Fixed or Arm Mortgages

[bjl584]

Re: Fixed or Arm Mortgages

i agree with you, but in our situation the monthly payment at the highest cap interest rate for our ARM was still less than we were paying in rent, which made staying in a rental a financially poor decision. our junky mortgage was due to poor credit decisions in the past rather than buying a house that was out of our price range.

ah, well: que sera, sera...

Well, your situation is a rarity. I say that because obviously you and your husband knew what you were doing. You had a plan, and worked hard to get things turned around. For the vast majority of people that apply for ARMs there is no plan, no forethought. They use an ARM to buy a piece of property that they could otherwise not afford. Within a few years, the grace period is up, the payments go way up, and people find themselves in big trouble. Just look at the spike in foreclosures recently.

[sweeps]

Re: Fixed or Arm Mortgages

Fixed was the way to go for me. No worries about the payment ever changing making it much easier to budget. Much more sound way to build equity in the house too.

I agree that if you can only get into a house by getting an ARM then you shouldn't be buying. But ARMs can be a very good decision for some people. I'm going to come out way ahead by paying less interest with my ARM, even if I go a few years beyond the 5-year fixed portion.

If you want to build equity in your house faster, you want a lower interest rate. Getting an ARM is one way to do that.

[LivingAlmostLarge]

Re: Fixed or Arm Mortgages

True, in Canada, all you have are ARMs. They usually give you a rate for 5 years fixed, then you renegotiate with the bank. They usually also never take 30 years to pay off the loan. My MIL was outraged at the thought of us locking in a rate for 30 years! She said it costs too much, what if rates, drop? Why not keep locking every 5 years? Sure it goes up, but it can also go down, so it's also dependent probably on culture.

So if you told a Canuck get a fixed rate, they'd ask where? And what and why?

[disneysteve]

Re: Fixed or Arm Mortgages

My MIL was outraged at the thought of us locking in a rate for 30 years! She said it costs too much, what if rates, drop? Why not keep locking every 5 years?

If rates drop, you refinance. If rates rise, you're protected. We've refinanced our mortgage twice since we bought our house, and shortened our term in the process.

[LivingAlmostLarge]

Re: Fixed or Arm Mortgages

LOL. But you can't explain that to someone whose had lower rates at 3% or lower and had rates at 12%. She's just from a different culture and can't get it. It's not worth arguing, I already tried. She said it costs more to pay 6%, plus mortgages up there typically last 15 years.

[disneysteve]

Re: Fixed or Arm Mortgages

LOL. But you can't explain that to someone whose had lower rates at 3% or lower and had rates at 12%. She's just from a different culture and can't get it. It's not worth arguing, I already tried. She said it costs more to pay 6%, plus mortgages up there typically last 15 years.

Very interesting. I never knew Canada didn't do fixed rate loans. So what does she think of the new 40 and 50 year mortgages? I think they're insane. I'm sure she does too.

[LivingAlmostLarge]

Re: Fixed or Arm Mortgages

Yep, they can have loans as long as 10 or 12 years fixed, but those rates are never favorable. The most favorable rates are for a 5 year fixed period then you renegotiate. She thought it was crazy to pay to refinance. And that mortgages take 30 years? She was like you wait until the rate is low and pay it off faster. I told her that would be great, but it doesn't work like that if you negotiated 6% for 30 years, even if you pay it in 15 you still pay 6%. She was upset.

But Canadians also don't write off mortgages, have socialized health care, and retirement from the government. So they just are in a different place. Explaining why we save so much for retirement sounds nutters to her, but then they pay a lot more in taxes for lower income brackets!

[disneysteve]

Re: Fixed or Arm Mortgages

She was like you wait until the rate is low and pay it off faster.

What are mortgage rates like currently in Canada?

[LivingAlmostLarge]

Re: Fixed or Arm Mortgages

I have no idea currently but a friend has a 5 year rate from last year for 3.5%. Fixed for another 4 years, so another renegotiation she tells me for 3 years and they are done with their mortgage in 13 years.

[Daylily]

Re: Fixed or Arm Mortgages

Fixed for me!
We started off at 7% on a 30-year.
After 3.5 years we refinanced to 5.625% for 15-years and we've been on that for another 3.5 years. It ended up shaving about 100k off the total interest.
I want to own my home outright and not owe anything to anyone.