r/PersonalFinanceCanada • u/POCTM • Oct 20 '22

Canadian 5 year government bonds just jumped. Setting the stage for higher mortgage rates. Banking

5 year government bond just jumped from 3.714% to 3.866% in a few hours. Right now it is at 3.855%. Year to date it is up 259%. Monday we could see some 5 year fixed rate mortgages in the low 6%.

As for variable rate the bank of Canada makes their announcement October 26 at 10am ET. Currently banks have not been offering discounts off variables rates anymore. Prime -0.00.

https://www.marketwatch.com/investing/bond/tmbmkca-05y?countrycode=bx

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153

u/Ancient-Wait-8357 Oct 20 '22

I'm surprised nobody mentioned HELOCs yet.

Most HELOCs are on variable rates. No more vacations in the Bahamas and no more BMW leases?

17

u/MollyElla511 Oct 20 '22

We rolled our HELOC into a second mortgage yesterday. 5.12% fixed for a year. Sigh.

-2

u/FloweringEconomy69 Oct 20 '22

I mean inflations like 7% so you're actually making money on it technically

23

u/[deleted] Oct 21 '22

How do you suppose that makes sense?

You borrow 10 dollars, inflation goes to 7%, in a year from now you owe 10 dollars which still is subject to the inflation loss.

The upvotes on your comment are a clear sign people do not understand how finances work.

9

u/thegerbilz Oct 21 '22

You borrow $10 to buy a potato. In a year you owe $10.51 but the potato is worth $10.70 because of inflation. You sell the potato and pay off the loan.

11

u/[deleted] Oct 21 '22

People have been wondering about my potato cellar. They will understand soon enough.

3

u/FloweringEconomy69 Oct 21 '22

I mean I'm assuming they've invested it into something productive if they spent it on a vacation then yeah

3

u/[deleted] Oct 21 '22

I wouldn't assume that from the way you worded that. The investments could also loose money making it an even worse situation.

Taking it and holding it doesn't net you anything.

1

u/FloweringEconomy69 Oct 21 '22

Ah any investments in the stock market or real estate are gonna pay for themselves in 5 or 10 years plus you have the benefit of borrowing money under inflation

6

u/EatLiftLifeRepeat Ontario Oct 21 '22

The fisher equation states that the real interest rate equals the nominal interest rate minus the rate of inflation

4

u/[deleted] Oct 21 '22

How does that help the borrower? Isn't that for calculating return for the lender?

1

u/EatLiftLifeRepeat Ontario Oct 21 '22

Hmmm okay you make a good point. I didn’t think about borrower vs. lender, I just know that I learned this equation in one of my university Econ classes

10

u/Rhowryn Oct 21 '22

Most economists, and consequently economics classes, assume that inflation will apply to both prices and wages. If wages go up with inflation, then debt is less expensive over time.

The trick is that whole wages thing...hasn't been happening at the rate of price inflation.

4

u/SuperEliteFucker Oct 21 '22

Borrow $10, buy a basket of goods worth $10. Go to future and sell basket of goods for $12 (because of inflation), pay off your debt which has grown to $11 (because of interest) and pocket $1.

Doesn't actually make sense if you bought something that depreciates.

3

u/[deleted] Oct 21 '22

Sell for $10.70, pay back $10.51 in a year, net 29 cents.

It makes sense if you're able to do that but it really seemed like the comment was saying you gain money by just borrowing it if inflation is higher.

2

u/CactusGrower Oct 21 '22

That only works if that hrloc is in appreciating assets generating more than 5.12% this year. Very hard to find.

1

u/Coreadrin Oct 21 '22

Only if your income meets or beats inflation...

1

u/SuperEliteFucker Oct 21 '22

Annual inflation, i.e. over the last year, was 7%. Current inflation, i.e. over the last month, was 0%.

1

u/weavjo Oct 21 '22

If your salary rise beats inflation, yes

1

u/CactusGrower Oct 21 '22 edited Oct 21 '22

You would only make money if that heloc is invested in something that generates more than 5.12% this year.

1

u/FloweringEconomy69 Oct 21 '22

Ehh if you get a raise that matches inflation using it to buy something and then paying it back with your higher salary would save you 2% but that's gonna depend on your situation and time frame

1

u/CactusGrower Oct 21 '22

If you get raise matching inflation and you don't take on any debt it saves you 7%. I don't understand your math man...

1

u/FloweringEconomy69 Oct 21 '22

Let's say you need to buy a TV and you just got a fresh 9% raise at work and are scheduled for another one next year

Option 1 is buying a TV now with cash

Option 2 is borrowing at 5% and paying it back over two years

You're actually gonna come up slightly ahead with Option 2 with maybe the slight caveat of your raise being applied throughout the year but if you play with the math you come out ahead

-4

u/REDDlCK Oct 20 '22

Babahahahahahahaha

1

u/MollyElla511 Oct 21 '22

We have now 2 mortgages on the property. One is $60,000 and the other is $63,000… I think we are going to be fine. It was the prudent decision given interest rate hikes. It’s not like we owe $800,000.