Playing the odds

After Tiff’s quarter-point nip, five year mortgages are now 5%, more or less. Variables sit just under six and a half. That’s a huge premium. Bethany (she’s 28 with green hair and  a condo loan renewal looming) wonders what to do.

“Rates are falling,” she says, “so I might regret paying this amount now in five years if I lock in. Right?”

Yup. Maybe you will. But people obsess way too much about things they cannot control and which may occur. Or not.

The best guess is another rate drop will happen in September and a second by the end of the year. That should take a VRM down to just below 6% while fivers hit 4.5%. By this time next summer, there’ll have been four cuts, economists say. Maybe five. The variable will be at mid-five. Probably.

Five years from now? A complete unknown. Don’t go there.

The best strategy for a young owner is to stabilize borrowing costs so you can budget, plan and progress. That means a fixed-rate mortgage. While the cost of money is coming down, that can always change. Opt for boring. Second, get a mortgage with lots of features – like the ability to make lump sum payments, or be portable to another property. Don’t be enticed by an advance cash payment since it always comes at a cost (like more interest). Nobody is going to give you something for nothing, except your mom.

Third, take a standard 25-year amortization, not more. The longer a mortgage is amortized, the more interest you’ll pay. The monthly may be less, but the amount of money going to debt repayment falls. At renewal time you’ll be seriously discouraged at how little of the thing you’ve actually paid off.

Fourth, consider a weekly-pay mortgage. Instead of a large amount coming out of your bank account monthly, a smaller sum is taken weekly. This cuts into the accumulation of interest, retires the debt faster and will end up saving you a bundle. Because every month does not contain four weeks you end up making the equivalent of one extra monthly payment per year.

Just ensure it’s an ‘accelerated’ weekly mortgage, which will reduce repayment by almost five years and on a $350,000 mortgage save about fifty grand in interest charges. Totally worth it. Besides, if money is being withdrawn for a loan payment weekly, instead of monthly, there’s no choice but to budget and plan. Yes, adulting.

Finally, should B consider locking in, but for a shorter period of time? Like two or three years? Well, two-year money is almost as costly as a variable. Three-year loans are still close to six. So no joy there. Besides, she’d face renewal in 24 or 36 months, and in the intervening time there are disruptive elections to get through, a potential Canadian economic downturn, two hot wars to endure and unknown governmental diddling in the housing market.

The steadiest choice is to go long. Go weekly. And go with a bank.

A word on yesterday’s post. Actually, on the comments. What a swamp.

The topic was populism, which is a political phenom now making its way across most of the free world. If there’s one recurring theme, it seems to be tribalism. The noble experiment of an integrated, cooperative, growing worldwide economy and closer human society is breaking down fast. The most popular leaders seem to be those challenging immigration, migration and integration. In Canada newcomers are being fingered for stupid house prices and a lack of doctors as the population edges past 41 million.

We all love blaming others, and never ourselves. We support taxes others pay, not us. We’re most comfortable among those who are most like us. As voters we punish incumbents more than reward challengers. Humans have turned out to be, well, human. In reality this means we all harbour tinges of bad stuff, like racism, sexism or ageism.

So when leaders come along who openly call migrants ‘poison’, build border walls with razorwire, call the media fake, mock the disabled, trash opponents or claim older people have dementia, it opens the door for everyone to follow. And in little puddles like this blog, it results in a wave of disrespect, intolerance, ridicule and extremes.

The other day I was a pedestrian, walking, glancing sideways at an interesting bird. When I looked back it was into the chrome of a Lincoln SUV nearly running over my toes as the driver wheeled into a parking spot. ‘Wow, you almost nailed me,’ I said to the driver, with a smile. “Piss off,” he replied. “It’s your own fault. Watch where you’re going.” He wanted to fight.

As I walked home it occurred to me how much easier it would have been for him to say, ‘Oops. Sorry’ and receive my thanks.

Then I thought about this blog. And was sad.

About the picture: “I’ve been a long time fan reading your blog advice and good humour for well over a decade,” writes Chris. “This is our Mastiff beast, Reese. He is 5 years old of drooling love who has crisscrossed this great nation having lived in: Calgary, Victoria, Toronto and now living the good life in Vancouver.  After sitting on the sidelines for several years, my partner and I took the plunge and bought a house in Vancouver this year (don’t worry all part of a Garth-approved well diversified liquid total financial picture. We bought the house to have a “home” nothing to do with any financial gain (or loss) expectation). Picture is of Reese is on the beautiful beaches of Tofino.’

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.