mortgages: variable or fixed (4% vs 5.15% !)

I was talking to my mortgage broker today as I'm getting ready to renew my mortgage later this summer. She recommended again (I said no the first time around for my initial term) to go with variable. As I was browsing the Internet to find more info, I stumbled on my RSS feeds and this info from Larry McDonald was just under my nose:

But academic studies, notably those from Professor Moshe Milevsky at York University, show that variable rates on mortgages are better over the long run. You will save on interest costs at least 75% of the time, and knock a year off your amortization period.

That's very interesting information. What I'm wondering though is what are the odds that in the next 3 to 5 years, the variable rate goes way above the 5.15% I could lock in now for 5 years.

I think I will take the chance this time with variable if more research proves it's a good option. For example, I'll double-check what would have happened if I had taken variable 5 years ago instead of locking at 4.49% for a fixed five years term.

renewing my mortgage: shopping for the best rate

I've been lucky to get a 4.49% 5 years fixed mortgage rate about 5 years ago. As I'm due to renew in August, I'm starting to follow the rates closely since I should be able to lock one in soon (in April). The last time I talked to my mortgage broker, before the recent 0.5% drop in rates, the best I could get was 5.7%. I also checked with my current lender, MCAP, and they would offer 5.8%. I'm pretty sure they will match the rate if my broker asks them. I'll have to check again to see if these rates have dropped. I'm not a big fan of variable rates especially since I've seen how some were stung by those over the last 5 years.

This post should also serve as a reminder not to renew automatically with your current institution but shop around to get the best mortgage rate ...

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Who is your mortgage provider? Are you satisfied with them? Have you shopped for rates recently?

I sold a bunch of stocks to pay my mortage faster!

A quick update on my investments: knowing that interest rates will probably rise before I have to renew my mortgage and also being concerned about the current heights of the stock market, I decided to act. I've sold a bunch of non-RRSP stocks a few weeks ago (before stocks started going slightly down actually). I took all that money and put it on my mortgage. I've also increased my bi-weekly payments from 15% extra to 20%.

The net result of this operation? I shaved off 5 years from my mortgage schedule! As much as I didn't like selling the stocks, getting rid of a big chunk of debt does feel good :-)

Maybe one day I'll think about the controversial Smith Manoeuvre to save some taxes, but for now I'm content to be shrinking my mortgage ...