Mortgages -- Fixed or Variable? Term?

[AdamL]

I have a mortgage ready to go for 170k, all I need to do is pick my interest rate method.

Fixed for 10 years is 5.99, 5 years is 5.25.

There is also the option of variable rate.

I'm just getting out of University looking for full time work, so low payments at this time would be helpful... but, I realize interest rates are about as low as they're going to get right now.


What do you guys recommend? Anybody here have any speculations as to where the interest rate is heading? Canada is pursuing a zero inflation policy right now and I expect them to keep that. So I expect rates to rise, but I'm not sure how to judge how much.

[GeorgeF]

If you go with a variable you are accepting the interest rate risk. What would happen if rates go up. Do you loose the house and down payment or do you stop going out for diner for a few years? Is there a down payment that you are protecting, or can you walk away from the house by declaring bankrupcy? How stable will your employement be? If you go with an variable will you be saving the difference to use if interest rates go against you, or are you using the variable rate to buy more house than on a fixed, or will you go shopping with the saved money?

I don't think a variable is a bad idea as long as you are not using it as a tool to speculate in real estate or create cash flow for shopping.

Nobody knows where interest rates are going. I personally think that long term rates are headed down, especially outside the USA. I think low not high rates will cause real estate problems. If you see real estate being built everywhere at some point it will become overbuilt and very likely way overbuilt.

[astroglide]

i believe traditional thought is to go for a fixed rate for as long as you actually think you're going to be in the home. you get slightly penalized for the stability of the rate the longer you cast it. when considering virtually everyone says that rates have nowhere to go but up, it doesn't seem like a 30yr fixed on a typical single family home is a bad idea.

[Ray Zee]

you get the fixed if you dont have alot of money. if you have alot then you get the variable at the lower rate and have more money to invest other places. and when it goes too high you pay it off as that becomes the better investment.
if young and planning to stay put, go for a twenty year loan as the ten will creep up on you and you may find yourself unable to refinance.

[playerfl]

just don't do the variable rate.

[AdamL]

Ok guys, thanks very much for your help!

Adam