Topic: The money thread

[johngenx]

Why do people bother trying to save money on their mortgage?  I bet the same people that fret over 0.00001% are the ones that trade in their Honda van at 100K 'cause it needs a service only to pay an extra $10K in depreciation expense - but saved $500 on a service!!  Whooo-hooo, I saved $500, and only spent $10K to do it!  And in three years, when I'm still upside down and my new van needs tires, I'll spend another $10K to save $500 plus I get to finance the upside down portion.  Yay - I've spent $20-25K in no time to save $1000.

 

[dougjp]

The fixed/floating decision isn't as simple as it first appears. Security is a factor for fixing rates, yes, but not the only one.

Financial people will say buy low, sell high, and likewise fix rates when they are "low", whatever that means to you. However the first thing to analyze is the gap between floating and fixed (5 or 10 year) rates. Historically this gap has been more than it is now, and its unusual to have both (a) rates at the low end of the curve, and (b) a narrow spread.

So consider what you think will change. Historically, and even more so with rates at current levels, the first thing that happens when "rates" rise is long term rates start to rise and floating rates don't. And because that "happens" and most everybody finds out after the fact, you then have a choice. Lock in at a rate more expensive than you could have obtained last week/month, or "stick it out" and "watch it carefully", vowing to make the right move..... If you catch my drift. 

[Northernridge]

thread inspired me to run some numbers as a decent "food for thought"

here's the fine print and assumptions:

$300,000 Mortgage
5 year variable rate vs 5 year fixed
amortized over 25 years.

I used our rates, which haven't moved much - so I'll admit they're not currently competitive.
(that's being reviewed though) 

for accurate calculations I figured out balances after each year of the 5.

I'm assuming the follow impact on the variable rates
January 2016 BoC brings the rate back to 1% = variable going from 2.65% to 2.75% (that's the move we've done so far)

January 2018 BoC brings prime up .25% = variable jumps to 3%

January 2020 BoC brings prime up .25% = variable jumps to 3.25%

Even with two quarter point raises (prime 1.25%) in that 5 year term...
the savings on the variable equal = $1,120


**** I hammered through the numbers... should be good but since I worked it out quickly there is always potential of an error   


noticed an error.... fixed....

^So to sum up, renting is the better value proposition as compared to looking up out of the well of a 25 year amortization? 

[wing]

John I understand your rant, but I saved over $50k in interest in the last seven years by changing.  That's significant.

.1% not so much but 1% or more over time on a large amount can really add up.

[wing]

The real question here is what happens when BoC raises rates .25% will the big banks raise theirs only .15% because that is all they lowered it by.

ROFL. Right.....

[johngenx]

John I understand your rant, but I saved over $50k in interest in the last seven years by changing.  That's significant.

Yeah, but you also haven't dropped that $50K on "saving money" by buying new cars.

[Snowman]

https://www.youtube.com/watch?v=jt0qVqwDUUA

[wing]

Well I did buy the LX instead of paying to fix the Titan a millionth time lol

[SaskSpecV]

but I saved over $50k in interest in the last seven years by changing.  That's significant.

.1% not so much but 1% or more over time on a large amount can really add up.

Very true - but also look at your circumstances James.  You went from a (relatively) high interest rate to one that was 40% lower, on (what I'm assuming) is the front end of a large principal and long amortization.  So LOTS of room to save on interest charges - and good of you to be proactive and renegotiate (I was too BTW, when my principal and rates were higher - but nothing like your interest savings).

But John's point is well taken too - for a lot of people nibbling around the edges, with already low interest rates and smaller principals, a slightly lower mortgage rate doesn't really save them much.  You can get all excited about saving some interest payments, but then easily spend significantly MORE money in less-than-parsiminous ways.  A case of simply not looking at net balance.  John's car-flipping example is apropos, but there are many other examples too.

Of course, I'm still of the opinion that ANY money that stays in my pocket - and doesn't go to the bank - is a good thing!

[johngenx]

So James, how much has the LX depreciated since you bought it?  $10K?  $15K?  Lol - anything?

Maybe you saved money, maybe you didn't by ditching the Titan. What you did is give yourself fewer headaches and that's worth something to you.

I've sold troublesome cars even if they were under warranty. I never thought "oh look at all the money I'm saving by buying a new car."  I know people (lots!) that think they're making the most financially prudent decision by trading in their three year old car and buying a new one. Then three cars later they can't believe they owe $40K on a car worth $10K and now no one will give them yet another new car loan. But we were saving money!


Sent from my iPhone using Tapatalk

[wing]

I do wonder how much it depreciated.  Probably could sell for $40, paid 45

[Snowman]

Alan Greenspan facked up and the world cannot get off the low interest narcotic he started pushing in 2001.

[Triple Bob]

Don't lock in.  Variable wins over time.  You lock in for security not to save money.

The banks hedge the rates for the fixed ones.  They aren't in the losing money game.
Rates would have to climb high and fast to lose

This.

I'm all for variable.  Overpay it as if it was fixed much higher, ride the variable wave, anything in the gap pays down the mortgage instead of going into the bank's pockets.  If at some point the variable rate overtakes my 'self fixed' rate, then I just pay more.

If you are making purchasing decisions on fractions of a rate, then you can't afford the house.

[SaskSpecV]

If you are making purchasing decisions on fractions of a rate, then you can't afford the house.

That's probably some of the best advice on this forum!
But I suspect the interest rate discussions on here are not because people can't afford to pay the difference (cough, Snowy, cough  ) - it's cause they, like me, don't want to give the banks any more money than is absolutely necessary!

The logic applies to car financing too - if you absolutely "can't afford" $400/month, can you really "afford" $370 a month either?  To be fair, I applaud people who set a clear cutoff value for their payments - i.e., CAN afford $400 a month, but absolutely will not pay more than $350, simply because $350 is the upper bound of thier budget.  Though my applause turns to faceplam if said buyer is only interested in monthyly rate, and can't figure out differences in amortization length 

[dougjp]

He he, "car guys" like us are notoriously "penny wise and pound foolish" as the old saying goes. And, we are experts at making all sorts of justifications for our car purchases - "hey! I saved $ 5- by switching to a cheap haircut guy, therefore, I can afford to lease a Porsche now"     

[Snowman]

If you are making purchasing decisions on fractions of a rate, then you can't afford the house.

That's probably some of the best advice on this forum!
But I suspect the interest rate discussions on here are not because people can't afford to pay the difference (cough, Snowy, cough  ) - it's cause they, like me, don't want to give the banks any more money than is absolutely necessary!

The logic applies to car financing too - if you absolutely "can't afford" $400/month, can you really "afford" $370 a month either?  To be fair, I applaud people who set a clear cutoff value for their payments - i.e., CAN afford $400 a month, but absolutely will not pay more than $350, simply because $350 is the upper bound of thier budget.  Though my applause turns to faceplam if said buyer is only interested in monthyly rate, and can't figure out differences in amortization length 

Exactly. If we listened to the banks we would be living south of the QEW    With any financial decision we assume one of us is not working.

[Triple Bob]

If you are making purchasing decisions on fractions of a rate, then you can't afford the house.

That's probably some of the best advice on this forum!
But I suspect the interest rate discussions on here are not because people can't afford to pay the difference (cough, Snowy, cough  ) - it's cause they, like me, don't want to give the banks any more money than is absolutely necessary!

The logic applies to car financing too - if you absolutely "can't afford" $400/month, can you really "afford" $370 a month either?  To be fair, I applaud people who set a clear cutoff value for their payments - i.e., CAN afford $400 a month, but absolutely will not pay more than $350, simply because $350 is the upper bound of thier budget.  Though my applause turns to faceplam if said buyer is only interested in monthyly rate, and can't figure out differences in amortization length 

Exactly.  I have a long-term plan that involves driving a cheaper car than I can afford.  It doesn't bother me that I'm not driving a $60K car, because my plan is the plan. The expensive car can wait.

But boy this FX rate is killing my budget (in work), USD-CAD $1.26 !

[SaskSpecV]

But boy this FX rate is killing my budget (in work), USD-CAD $1.26 !

No kidding - so glad my wife bought her damn USD horse trailer in December!  Saw the CDN $ was briefly below 0.79 USD today, and still not back above 80 cents.

[blotter]

The real question here is what happens when BoC raises rates .25% will the big banks raise theirs only .15% because that is all they lowered it by.

ROFL. Right.....

our Credit Union did an interesting move. 

for whatever reason our variable MTG prime rate is set differently than our home equity lines of credit prime rates.
we never dropped the HLOC rates.   The reason was due to spreads being so thin.  There was a decision to leave the rate as is to be able to keep investment rates (GICs) at mainly market leading rates.
While the banks had lowered their LOC primes, they ended up turning around and adding fees.

[tpl]

If you are making purchasing decisions on fractions of a rate, then you can't afford the house.

That's probably some of the best advice on this forum!
But I suspect the interest rate discussions on here are not because people can't afford to pay the difference (cough, Snowy, cough  ) - it's cause they, like me, don't want to give the banks any more money than is absolutely necessary!

The logic applies to car financing too - if you absolutely "can't afford" $400/month, can you really "afford" $370 a month either?  To be fair, I applaud people who set a clear cutoff value for their payments - i.e., CAN afford $400 a month, but absolutely will not pay more than $350, simply because $350 is the upper bound of their budget.  Though my applause turns to facepalm if said buyer is only interested in monthly rate, and can't figure out differences in amortization length 

Exactly. If we listened to the banks we would be living south of the QEW    With any financial decision we assume one of us is not working.

We went through our working lives that way.  Mortgage PIT less than ONE 2 weekly NET paycheque.   If a new house was going to cost more than that...then we wouldn't consider it.