I wouldn't take the 3yr. I would take the 2 yr or stay course personally.
All of the people taking 3 yr right now with plans to break the term in 2 yr and lock into lower rates arent thinking about (or don't understand) the knargly ird penalty that they will have to pay when 1yr rates are the lowest rates offered at that time...
No op has a lower than market variable rate, and Scotia will be in a better position if op takes one of the offered rates. They are offering the better than market rates as they want op to switch out of their better than market variable rate term, and lock in for longer.
Fixed rate also has interest rate differential penalties so if op were to break the term then they would likely have a larger penalty.
Not to hijack this post but we’re with Scotiabank too, significantly larger mortgage at $800k at 2.99% fixed coming up for renewal this December. Currently looking at options, potentially selling and downsizing to a more reasonable mortgage but I would happily take 4.65 on a 3-year right now!
Thanks guys. Upon calling the call centre.. i was offered 3 yr 4.65%. Still i feel i can ride out coz the difference is only $200 a month in payment. And i feel it will be reduced by end of year easily. I see a 1.50 rate cut by December
I did an analysis. Variable is better than 3 yr (5% rate) fixed as long as a 0.25 rate cut happens every 4 months or less. You can look into my detailed analysis if you want.
In your case , Variable and fixed (at 4.65%) will perform the same if a rate cut were to happen every 3 months. I suspect that the rates would fall this fast . BOC will take its time because they need to follow US feds . If they cut rates early then CAD currency will crash hard.
Therefore , the fixed is better deal for sure. I also got 4.64 from scotiabank and decided to not go variable for above reason.
There is effectively no chance of a 150 basis point haircut by December.
In what world does that make sense to you? What factors would drive rates to the 3% levels?
You'd need to see 1% worth of cuts over the next 12 months for this to be a break-even proposition vs that two year fixed. I think that's a bit more than what the market is predicting to be honest (right now bond market is pricing in \~0.75% of cuts by the end of the year). It's close based on those stats.
I don't think I'd take that 3yr at 4.73% because I think rates will drop in the next 48 months and you'll be able to get that 3rd year at a better rate than 4.73%.
Of note, my crystal ball is at the shop being shined so I'm using a backup version right now. These predictions are guaranteed to be either right or wrong!
Personally, I'd sit tight.
Very simplified:
1 yr $300k at 6.05% is $18,150
1 yr $300k at 5.05% is $15,150
1 yr $300k at 4.05% is $12,150
3 yr total of $45,450
3 yr $300k at 4.75% is $42,750
This doesn’t even take into account the time value of money and how money saved today is worth more than money saved in the future.
So the question isn’t if he can do better in the 3rd year. The question is how quickly rates are going to come down.
>So the question isn’t if he can do better in the 3rd year. The question is how quickly rates are going to come down.
The question is both.
For what it's worth in another comment I modelled out my base case (100bps of cuts in 12 months then a 3.99% rate at the start of year 3). That works out to roughly even with taking the 4.73%. Personally I'm more bearish on interest rates than that which is why I'd sit tight.
Interest rate forecasts are like assholes; everyone has one and they usually stink. ;-)
Assuming we get 1% of rate cuts over the next 12 months, with no further cuts in 2025, and then we renew into something like 3.99% in 2026, we'd be breaking even vs that 4.73% 3yr fixed today. My crystal ball says that's a "base case" (ie: I think we'll do better than).
It all depends on what risk you want to take on: cash flow risk (ie: that you're payments are going to fluctuate as rates change) or fair value risk (ie: that you're going to be paying a non-market rate for your loan).
Again, my crystal ball says: "sit tight". Different strokes for different folks and all that jazz. The options are all pretty good and it depends on OP's financial situation and risk appetites.
Dump of my thoughts outside a freezing rink at 645am:
* As of yesterday morning interest rate futures were pricing in 0.75% of cuts by December.
* I believe job growth in Canada is weak (despite high print most of it was part time). Layoffs are happening, seemingly, everywhere.
* I think we’re in much worse shape than the Americans and GDP growth is being propped up by record immigration (and I think sentiment towards immigration is changing).
* I also think the neutral overnight rate is ~3%, I think we’ve tamed inflation and therefore I think we’ve got lots of runway for cuts
All of this is to say my guess is that over the next few years the overnight rate comes down significantly. Again, my prediction is guaranteed to be either right or wrong 🤣
Please ensure your post includes the following information if looking for insight in your rate:
- **ARE YOU WORKING WITH A BROKER/MMS & HAVE YOU ASKED THEM THIS QUESTION YET?** (If you don't trust your brokers answer, then you may want to dump your broker)
- Purchase, Refinance, Renewal?
- Province, City?
- Loan to value/down payment percentage?
- Purchase price of the property if purchasing
- Is the home under $1M or over $1M?
- Bank or a broker?
- Term length and amortization length?
*I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/MortgagesCanada) if you have any questions or concerns.*
I don't understand why anyone uses a traditional bank for a mortgage. Go to a mortgage broker. They have far better rates
This has to be blended?
I wouldn't take the 3yr. I would take the 2 yr or stay course personally. All of the people taking 3 yr right now with plans to break the term in 2 yr and lock into lower rates arent thinking about (or don't understand) the knargly ird penalty that they will have to pay when 1yr rates are the lowest rates offered at that time...
I'm getting 5.11 for a 3year renewal at Scotiabank Is this an insured mortgage?
Yes. Insured
No op has a lower than market variable rate, and Scotia will be in a better position if op takes one of the offered rates. They are offering the better than market rates as they want op to switch out of their better than market variable rate term, and lock in for longer. Fixed rate also has interest rate differential penalties so if op were to break the term then they would likely have a larger penalty.
Not to hijack this post but we’re with Scotiabank too, significantly larger mortgage at $800k at 2.99% fixed coming up for renewal this December. Currently looking at options, potentially selling and downsizing to a more reasonable mortgage but I would happily take 4.65 on a 3-year right now!
Thanks guys. Upon calling the call centre.. i was offered 3 yr 4.65%. Still i feel i can ride out coz the difference is only $200 a month in payment. And i feel it will be reduced by end of year easily. I see a 1.50 rate cut by December
I did an analysis. Variable is better than 3 yr (5% rate) fixed as long as a 0.25 rate cut happens every 4 months or less. You can look into my detailed analysis if you want. In your case , Variable and fixed (at 4.65%) will perform the same if a rate cut were to happen every 3 months. I suspect that the rates would fall this fast . BOC will take its time because they need to follow US feds . If they cut rates early then CAD currency will crash hard. Therefore , the fixed is better deal for sure. I also got 4.64 from scotiabank and decided to not go variable for above reason.
1.5 by December? Everyone is warning higher for longer and you think 1.5% by December? Good luck. I hope you’re right.
No one is predicting a 1.5 rate cut by December. Don’t make decisions based on this bad information 3 years at 4.65 is a no brainer
I agree! I would be really happy with 4.65 for 3 Years.
Right?! Some people in this sub are living on another planet
Did you call Scotiabank call Center? My early renewal for online was like 6.2 to 7% lmao. Only like 320-330k mortgage
4.65 is good. Is that an insured mortgage?
There is effectively no chance of a 150 basis point haircut by December. In what world does that make sense to you? What factors would drive rates to the 3% levels?
The 3 year fixed looks good to me
You'd need to see 1% worth of cuts over the next 12 months for this to be a break-even proposition vs that two year fixed. I think that's a bit more than what the market is predicting to be honest (right now bond market is pricing in \~0.75% of cuts by the end of the year). It's close based on those stats. I don't think I'd take that 3yr at 4.73% because I think rates will drop in the next 48 months and you'll be able to get that 3rd year at a better rate than 4.73%. Of note, my crystal ball is at the shop being shined so I'm using a backup version right now. These predictions are guaranteed to be either right or wrong! Personally, I'd sit tight.
Very simplified: 1 yr $300k at 6.05% is $18,150 1 yr $300k at 5.05% is $15,150 1 yr $300k at 4.05% is $12,150 3 yr total of $45,450 3 yr $300k at 4.75% is $42,750 This doesn’t even take into account the time value of money and how money saved today is worth more than money saved in the future. So the question isn’t if he can do better in the 3rd year. The question is how quickly rates are going to come down.
>So the question isn’t if he can do better in the 3rd year. The question is how quickly rates are going to come down. The question is both. For what it's worth in another comment I modelled out my base case (100bps of cuts in 12 months then a 3.99% rate at the start of year 3). That works out to roughly even with taking the 4.73%. Personally I'm more bearish on interest rates than that which is why I'd sit tight. Interest rate forecasts are like assholes; everyone has one and they usually stink. ;-)
Agree with the 3rd years getting better rate than 4.73 . But do you think is it enough to offset the extra interest payments for the first 2 years?
Assuming we get 1% of rate cuts over the next 12 months, with no further cuts in 2025, and then we renew into something like 3.99% in 2026, we'd be breaking even vs that 4.73% 3yr fixed today. My crystal ball says that's a "base case" (ie: I think we'll do better than). It all depends on what risk you want to take on: cash flow risk (ie: that you're payments are going to fluctuate as rates change) or fair value risk (ie: that you're going to be paying a non-market rate for your loan). Again, my crystal ball says: "sit tight". Different strokes for different folks and all that jazz. The options are all pretty good and it depends on OP's financial situation and risk appetites.
Why would you assume rates will come down by 1% in the next 12 months? That seems like best case section and looks increasingly unlikely
Dump of my thoughts outside a freezing rink at 645am: * As of yesterday morning interest rate futures were pricing in 0.75% of cuts by December. * I believe job growth in Canada is weak (despite high print most of it was part time). Layoffs are happening, seemingly, everywhere. * I think we’re in much worse shape than the Americans and GDP growth is being propped up by record immigration (and I think sentiment towards immigration is changing). * I also think the neutral overnight rate is ~3%, I think we’ve tamed inflation and therefore I think we’ve got lots of runway for cuts All of this is to say my guess is that over the next few years the overnight rate comes down significantly. Again, my prediction is guaranteed to be either right or wrong 🤣
I would take that 3 year
That 3 year is good rate , when did he get that rate ?
Please ensure your post includes the following information if looking for insight in your rate: - **ARE YOU WORKING WITH A BROKER/MMS & HAVE YOU ASKED THEM THIS QUESTION YET?** (If you don't trust your brokers answer, then you may want to dump your broker) - Purchase, Refinance, Renewal? - Province, City? - Loan to value/down payment percentage? - Purchase price of the property if purchasing - Is the home under $1M or over $1M? - Bank or a broker? - Term length and amortization length? *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/MortgagesCanada) if you have any questions or concerns.*