Mortgage Questions
By the time this uploads, the holidays will be over, and we’ll be right in the thick of the joys that are the long, dark days of January. I love it.
I had a few different interactions over Christmas and New Year’s that I think are worth sharing. They had to do with mortgages, the Canadian dollar, and ‘the market.’ I like keeping these posts brief, so let’s focus on the mortgage question for now. I’ll address the other two in subsequent posts.
On three separate occasions over the last two weeks, family or friends asked, “My mortgage is up for renewal in 2025; should I go fixed or variable?” My answer: “I don’t know.” You can imagine the reaction from people within earshot who know what I do for a living.
Here they are:
- “Vince, rates are coming down. Anyone can see that. Going variable is a sure thing!” said one friend.
- “Look at the bond market, Vince. It’s clear rates are coming down,” said another who works in banking.
- And my favorite: “Since 1980, going variable is the winning choice.”
That last one always bothers me. Consider how interest rates fell steadily from 1980 until 2021, when they pretty much hit zero. Now tell me how people who went variable in 2021 feel right now.
I only give advice to clients. Giving advice at a dinner table is a recipe for disaster. So, in all these conversations, after some polite back and forth (and sometimes not-so-polite - I’m looking at you, university friends!), I asked a few questions:
- If you go variable and rates go up, how much will it hurt your month-to-month cash flow?
- If rates go down, will that happiness outweigh the pain of a higher payment if rates go up? (Loss aversion is real - no matter how good winning feels, it will never hurt as much as losing.)
- Do you plan on moving in the next five years?
There are so many variables you have to consider before making a mortgage decision. It’s not as simple as trying to predict the future—because no one can. The financial planning process isn’t about being right, it’s about making the decisions that let you sleep at night.
I’m so sorry for the rhyme - but not the advice.
