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do you guys think interest rates will rise to abnormally high rates anytime soon?

post #1 of 8
6/8/10 at 1:06am
Thread Starter 
do you guys think interest rates are likely to hit abnormally high rates anytime soon? i own some land somewhere and i am paying a lil bit of a mortgage on it (alright well i'm paying the whole thing). i'm a college kid so the whole thing is big moolah (aka cashmoney$$$bling) for me, and i need to make a decision - renew my variable rate, or go fixed-rate at (obviously) a higher APR i've done the math and even if interest rates go up 2% per annum for five years (to 10.5% in the fifth year), i'm still going to come out further ahead than if i had gone with the five-year fixed-rate that they're offering me however, this is of course assuming a steady rate of increase - 2% annually. what are the chances something will blindside us and we'll see interest rates rise to drastic levels like in the 1980s? you guys seem to know a lot about things, and i want your advice
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post #2 of 8
6/8/10 at 1:17am
well, in general, interest rates will rise when govt policy is to curb spending and encourage saving... so with that in thought, i highly doubt rates will rise in the short term
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post #3 of 8
6/8/10 at 1:25am
Thread Starter 
damn. that kind of fully articulates one of my fears, except much more eloquently than i could have done. aaand... to make things worse, one of my buddies (fuckin' idiot) has started telling me that it's totally fine if mortgage rates rise, because the savings rate will rise along with it and therefore i'll make more money off my savings anyway, which will somehow offset the damage but if that's really all that true, how to explain the large # of people who have gone bankrupt over this shit? did they just have no savings whatsoever?
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post #4 of 8
6/8/10 at 1:31am
your buddy isn't making sense, unless you have the entire amount of the mortage in savings if that were the case, then you'd want to compare the spread between your savings account and the mortage rate otherwise, his argument is irrelevant. if rates rise, variable-rate mortage payments will be higher
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post #5 of 8
6/8/10 at 1:38am
Quote:
Originally Posted by cchen View Post
your buddy isn't making sense, unless you have the entire amount of the mortage in savings

if that were the case, then you'd want to compare the spread between your savings account and the mortage rate

otherwise, his argument is irrelevant. if rates rise, variable-rate mortage payments will be higher

As cchen said, your mortgage will cost you more than the return on fixed income... so you will not net ahead.

Are you in Canada?
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post #6 of 8
6/8/10 at 1:39am
Thread Starter 
the other thing he's suggesting i do is take the immediate savings from going with a variable-rate mortgage (some few thousands a year) and make early payments, thus chipping away at the principal as a matter of fact ive already been doing this, i knocked a 15yr mortgage down to 13yrs thing is, this might not even be the smartest move considering it's cheap money right now (at a variable rate)
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post #7 of 8
6/8/10 at 1:40am
Thread Starter 
Quote:
Originally Posted by unjung View Post
As cchen said, your mortgage will cost you more than the return on fixed income... so you will not net ahead.

Are you in Canada?

yeah buddy, definitely
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post #8 of 8
6/8/10 at 12:57pm
Stick with a variable rate of .5-.6 below prime and you will come out ahead of fixed rates.

Also, unless you have lots of cash lying around, there is no big benefit to paying off the mortgage early at these low rates since it's not a principal residence but an investment with tax deductible interest.
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