Thx

I was able to obtain a prime + 1% secured LOC against my existing investments with BMO.

DAvid

I’ve got a funny mortgage story (bet ya didn’t think there were any!). Few years ago one of my friends bought a house at the end of a cul-de-sac, beside a park. His neighbour across the street had bought his house in the 80’s and had locked in the total amortization period of his whole mortgage at 18%! When he finally paid it off, the city wanted to re-claim more park land, so they bought his house from him. Very shortly after his house was bulldozed! Ha! Wow, was that guy ever pi$$ed! “I spent all that money and time paying off that house and they just rip it down!”.

Unfortunately my friend sold his house too or he could have been living across from a very scenic park view.

I looked up the data a LONG time ago so I’m not too sure where I found it. Specifically, I was referring to a 5-yr fixed. Here’s a crappy little chart (how do you link?) to hopefully give a bit of an idea:

http://www.mortgagehotline.ca/images/chart_5yr_prime.gif

THe majority of the chart lies above 9%. Roughly eye-balling/ball-parking, there’s almost a 30-year span between 1967-1995 where rates dipped below 9% ONCE and went as high as 21%. I’m not a rate expert or historian so maybe I’m way off. Am I?

I think the CT will work, but not in the way the product was intended to be used. With the account you get a variable LOC, as well as optional fixed portions. So the only way to make it work for the SM, as I understand it, is to use the variable LOC for your investments, and create fixed portions for your mortgage, your car loan, renovation loan, etc. The fixed portions require you to pay interest+principal monthly, while the variable portion will allow you to pay interest only (and will auto-capitalize the interest too).

The way the account is marketed, all of your deposits and withdrawals are supposed to go through the variable portion. If you want to use this account for the SM, however, you necessarily have to do your day-to-day banking elsewhere since you can’t mix everything in the variable account.

This diagram helped me understand:

Variable LOC (use for investing)
——-
Fixed portion 001 (your mortgage)
Fixed portion 002 (your car payment)
Fixed portion 003 (renovations)

As you pay down the fixed portions, you get more room in the variable portion. CT has a sample statement on the left nav bar of this page: https://www.mortgageinyourway.com/#/stepTwoMenu

I would much rather have the LOC and my mortgage at prime, but I can’t find a lender at the present time who will offer this and pay the appraisal+legal costs. (CT does cover these costs.) This business down south has everyone panicked.

I actually filled out your questionnaire, Ed, and had been working with a BMO contact of yours. Today she informed me BMO doesn’t even offer the three-year open variable for the ReadiLine anymore. The best they can do is prime+1 on a five-year closed.

Yuck.

If anyone knows any BMO reps still offering the ReadiLine at prime on a three-year open variable, please drop me a line: brendan at letterwhiz dot com.

I’d be more than happy to speak to other lenders offering prime as well. (Provided they cover legal+appraisal costs, or offer some kind of value that makes up for having to pay a portion of these costs.)

All the best,

Brendan

Mortgage rates and discounts are changing every day lately, but we still have access to several at prime. The last time we looked at Canadian Tire, their mortgage did not allow for a sub-account, so it is not usable for the Smith Manoeuvre.

We are tracking the best rates daily. If you want a referral to the best SM mortgage, we have a free referral service on this blog if you email us with answers to 10 questions.

Ed

Where are you finding 10%+ mortgage rates in history? Looking at variable an 1-year rates, I believe we only made it to 10% perhaps 3 years of the last 60 during a short period in the early 80’s. Other than that, rates have always been far lower.

The average we have seen in the last 10 years is between 4-5%.

Up until the last month, short term mortgage rates were about the average of the last 10 years. Now they are going lower.

Ed

Complaining that your 5% rate is “not a very good rate” is ludicrous — it’s a 50% discount from a 60+ year average! Take it and run because it could very well be higher than the average sooner than you think.

at 200k, 25bps is about $40 per month

granted, no guarantees that there will always be a 25 bp spread between the two.

I’m leaning towards Canadian Tire…it’s 4.75% for the variable LOC and 5.14% fixed on a one-year term for the mortgage. Not a very good rate, but CT covers the appraisal and legal fees, and one could switch lenders a year down the trail when things get better…

Any advice would be appreciated…NB is still at prime but they don’t cover the legal fees. Manulife One may be at prime but I can’t swallow the monthly fee…

Thank you in advance for your help.

Brendan

Initially I DID have a variable (Prime – 0.5%) but locked in @ 4.5% when rates started to rise. I’m still ahead in the long term because of the many months rates were held at 6%. I know historically variable is the better mortgage, we’ll see what the bank scenery is like when I’m up for renewal.

Short term, the market crash is “bad” for my mortgage rate but good for my SM rate.

There are rumours of another 1/2% prime rate cut next week. Those variable mortgage have worked out very well! All those people with mortgages at prime -.85% would be down to 2.9% with another rate cut!

Interest rates and the discretion below prime are changing every day, so it is a challenge to keep up with who has the best deal. We think that variable mortgages below prime will be back in a few months or possibly a bit longer. If you don’t have a variable mortgage below prime now, staying open or short term will allow you to switch back to discounted variable mortgages when they are available again.

Ed

These down times are the most important times to keep investing. FB is right that this would be a great time to start the Smith Manoeuvre.

Ed

If you are focusing on dividend stability/growth, you may find that dividends in Canada have been at very high levels for the last several years due to the commodities bubble/speculation. The banks have also been over-earning, with huge profits on new issues for and loans to commodity companies and appear to have been priced for perfection.

It is probably prudent to assume lower dividend growth and probably lower dividends going forward.

Ed

We are not finding much difficulty in getting financing. Rates are higher, in that discounts are less, and some lending rules are being followed more literally, but otherwise, we are not finding much difficulty getting financing.

Ed

It’s true about people fearing and panicking in markets like this. It doesn’t make my stomach feel any better when I look at my portfolio these days but, as you said, I still believe in the power of leveraging.

Case in point, during the Great Depression, Templeton borrowed/leveraged $10,000 (approx. $120,000 today) and bought a basket of 104 different stocks. He made crazy gains on all but 4 of them, and wound up a gazillionaire.

There are opportunities in today’s “crashed” market — businesses selling for LESS than the cash they have on hand! — and leveraging to take advantage of such situations has proven to be a wise move in the past. The tricky part is, with credit markets all but seized, is trying to get the leverage in the first place!