was common. During the 1970's the interest rate mismatch (short term interest rates which banks used for financing rose, while their 30 year interest rates on loans were fixed) led Congress to allow FNMA and other entities to buy mortgages from lenders to get those loans off their books - that was the creation of the secondary mortgage market. Loans were still all fixed rate though, variable rate wasn't allowed in the US until 1982 (the Garn-St. Germain Depository Institutions Act). By the 2000's, you had variable rate mortgages, interest only loans were back, and banks could originate and then sell them into the secondary market, so they could make money on the origination (or if not that, the servicing) of the loan, while getting rid of the default risk (that was left to the US taxpayer under the guise of the supposedly private "government sponsored entities", the GSE). Of course this caused a crisis during the Great Recession.
  - dangerboysteve 4y ago
    Much of this was realtors and mortgage brokers pushing buyers into variable for various reasons. One, to get more buying power and for brokers the chance to make more commissions with sorter term variable rate mortgages (more future renewals).
  - jbay808 4y ago
    (Assuming you're an American). In Canada, "fixed rate" generally means fixed for 5 years only. So while there is a difference between fixed and variable, it's not a huge difference in terms of peace of mind; all mortgages are essentially variable rate in some sense. A lot of Canadians opt to try their luck with variable, especially since it's usually cheaper on average, and usually cheaper up front.
    - chx 4y ago
      Hello from beautiful British Columbia. Variable rate mortgage is a gamble. I am not gambling.
  - Tiktaalik 4y ago
    For the last several decades, over the long term they've been the better option.
  - speg 4y ago
    We took a variable mortgage last round (December 2020) because we were considering moving with a couple years. Supposedly the penalties of getting out of a fixed rate were costly, whereas they are less so (none?) with the variable flavour. Yet, we are still here and now our payments have gone up nearly 25% :(
  - ryanisnan 4y ago
    To give some perspective, I relied somewhat heavily on my broker. According to them, over time, variable rate mortgage holders end up paying less. I'll be very interested to see how this fares as time goes on, so far we're paying a lot more per month. One factor for the decision was that as a first time home buyer, our ability to get favourable long-term rates was basically non-existent. I would expect that to change when it comes time for a renewal.
chollida1 4y ago
> They say this in the linked press release, though: "Given the outlook for inflation, the Governing Council still judges that the policy interest rate will need to rise further." Well I was just talking about this year so its entirely possible(and I'd say probable) they hike next year > I guess we'll see what happens by the end of October. Probably not, the BOC doesn't meet again till December so I'm not sure what we'd see at the end of October.
- throw0101c 4y ago
  October 26 and December 7: * https://www.bankofcanada.ca/core-functions/monetary-policy/key-interest-rate/#schedule https://www.bankofcanada.ca/core-functions/monetary-policy/k...
- rinze 4y ago
  > Probably not, the BOC doesn't meet again till December so I'm not sure what we'd see at the end of October. From the linked press release: "The next scheduled date for announcing the overnight rate target is October 26, 2022."
  - chollida1 4y ago
    Oh, shoot, you are indeed correct and I am wrong on this :( I misread the dot plot. Thanks for correcting me, so we could indeed see a hike in October, though the current plot suggests a max of 25bps for the end of the year.

by rinze 4y ago

ryanisnan 4y ago

As a variable rate holder, I am not the most pleased.

chx 4y ago
I personally never understood how could anyone take a variable rate mortgage. I would never have a good night's sleep. But that's just me.
- liketochill 4y ago
  It was cheaper than fixed for the last 15 years
  - idiocratic 4y ago
    Marginally, from a historic perspective.
  - bawolff 4y ago
    It should almost always be cheaper - you're trading risk of rate changes for lower prices on average. The person you are responding to is almost certainly aware of this.
- koolba 4y ago
  Most jurisdictions let you repay in full without penalty so assuming you can refinance down the road or simply sell the place during the lock period, you come out ahead. It doesn’t change nightly either. It’s in fixed windows every X months (e.g. every six months) and the maximum delta per hike or drop is usually fixed as well.
- throw0101c 4y ago
  Going with a variable rate mortgage would have been better at least 75% of the time, as possibly as much as 90%: * https://www.ratespy.com/the-most-misconstrued-study-in-mortgage-history-03105681 https://www.ratespy.com/the-most-misconstrued-study-in-mortg... * http://astarmortgage.com/pdf/moshe.pdf http://astarmortgage.com/pdf/moshe.pdf We just happening to be in a rising rate environment currently. There are two types of variable mortgages: > With a fixed payment, when prime rate rises you simply pay more interest and less principal, and vice versa when prime falls. But your actual payment stays the same (unless rates soar so much that you’re not even covering the minimum interest due, which is rare). > That’s opposed to an adjustable rate mortgage (ARM) where both your payment and interest cost vary as prime rate fluctuates. * https://www.ratespy.com/offers-fixed-payment-variable-mortgages-03275087 https://www.ratespy.com/offers-fixed-payment-variable-mortga... > With a VRM, a rise in the interest rate leaves the regular mortgage payment unchanged but the interest charged rises and the amount of the payment allocated to pay down the principal balance drops and this means it will take longer to pay-off the mortgage. A lower rate has the opposite effect accelerating your pace of mortgage repayment. > With an ARM, a rise in the interest rate results in a rise in the regular mortgage payment to cover the higher interest cost to ensure that the dollar amount allocated to pay down the mortgage principal remains intact. On the flip side, a drop in rates will drop your regular payment without accelerating the pace with which you repay the debt. * https://www.mortgagesandbox.com/news/types-of-variable-rate-mortgage https://www.mortgagesandbox.com/news/types-of-variable-rate-...
  - happyopossum 4y ago
    That kind of analysis really only works well for people who make a lot of housing purchases, and have cash reserves to cover rising rates. For most people, who get one mortgage on their primary home (which they live in), the potential downside if you’re in that 25% is ‘lose your house’, so it’s not unwise to go with a fixed rate that you know you will be able to pay for the life of the loan.
    - bryanlarsen 4y ago
      It's often the opposite, at least in Canada. In Canada, fixed rate is only fixed for 5 years. A variable rate mortgage goes up and down gradually. A fixed rate mortgage sees massive changes in rate every 5 years.
- galdosdi 4y ago
  I felt the same way until I learned that in much of the world, super long (eg 30 year) fixed rate (no penalty for early payment) mortgages just aren't available This is apparently a weird mostly unique to the USA thing, probably driven by complex subsidies. And that's why owning a home in the USA is such a good deal-- because it's the only way to get a 30 year fixed early-repayable mortgage, which, especially at the rates that were available for the last 15 years or so, is such an insanely good deal it's pretty much free money. If you really think about it, why would any rational bank take this bet? If rates go up, you have an unfairly low rate and they can't do anything about it. If rates go down, they still lose because you can just repay early through a refinance. And 30 years is a long time to guarantee a rate. The only reason a bank would offer such a crazy bargain is subsidies.
  - rufus_foreman 4y ago
    >> This is apparently a weird mostly unique to the USA thing, probably driven by complex subsidies Before the 1930's, 5 year fixed-rate interest-only loans with a 50% down payment were typical in the US. At the end of 5 years the borrower would either have to pay off the remainder of the mortgage or negotiate a new loan at a new rate. Of course this caused a crisis during the Great Depression. During the 1930's, the Home Owners’ Loan Corporation (HOLC), the Federal Housing Administration (FHA), and the Federal National Mortgage Association (FNMA) were created to regulate and insure mortgages. Instead of 5 years, 15 years was common at first, then 20, then 30. Instead of being interest only, loans were amortized to pay off principal, instead of a 50% down payment, 20% or even 10% was common. During the 1970's the interest rate mismatch (short term interest rates which banks used for financing rose, while their 30 year interest rates on loans were fixed) led Congress to allow FNMA and other entities to buy mortgages from lenders to get those loans off their books - that was the creation of the secondary mortgage market. Loans were still all fixed rate though, variable rate wasn't allowed in the US until 1982 (the Garn-St. Germain Depository Institutions Act). By the 2000's, you had variable rate mortgages, interest only loans were back, and banks could originate and then sell them into the secondary market, so they could make money on the origination (or if not that, the servicing) of the loan, while getting rid of the default risk (that was left to the US taxpayer under the guise of the supposedly private "government sponsored entities", the GSE). Of course this caused a crisis during the Great Recession.
- dangerboysteve 4y ago
  Much of this was realtors and mortgage brokers pushing buyers into variable for various reasons. One, to get more buying power and for brokers the chance to make more commissions with sorter term variable rate mortgages (more future renewals).
- jbay808 4y ago
  (Assuming you're an American). In Canada, "fixed rate" generally means fixed for 5 years only. So while there is a difference between fixed and variable, it's not a huge difference in terms of peace of mind; all mortgages are essentially variable rate in some sense. A lot of Canadians opt to try their luck with variable, especially since it's usually cheaper on average, and usually cheaper up front.
  - chx 4y ago
    Hello from beautiful British Columbia. Variable rate mortgage is a gamble. I am not gambling.
- Tiktaalik 4y ago
  For the last several decades, over the long term they've been the better option.
- speg 4y ago
  We took a variable mortgage last round (December 2020) because we were considering moving with a couple years. Supposedly the penalties of getting out of a fixed rate were costly, whereas they are less so (none?) with the variable flavour. Yet, we are still here and now our payments have gone up nearly 25% :(
- ryanisnan 4y ago
  To give some perspective, I relied somewhat heavily on my broker. According to them, over time, variable rate mortgage holders end up paying less. I'll be very interested to see how this fares as time goes on, so far we're paying a lot more per month. One factor for the decision was that as a first time home buyer, our ability to get favourable long-term rates was basically non-existent. I would expect that to change when it comes time for a renewal.

chollida1 4y ago

> They say this in the linked press release, though: "Given the outlook for inflation, the Governing Council still judges that the policy interest rate will need to rise further." Well I was just talking about this year so its entirely possible(and I'd say probable) they hike next year > I guess we'll see what happens by the end of October. Probably not, the BOC doesn't meet again till December so I'm not sure what we'd see at the end of October.

throw0101c 4y ago
October 26 and December 7: * https://www.bankofcanada.ca/core-functions/monetary-policy/key-interest-rate/#schedule https://www.bankofcanada.ca/core-functions/monetary-policy/k...
rinze 4y ago
> Probably not, the BOC doesn't meet again till December so I'm not sure what we'd see at the end of October. From the linked press release: "The next scheduled date for announcing the overnight rate target is October 26, 2022."
- chollida1 4y ago
  Oh, shoot, you are indeed correct and I am wrong on this :( I misread the dot plot. Thanks for correcting me, so we could indeed see a hike in October, though the current plot suggests a max of 25bps for the end of the year.