tag:blogger.com,1999:blog-5465015914589377788.post7375913954610255611..comments2024-03-20T09:32:16.592-04:00Comments on Michael James on Money: Treat Fixed-Rate Mortgages as a Kind of InsuranceMichael Jameshttp://www.blogger.com/profile/10362529610470788243noreply@blogger.comBlogger10125tag:blogger.com,1999:blog-5465015914589377788.post-9952655219827734462012-11-19T10:15:57.219-05:002012-11-19T10:15:57.219-05:00@Anonymous: According to ratesupermarket.ca, ther...@Anonymous: According to ratesupermarket.ca, there are 16 lenders with 10-year fixed closed mortgages, and RBC offers a 25-year fixed mortgage. I agree with you that 3-5 year fixed-rate mortgages mostly give the illusion of safety, as I argued in my post. Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-15741383986605682942012-11-19T10:03:49.888-05:002012-11-19T10:03:49.888-05:00Where do you get a fixed 10 year mortgage in Canad...Where do you get a fixed 10 year mortgage in Canada? <br />Fixed mortgages do not exist in Canada, as they do in the US, where you can get the same rate for the durating of the morgate (20, 25 years)<br />In Canada they are the same as variable, but a much better deal for the banks, who can adjust the rate every 3-5 years while increasing their rip-off by a couple of points, while the "fixed-rate" customer is stuck with an illusion of safety...Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-51049354557375762402012-11-15T12:27:31.962-05:002012-11-15T12:27:31.962-05:00@Epter (Peter?): I don't think bond market cy...@Epter (Peter?): I don't think bond market cycles are particularly predictable, but it seems that interest rates have nowhere to go but up. Rates may or may not rise, but the important thing to think about is whether your finances can withstand rising rates.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-40013605614293370332012-11-15T12:12:59.437-05:002012-11-15T12:12:59.437-05:00bond market cycles run in extremely long 30 year c...bond market cycles run in extremely long 30 year cycles. consider this. the last peak was in 1980-1, arguably we've hit some bottom that (when compared to the 30's depression), can last for 7 years ±.<br /><br />question is: when not if they will go up?<br /><br />The articles idea of longer-term fixed rate for insurance is excellent. Do you want insurance from this reliable trend?<br /><br />epterAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-6648044324855756352012-11-05T19:22:05.646-05:002012-11-05T19:22:05.646-05:00@Mark: Thanks. I think you're being too hard...@Mark: Thanks. I think you're being too hard on yourself. If you needed the protection from rising rates, then you made a sensible choice. Among all the possible outcomes over the past 2.5 years, having interest rates rise to say 6% was not out of the question. They may yet rise by the time you have to renew. If this happens, you'll be glad you've been succeeding at your financial goals. I'm not predicting a rise in rates, but just observing that this is one of the possibilities.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-60569243930239327252012-11-05T18:54:02.243-05:002012-11-05T18:54:02.243-05:00Good post Michael. Fixed-rates are indeed a type ...Good post Michael. Fixed-rates are indeed a type of insurance premium to hedge a spike in lending rates.<br /><br />I'm kinda kicking myself, I took a 5-year term @3.3% and I should have taken variable. I'm almost halfway through the term.My Own Advisorhttp://www.myownadvisor.canoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-25177338862463041482012-11-05T14:40:50.516-05:002012-11-05T14:40:50.516-05:00@Value Indexer: I guess it depends on what you me...@Value Indexer: I guess it depends on what you mean by "perfectly priced based on future moves". If you mean that we know in advance what the actual future interest rate moves will be, then we are talking about a world that doesn't exist. In reality, many outcomes are possible, and the best we can hope for is to characterize the probability distribution correctly. This means that there is uncertainty in the outcome and there will be a risk premium for whichever side takes the risk. This is why, on average, fixed-rate mortgages are more expensive than variable-rate mortgages. <br /><br />It may be true that we sometimes have irrationally-priced morgages, but we usually only recognize such situations after the fact.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-22715306960589685102012-11-05T14:33:49.796-05:002012-11-05T14:33:49.796-05:00If all interest rates were perfectly priced based ...If all interest rates were perfectly priced based on future moves, fixed and variable rates should have the same outcome on average. Because of the uncertainty it makes sense for fixed rates to be more expensive if there is a likely possibility (but not a certainty) of higher rates in the future. On the other hand if there is a likely possibility of falling or low rates then fixed rates could be priced cheaper than variable rates in anticipation, and if the rates did not go or stay as low as expected the fixed rate would come out ahead.<br /><br />That said, with all the securitization and trading of debt it seems like mortgages are priced based on the lending market much more than a single lender's interest rate forecasts and risk tolerance (except when the lender decides which side they want to be more competitive on with a lower profit margin). If enough people in the lending market have irrational preferences that could lead to irrational pricing of mortgages.Value Indexerhttp://valueindexer.wordpress.comnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-62984119297197324552012-11-05T13:57:39.824-05:002012-11-05T13:57:39.824-05:00@Glenn: If you think only about the expected outc...@Glenn: If you think only about the expected outcome, then variable rates make sense, but if you're concerned about being able to afford much higher payments, locking in a rate for the long term makes sense, as you say.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-30032735632037037082012-11-05T13:45:14.737-05:002012-11-05T13:45:14.737-05:00Your point about insurance on 'can't affor...Your point about insurance on 'can't afford the house anymore' is exactly why I go long term on mortgages. I think the smart money says go shortterm, but I'm not prepared to handle the downside of doing so.LifeInsuranceCanada.comhttp://www.lifeinsurancecanada.comnoreply@blogger.com