Really stupid Mortgage question about rates

[RadioGaGa 162]

Bear with me...long time renter here looking to become a homeowner:

So...If I have a reserved rate of 3.85% (locked in for 5yr) and a Variable rate of 2.95%...the variable rate varies (based on the market) starting at 2.95, right? But...they said I can choose to lock in at any time.

So, why would I NOT take the 2.95 and then lock that in at well below the guaranteed rate?

Or am I missing something?

[Juice_Slowjamz 0]

Bear with me...long time renter here looking to become a homeowner:

So...If I have a reserved rate of 3.85% (locked in for 5yr) and a Variable rate of 2.95%...the variable rate varies (based on the market) starting at 2.95, right? But...they said I can choose to lock in at any time.

So, why would I NOT take the 2.95 and then lock that in at well below the guaranteed rate?

Or am I missing something?

The first question you have to ask yourself is, how long do I plan on staying in this home? If you're planning on moving within say, 5 years, take the variable rate. If you're more long term, then get the locked in rate. With prime rates near historically low levels, you know for a fact they'll go back up as the economy recovers.

[Jason Harris 31]

When they give you the option of locking in, you are doing so at current fixed rates, not the 2.95% variable.

[Chadd 916]

If you're more long term, then get the locked in rate. With prime rates near historically low levels, you know for a fact they'll go back up as the economy recovers.

I would lock in the rate for that reason alone. Odds are that you won't be able to lock in at a similar rate later.

[RecLeagueHero 0]

ARM's will amost always have something built into the loan so that the bank benefits in the long run. Get a 15 or 30 year fixed rate loan and save yourself the trouble.

[shotty 7]

ARM's will amost always have something built into the loan so that the bank benefits in the long run. Get a 15 or 30 year fixed rate loan and save yourself the trouble.

especially if you're not well versed in the business. layman says: variable rates are for investors and fixed rates are for owners.

[team50 20]

Check out Manulife One.

[RadioGaGa 162]

Thanks for the input guys. I love how we can get info/advice on so much more than just gloves/sticks on this site. I decided to go with the Fixed rate (3.89%...I had it wrong initially) for 5 years. 35 year Amortization.

[Chadd 916]

Thanks for the input guys. I love how we can get info/advice on so much more than just gloves/sticks on this site. I decided to go with the Fixed rate (3.89%...I had it wrong initially) for 5 years. 35 year Amortization.

Wait, so it's only fixed for the first five years?

[RadioGaGa 162]

Thanks for the input guys. I love how we can get info/advice on so much more than just gloves/sticks on this site. I decided to go with the Fixed rate (3.89%...I had it wrong initially) for 5 years. 35 year Amortization.

Wait, so it's only fixed for the first five years?

Yeah. Seems pretty common up here. I talked to 3 banks and they all offered the same thing. 35 yr amm...5 year initial term.

[tro 4]

The fixed was the way to go Radio.

The variable would be a Prime + .7, and as soon as the bank sees a bounce in the economy (along with other factors) the variable will jump and the fixed will accordingly jump, into the 5%+ range.

When we were offering Prime - .7, I would recomend my clients take the variable, but anytime you can lock in a 5 yr rate in the 3's you should be good.

Yeah Chadd, in Canada it is pretty common to do a 5 yr fixed, we have 7 and 10 year terms, but we don't offer anything like the 30 yr fixed rate that you guys have down south.

[eric42434224 1]

Arent most variable rate mortgages tied to indexes like LIBOR, MTA, etc that have nothing to do banks arbitrarily changing rates?

For instance, I have mine tied to an index, and added to that is a 1.75% margin, giving me a 3.08% rate that will continue to go down as the higher rate months end up out of the average.

I havent heard of Prime used as a variable rate unless it was dealing with equity loans or lines of credit.

I could be wrong though. Mortgages certainly arent my area of expertise.

[Chadd 916]

Yeah Chadd, in Canada it is pretty common to do a 5 yr fixed, we have 7 and 10 year terms, but we don't offer anything like the 30 yr fixed rate that you guys have down south.

Ouch, I guess that's one benefit to living here.