June 1st is the renewal date on my mortgage. for the first time I’m faced with a rate increase (instead of a decrease) on all ther fixed rate terms
Now my bank, TD Canada Trust offers these rates
5 Year Fixed Rate Mortgage 5.590%
5 Year Closed Variable Interest Rate Mortgage 4.250 %
Down the page, TD says the variable interest rate is based on the TD mortgage prime which is currently 4.75 % minus 0.5 %
For the first time I’m seriously considering going for the variable rate. It could buy my vehicle insurance next year. Sure, the rate could go up, but it would have to go up by an average 1.34% percent to get even and the average would suggest a period over the 5 year term where I’m still ahead if the rate goes even higher, keeping in mind the principal going down rather quickly, 15 to 20 years in a 25 year amortization.
One thing to keep in mind is that I now can withstand a catastrophic rate increase. I can gamble. But I want to see as many cards as possible.
One thing bothers me. Can TD willy nilly peg their TD Mortgage Prime Rate or is it based on The Bank of Canada .
And does anyone see factors in the US and Canadian Economy that would suggest increasing interest rates?
Inflation is bothering me, but on the other hand US budget deficits/Canadian budget surpluses and the recently stronger loonie would suggest to me that the Bank of Canada would be loathe to increase rates.
Any thoughts, insights,advice and answers are welcome to assist me in this big decision.
It looks to me that the rate starts out at prime less .5, but changes to just prime later. "Take out a five-year, Closed Variable Interest Rate Mortgage and you can pay TD Mortgage Prime rate for the full five-year term; of your mortgage. " The rate also changes every month–perhaps prime less .5 is only the first month?
An important question is how long you plan to stay in your home?
Well, the note at the bottom says: " Rate is TD Mortgage Prime -0.50%. TD Mortgage Prime as of May 1, 2008 is 4.75%. Rate changes when TD Mortgage Prime changes. This rate is a discounted rate and is not available with any other rate discounts, promotions or offers. Rate calculated monthly, not in advance. Offer may be changed withdrawn or extended at any time without notice. " Then you click on the link for the mortgage you’re looking at and it says: Mortgages - TD Canada Trust “Take out a five-year, Closed Variable Interest Rate Mortgage and you can pay TD Mortgage Prime rate for the full five-year term; of your mortgage.” So I think at some point the rate’s going to prime rather than prime less .5.
It is fairly common in the US, anyway, to have ads like: “Mortgage for 2.25%! (first month only, then resets to LIBOR plus 5)”
And the amount of time you plan to live there is important because if you’re moving in 6 months and you can lock a lower rate for a year, that’s better than paying more for a fixed for 5 years.