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March 18, 2008

Switch to a variable rate loan?

Here's a question for any finance savvy types. I have a 30 year fixed second loan for $480,000 at 7.1% and I have the option to convert this to a variable rate loan at prime minus a quarter, which would make the interest rate 5%. This would save me around $650 a month. Of course prime will eventually rise again and if I wanted to switch back to a 30 year fixed again there is no guaranteeing at that time that I would get 7.1%. Any advice? Snide comments?

Posted in Forum by passthedip at 3:23 PM | Comments (14)
Categories: Mortgage

Author's Comments

We plan to stay in the house a long time. I would say a minimum of 10 years.

Because it is a second loan, 7.1% is the best we're going to get on a 30 year fixed.

If we convert to a variable rate, it will not be locked in at all. It will be set at prime minus a quarter.

Posted by: passthedip at March 18, 2008 3:53 PM in response to Switch to a variable rate loan?

Most of those condos are sold to investors who will turn them into rentals when they discover they can't flip them for a profit.

Posted by: passthedip at March 19, 2008 1:22 PM in response to Condo of the Day: 535 Dean Street Penthouse Price Cut

Responses to Author's Forum Comments

I agree with 1:14. I think they are talking about heloc vs home equity. The question is are the past ten years a good indicator of the current economic environment? What about in the 80s when prime rate got as high 20%. Is it possible that this could happen again?

Posted by: guest at March 20, 2008 9:52 AM in response to Switch to a variable rate loan?

Of course it is possible. And it is possible it could go even higher, your house coudl lose value, your credit could go down for other reasons (job loss, health issues) making it harder for you to refinance than you now expect. That's why people who depend on adjustable rate mortgages that they intend to refinance may save in the short run, but they are taking greater risks (than I personally am comfortable with) in the long run. To each their own...

Posted by: guest at March 20, 2008 4:57 PM in response to Switch to a variable rate loan?