Fixed mortgage rate vs variable mortgage rate? Which one is better?

[keen_observer]

I saw a thread about mortgage interest rate in this forum. But it's main focus is for 5 year fixed mortgage. I wonder if anyone has ideas or suggestions for a variable rates mortgage. I saw some financial institutions offer prime less .65% for 5 year closed mortgage with option to lock into a fixed mortgage if interest goes up. This seems a really good deal because the current prime rate is 4.25%, thus the mortgage rate is 3.6%. But why peopel still perfer a 5 year fixed rate instead?

 

[oread]

What if prime rate goes back to 7%, is prime less .65% still a good deal?
If you are not sure where the trend would go, choose the mortgage that gives you option to lock a rate.

 

[笑傲江湖]

More important factor to consider: what is your conversion rate?

 

[笑傲江湖]

For me, I am expecting the rate to increase... so far, I am looking at 5-year or longer term...

 

[keen_observer]

最初由 xyz139 发布
More important factor to consider: what is your conversion rate?

What is conversion rate?

 

[keen_observer]

The variable interest rate has option to lock into a fixed mortgage rate if interest rate goes up. The best rate I found is Prime less 0.75%. I perfer variable rate as the borrowing cost is lower at this point, the saving in interest can put toward to the principal amount. When interest rate going up, lock into fixed rate for safe play.

 

[笑傲江湖]

The rate used when you want to lock-in. Most banks offer posted rate minus 1%, but that is not good. At least ask for posted rate minus 1.25%. Ask about it...

最初由 keen_observer 发布
What is conversion rate?

 

[shusheng]

最初由 xyz139 发布
The rate used when you want to lock-in. Most banks offer posted rate minus 1%, but that is not good. At least ask for posted rate minus 1.25%. Ask about it...

I believe those "prime follow" variable rate, can be locked in at current rate. So if your current rate is prime - 0.65% = 3.6%, and you feel the prime is going to go up, you can lock in at 3.6%, for the rest of the term. (some request you lock into another 3/5 year term though)

 

[BobtheBuilder]

You Wish!

最初由 shusheng 发布


I believe those "prime follow" variable rate, can be locked in at current rate. So if your current rate is prime - 0.65% = 3.6%, and you feel the prime is going to go up, you can lock in at 3.6%, for the rest of the term. (some request you lock into another 3/5 year term though)

Give us some hard evidence, which bank is offering this kind of deal? Current 1Y GIC is 2.75%(highest), 5Y GIC 4.0%, and you think some bank will lend you money at 3.6% for a 5Y term?

 

[oread]

In most banks, those variable rates do allow you an option to lock in a fixed rate, but not at your current rate (i.e. prime - .65%, that'll be too sweet ), usually a rate with terms longer than 3 years in the first half of your variable rate period.

For example, if you are paying prime - .5% now, and your rate period is 6 years, and you are at your first year of the period. For the first 3 years of your term, you can "lock" (or change to) a fixed rate without penalty, but the term of your new rate must be 3 years or longer. However if you are at year 4 and on during your term, you can probably convert to a fixed rate with no restriction on the term, again without penalty.

The word "lock in" is misleading: it's not a garanteed rate for a period of time, as in the case of pre-approvals, but an option to actually convert to a fixed term rate.

 

[笑傲江湖]

I don't think BMO will honor the 4.6% rate...

最初由 丫丫 发布
今天去BMO的时候又问了一下如果从浮动转定息的是什么情况，比如5年的。人家给我看了看他们的posted rates, 说是5年的现在是5.99%,她能给我降个1%，我说听到市场上现在最好的报价是4.6%…人家说，这超出了她的权限，会打电话去总部问一问能不能给，明天电话告知结果…:blink:
他们真给我了，恐怕我又舍不得转了:smokin: 毕竟还是现在的prime好啊:blowzy:

 

[oread]

:smokin:
4.6%, I'd take it.

最初由 丫丫 发布
他们真给我了，恐怕我又舍不得转了:smokin: 毕竟还是现在的prime好啊:blowzy:

 

[笑傲江湖]

The Option to Convert:
When prime goes up, most lending institutions will allow you to convert into a closed mortgage. But most lenders will convert at their posted or retail rate which, for any given term, is usually 1%-1.75% higher than the rates currently posted on this site. This is where your could really lose out.

最初由 keen_observer 发布
What is conversion rate?

 

[挺傻]

4.6% for five years fixed rate is really a great deal!

 

[keen_observer]

最初由 xyz139 发布
The Option to Convert:
When prime goes up, most lending institutions will allow you to convert into a closed mortgage. But most lenders will convert at their posted or retail rate which, for any given term, is usually 1%-1.75% higher than the rates currently posted on this site. This is where your could really lose out.

Thanks. I thought about that, and I directed the question to a mortgage consultant. The answer I got is the bank will give the best rate not those posted rate. However, this has not legal bounding what so ever, just verbal agreement; beside, not sure how do they define "best rate". Something need to watch before signing it.