I think I have this mortgage thing settled without much effort. Really, it’s kind of like there are a couple of people out there that are doing the dirty work, leaving me to just decide what the best course of action for myself is. There’s one offer out there tied to the builder and a big bank that’s a rate that’s actually quite unbelievable at this point in time. I tried to take it to my bank this morning to see if they could match it, but alas no luck there. From the general consensus of colleagues and friends, it looks like the rate that I was presented with is indeed nothing to scoff at. I just need to get my documents in order, but it looks like I’m pretty much set.

Even though I didn’t really do much work in terms of scouting out a rate, I actually did spend a little bit time educating myself on the numbers behind rates and what banks might do in the future. People can make educated guesses but ultimately it’s hard to predict what the Bank of Canada is going to do. Consider the past few months. I know a few people that decided to go with a variable rate. That all made sense because the banks and what not were offering rates at the prime rate (currently 2.25% at many banks) minus some small percentage. I guess the banks were really trying to encourage people to get mortgages. All of a sudden though, the variable rate became prime plus a certain percentage. At this time the rate seems to be prime + 0.6%. Maybe the banks are reacting somehow and trying to cool things off. If I were to get a variable at this time, it wouldn’t seem like such a great deal once the prime rate starts heading back up when the banks recover.

So, all right, I think I’m going to settle on a fixed rate. Traditionally those rates are higher because you’re kind of paying a premium for that security. Historically, variable tends to save more, but in my case I think the timing is off. The whole prime plus scenario gives me pause. Given the fixed rate I was offered, all prime would need to do is go up by more than 0.5% for a prime + 0.6% rate to go above the fixed rate being held for me. I have to decide: should I bank on the fact that prime will go up within the mortgage term?

Yes, what about the mortgage term? When you talk fixed rates, most banks tend to give 5 year terms. Those seem the most common. Thing is, is that ideal for my situation? Five year rates tend to be higher than shorter terms. In general, the longer you go the higher the rate because of the uncertainty factor. Do I plan on living in that condo for all five years? If I decide to move and break the mortgage early, I’ll have to pay a penalty. The rate I was quoted is for a 3 year fixed term. In all honesty, that seems to work perfectly for me. If at the end of three years I still plan on living in that condo, maybe the variable rate will be back to a prime minus situation. Who knows?

See! It’s fascinating stuff! It’s a numbers game with a bit of luck and prognostication involved. There are some cases where a little bit of knowledge can be detrimental. In this case though I almost feel like having this bit of knowledge is like a bit of armour. It’s giving me a bit of confidence in knowing that I won’t be making this important decision blindly.