Weekend Reading: Mortgage Renewal Edition

“When the facts change, I change my mind. What do you do, sir?” – John Maynard Keynes (maybe)

As a long-time mortgage holder, I’ve been adamant about a mortgage renewal strategy that goes something like this:

Go variable when the 5-year variable rate is offered at a steep discount off of prime rate (prime minus 1% or better), or else take a short-term fixed rate (1-2 year term) when the variable option is not attractive.

This approach meant holding a variable rate from 2011-2016, then taking a 2-year fixed rate from 2016-2018, and then back to variable from 2018-2023. This worked splendidly until about March 2022 when rates started to increase, and only really started getting hairy when the Bank of Canada hiked a full 1% in July 2022.

Nevertheless, we’ve done well with this approach – “winning” in 11 out of the last 12 years as far as I can tell.

We moved into our new house at this time last year and, amidst rising interest rates, elected to take a 1-year fixed rate mortgage term at 5.74%. This gave us a chance to hopefully see inflation come down in a meaningful way and open the door for the Bank of Canada to cut rates.

Turns out that was a bit premature, as rates aren’t expected to start falling until at least June or July. And, if inflation remains sticky in the high 2% / low 3% range, the Bank of Canada could certainly hold steady.

At the very least, BoC governor Tiff Macklem has already said that interest rates won’t decrease nearly at the same speed that they increased during the height of inflation.

That’s enough to give this personal finance blogger pause when it comes to betting on variable rates to win this term. Besides, the best variable rates on uninsured mortgages are pretty, pretty bad right now.

Rates would have to fall fast and hard for a variable term to outperform.

The trouble is, short-term (1-2 year) fixed rates aren’t much better.

That’s why I’m holding my nose this time and going with a 3-year fixed rate term. It’s the Goldilocks term – not too long in case rates do fall in a meaningful way, and not too short that we don’t get any meaningful rate relief now.

I found out through the grapevine that one of the big 5 banks is offering 3-year fixed rates at 4.99% so I’ve made that known to our mortgage lender and they’ve reached out to the powers that be to see if they can make it happen.

An interest rate of 4.99% is 0.75% better than our current rate. We’ll keep our payments the same, so we can make a bigger dent into the principal balance over the next three years.

This Week’s Recap:

In last week’s edition of Weekend Reading I shared some tips for investing in an asset allocation ETF.

From the archives: Why it would be ludicrous to invest in these model portfolios.

And for those of you filing taxes this month, here’s the difference between tax deductions and tax credits.

Promo of the Week:

We activated player two for our rewards cards strategy, meaning earlier this year I signed up for the American Express Business Gold card, hit the minimum spend target to reach the welcome bonus, and then referred my wife (player two) to get the same card in her name. 

The result is 15,000 additional Membership Rewards points for me for the referral, and now my wife has a chance to earn 75,000 Membership Rewards points after spending $5,000 in the first three months.

Use this link to sign up for your own American Express Business Gold card and earn 75,000 Membership rewards points when you do the same. Then activate your player two for a chance to earn another 90,000 points (15k referral plus 75k welcome bonus).

If you’re looking for hotel rewards, this one is an absolute no-brainer card to have in your wallet. The Marriott Bonvoy Card gives you 55,000 bonus (Bonvoy) points when you spend $3,000 within the first three months. Not only that, you get an annual free night certificate to stay at a category five hotel (easily worth $300+), making this a card a keeper from year-to-year. The annual fee is just $120.

We used our free night to stay in the Calgary Marriott Airport in-terminal hotel the night prior to an early flight departure. Nothing beats walking out of the hotel lobby and right to your gate without stepping foot outside! We’ll do it again in London later this year before flying home from Heathrow in October.

Again, refer your spouse or partner and do it all over again to earn another 55,000 Bonvoy points, plus 20,000 referral points, and another free night certificate.

Weekend Reading:

Why Andrew Hallam doesn’t regret selling his Berkshire Hathaway shares, even though they’d be worth almost $2M today.

Of Dollars and Data blogger Nick Maggiulli explains why someone’s current financial standing or background should hold much weight when determining whether their advice is useful:

“Just because someone is rich doesn’t imply that they know how they got rich. The same goes for someone who was “poor” and then became rich. After all, you could’ve gotten rich in a different way than what you claim publicly.”

You should subscribe to the FP Collective, a new website aimed at helping Canadians cut through the noise and find trustworthy financial information. The first post by Cameron Smith debunks investment myths to explain what you really need to know about expected returns.

Here’s PWL Capital’s Ben Felix on why bank financial advice is worse than people realize:

Morningstar’s Christine Benz shares why index funds and ETFs are good for retirees due to low costs, tax efficiency, ease of oversight, and cash flow extraction.

Another FP Collective banger, this time it’s advice-only planner Julia Chung explaining what to think about when it comes to passing down the family cottage:

“You may find that there are just a few people who really want to keep the property. Or perhaps there are none and it’s time for you to sell. Or perhaps everyone wants in. If more than one person definitely wants to maintain the property, then you know it’s time for a family meeting.”

Recent retiree Jeffrey Actor and his wife were shy to admit that their international travel bucket was relatively empty, and they had embarrassingly few stories to share. The question they asked themselves was – if not now, when?

People like to complain about CPP, but it is one of the most valuable retirement assets available to Canadians:

Morningstar’s latest study on balanced funds shows that Canadian investors have been steadily selling commission-based funds for balanced ETF versions. Well done!

Finally, The Loonie Doctor Mark Soth says that investors are prone to fear, overconfidence, and other forms of expensive self-talk.

Have a great weekend, everyone!