Saturday, June 18, 2011

Blast from the Past

At the end of 2009 I had this exchange with Garth where he discussed how the Bank of Canada hiking rates would impact mortgage payments. He thought a 5-year fixed rate would be close to 7% as they move lockstep with the BoC. He had also argued there would be no more discounts available for some reason.
and that by this time a year from now BoC rate will be sitting at almost 1.6%, higher than today by 1.3%. That doesn't sound like a lot, but it puts the lowest VRM at 3.55% – which increases the monthly on a $400,000 loan by $300. A five-year mortgage would like go for close to 7%. Barn door. Horse.

#5 BearClaw on 12.16.09 at 9:47 pm


I don’t think 5 year mortgages will be close to 7% with only a 1.3% increase in rates. 5 year mortgages are about 4% right now. An increase of 1.3% will put them at 5.3%.

There is a large spread between variable and fixed because there is some anticipation of rate increases priced in. So fixed rates may be less than 5.3% in this scenario.

Posted rate is 5.49% now at all majors. We are on the way back to 8% money in a few years. Get used to it now. — Garth

#7 BearClaw on 12.16.09 at 9:54 pm

“The first hike will be at least a half, and probably a full load. That could raise VRMs overnight by 1% “or a little more than 44%. Ouch.”


For a 25 year amortization it would raise the *total* payment by 12%. The interest portion would increase by 44%.

A 1% increase on a 2.25% rate is 44%. I did not mention payments. — Garth

#10 BearClaw on 12.16.09 at 10:03 pm

"Posted rate is 5.49% now at all majors. We are on the way back to 8% money in a few years. Get used to it now.” -Garth

I think you know the difference between discounted and posted rates. But who cares? That’s not entertaining.

Kiss discounts goodbye as the BoC moves. That’s not entertaining either. — Garth

#11 Siberta on 12.16.09 at 10:16 pm

You ain’t going to win on this site BearClaw, get used to it. You recently purchased to, if I remember correctly.

#12 lgre on 12.16.09 at 10:21 pm

Bearclaw is learning that GT has every angle covered, dont bother trying to come from the back.

The ‘we are different’ theory is getting boring, nothing is different but everything is and will be the same…just wait for it.

18 months later a 5 year mortgage can be found for well under 4%. This is because fixed did not move with variable and discounts from the posted rate still exist. Two points I tried to make. Note how the blog dawgs mindlessly cheer on their leader as opposed to considering moderating arguments.


DaBull said...

Garth's latest post states that 80% of UK mortgages taken out in 2006 are now under water.

By looking at this graph I would call bullshit.

The only under water mortgages would be Ireland. The rest of the UK looks to have escaped the carnage in Ireland.

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