For Better or Worse: When you take a bank’s 5-year fixed you’re married to it for half a decade. That is, unless you file for divorce, so to speak (i.e., discharge or transfer the mortgage to a new lender early). But as unwedded people find out, splitting up has a financial price. When you break up with your bank before maturity, that price is called a penalty. Here’s a story from Dave Larock on how much breaking up with HSBC early could cost if you take its 1.99% 5-year fixed rate. Note: We haven’t verified Larock’s numbers, but the message is generally valid. Name-brand banks often have hideous prepayment charges on fixed-rate mortgages. It’s a topic we and countless others have almost beat to death. And yet, a majority of borrowers still lock in with such lenders despite similar or better rates elsewhere. Penalties are a risk for the almost half of borrowers who don’t make it through a full five-year term before renegotiating or breaking their mortgage. Fortunately for customers in most provinces, even lower 5-year fixed rates than 1.99% exist from “fair penalty lenders.” You can find them from every deep-discount online mortgage broker on this website.
Living on the Edge: “About 20 percent of all mortgage borrowers do not have enough liquid assets to cover two months of mortgage payments,” says the Bank of Canada.
National Bank Predicts: “…Declines in home prices lie ahead” (Globe story)
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I’ve been a fan of variable rates for many years. I’ve found it’s hard to go wrong with them. I understand the temptation to go fixed given how low rates are right now, but I don’t think we’ll be seeing any Bank of Canada rate hikes for some time, which should make variables a safe bet for the foreseeable future. Just my 2 cents.
Hi Malcolm, It’s been a good ride. With prime rate downtrending for almost four decades and averaging just 3.07% for the last 10 years, people have been floating their way to savings. But alas, fixed-variable spreads ain’t what they used to be, and the future is never as clear as the past.
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I’ve been a fan of variable rates for many years. I’ve found it’s hard to go wrong with them. I understand the temptation to go fixed given how low rates are right now, but I don’t think we’ll be seeing any Bank of Canada rate hikes for some time, which should make variables a safe bet for the foreseeable future. Just my 2 cents.
Hi Malcolm, It’s been a good ride. With prime rate downtrending for almost four decades and averaging just 3.07% for the last 10 years, people have been floating their way to savings. But alas, fixed-variable spreads ain’t what they used to be, and the future is never as clear as the past.