To go variable or not to go variable? This will be one of the great questions regarding Canadian mortgage rates in 2010. Since the beginning of 2008, Canadian home owners have been fortunate to benefit as the Bank of Canada dropped its interest rates lower and lower until its hovers near the floor with a 0.25% overnight interest rate.

Mortgages rates have obviously followed this trend and it is now possible to have a variable mortgage at prime (2.25%) or even lower if you negotiate with your banker (anyone had heard of prime – 0.25% yet?). However, some people may also be tempted to lock in their mortgage rates for a five year term for a little less than 4.00%.

While I don’t plan on playing the economic oracle, I’ll share with you my thoughts on fixed versus variable mortgage loans according to the current economic situation.

2 Reasons why you should go for a Fixed Rate Mortgage

I am not a big fan of fixed rate mortgage loans and even though the variable mortgage rates will increase in the upcoming years, I still think it would be a bad move to switch for a fixed rate mortgage loan.

Our economy grows faster than the US economy and our dollar is still pretty strong (thanks to the resources boost!). Increasing drastically the short-term interest rates in this situation will likely strengthen our dollar and push it over parity. This is something we surely don’t want as our manufacturing industry will suffer, cuts jobs and we will go back to the same slow motion economy. As previously mentioned the government will probably reduce the maximum amortization for a mortgage back to 30 years or increase the minimum cash down requirement in order to slow down the housing boom.

With that said, there are still 2 reasons why you should go for a fixed mortgage rate:

#1 If you are a young owner with a tight budget

If you just purchased your home and you are running on a tight budget already, you certainly can’t afford a rising interest rate environment. Therefore, it’s not worth taking chances with being wrong in your interest rate predictions. Lock down your mortgage loan rate around 4.00% or less for 5 years and concentrate on paying down your debts while increasing your income so you can enjoy the interest rate fluctuations of a variable rate in 5 years.

#2 If you buy a rental property

Then again, if you can afford interest rate fluctuations over time, you may want to consider the variable rate. However, if you prefer to keep your investment return projections steady, you can go with a fixed mortgage rate (that is tax deductible on top of that!). With a fixed payment, you will know in advance how much you will receive per month for the next 5 years (unless your renters do a fly by night ).

And for those of you who choose the variable rate mortgage in 2010…

I think it is still the best choice even if you know for sure that interest rates will go up sooner than later. Why? Simply because you must look at a picture larger than the span of 5 years. (not to mention than the financial institutions always cover the fixed rates with a safety premium that borrowers gladly cough up!)

When buying a property, you probably took at a 25 – 30 year mortgage loan. Therefore, you should be worried about which interest rate strategies you must take in order to pay the less interest possible over the span of 30 years… not 5 years.

Mathematically, the variable interest rate has always been cheaper over a 20 years amortization period or greater. I can guarantee you that you will pay more interest compared to a 5 years locked-in mortgage rate once in a while. However, over the long run, you will benefit from the interest rate dips and pay less in interest (or pay down your mortgage faster).

image source: woodleywonderworks

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• The Mortgage

We hear so many things from the stock market and how to trade that many investors are getting confused. I’ve completed some research and picked a few good lines to keep in mind when you trade stocks. Some must be followed religiously; others may be taken lightly:

The trend is your friend

This quote comes from momentum traders. According to them, one must not try to go against the market trend. In doing so, one will probably buy too high or sell too low. The problem is that you can only surf the trend for so long. One day or another, the trend will change and you will hit the wall…

Sell in May and Go Away

According to statistics, there is less profit to be made during the summer months on the stock market. Theory being that many investors sell their stocks at the end of spring and reinvest in the stock market in the fall. I’ve already given my opinion on this one by telling you not to sell in May and to avoid the market timing methodology.

The more certain the crowd is, the surer it is to be wrong

This explains how the stock market can be psychotic. When everybody is convinced of something, chances are that they are completely wrong. There is a psychological concept that describes when a group of people agree on one point, it is almost impossible to change their minds as they convince each other the “group” is right. This is the perfect indicator that when everybody sells, this is probably the right time to buy

Occasionally, successful investing requires inactivity. (Warren Buffett)

Patience is king when you want to make serious money on the stock market. When Canadian Bank stocks were dropping faster than rain, was there any rationale to it? Nope. So being patient with these stocks was the right approach. If you did sell them back in December, I suggest you don’t look at them today… it might ruin your day!

Don’t marry your stocks

One must not fall in love with his holdings. The market doesn’t care if you love a company. Therefore, you might see your “favourite” stocks plunging because advantages in their fundamental characteristics are not there anymore.

Price is king, but volume is the power behind the price.

The price of a stock is really important as it will determine your profit or loss. However, if there is no volume, the price is subject to wild fluctuations. While I don’t think it affects general trends (i.e. when the market went up from March to June, it wasn’t just a high volume of transactions), I do think this is applicable for small caps and penny stocks. It is pretty hard to determine the fair value of a stock that jumps and plummets by 10% weekly. This is what happens when there is minimal volume to support a price and few makers in its market.

I actually have more quotes, so I’ll keep a few for tomorrow

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Here we go, now you are reading my title and you think “this guy, this little Quebequer who hates his country…. Such a shame!”. Not quite right. In fact, I am very proud to be Canadian and if ever Quebec separates, I’ll be moving in Western Canada for sure!

However, Canada Day is pretty special in Quebec; this is also called “Moving Day”. For some unknown reason, most rent expires on July 1^st and then, most people move on that date. The thing is that I always have a friend that moves on that date as well!

Therefore, again, today I am stuck driving to Montreal, get stuck in traffic and move furniture and boxes the whole day. The great part is that I have to work tomorrow morning…

However, I really love the new Olympic Vancouver 2010 Maple Leaf Poster:

So I leave you enjoy your Canada while I’ll be sweating and swearing all day!

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Here’s a few interesting facts about credit cards from www.compareandsave.com, one of the UK’s leading credit card comparison sites:
1. The concept of a credit card for consumers came about when an American enjoying a meal out for dinner in 1949 realised he had left his cash at home and decided that an alternative to cash would be a good idea. Frank McNamara came up with the Diners Club Card and by 1951 there were 20,000 Diners Club cardholders.
2. The first credit card was made of cardboard and it was only in 1951 that it was changed to plastic so that it lasted longer.
3. Credit cards are normally the same shape and size because the follow the ISO 7810 – an international standard that outlines formats for certain types of cards.
4. The most common size for a credit card in 85.60 x 53.98mm.
5. Whenever you get a new credit card (or debit card for that matter), you must ‘activate it’ before using it by ringing up an activation number or by going online.
6. There are more credit cards in the UK than people – at the end of 2007 there were around 60 million people who between them carried 73.2 million credit and charge cards
7. A shocking 70% of consumers with cards did not take the time to compare credit cards before applying.
8. You have to be at least 18 years of age to get a credit card. In fact to get some credit cards you need to be as old as 25 and on a certain annual wage in order to be accepted.
9. Credit cards must be signed by the authorised cardholder in order to be valid.
10. Credit cards may be your ‘flexible friend’ but if you bend them too much, they will snap!

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This has been a week since my wife quit her job to stay home. While the decision happened overnight and we didn’t think much about how we would compensate for the lack of money, we just decided to pursue this route. Sometimes, you are better off trying things… destiny makes the rest for you

On day one, I had to do several changes:

Cutting down on my mortgage payment

As I said before, I had to put an end to my Smith Manoeuvre Strategy (at a really bad timing) in order to decrease my mortgage payment. My mortgage payment was divided into three parts:

1/3 for the interest

1/3 as a payment in capital

1/3 into my Smith Manoeuvre

For now, I have to drop my payment so I pay almost interest only. This is not sustainable over a long period of time but it should do it for now.

Cutting down into unnecessary expenses

We fired the cleaning lady which free-up $150 per month (but it is a pain to clean the house!) and the children will obviously stay at home with my wife. This will free up another $300 per month (yes, I am lucky to live in Québec as daycares don’t cost much!).

We will also drop our budget for gasoline while we recently increased our car payments (I just bought a SUV 2 weeks ago…). I asked for the penalty if I would give it back but it was way too much expensive (about 6K).

Looking for more money

This became my only responsibility! I am actually able to withdraw more money from our internet company than expected which is a really good news. I am also expecting an interesting raise at work since I am about to finish my MBA and I am one of the best performing financial planner downtown Montreal. I already ask for my raise and I should get my answer back in a few weeks. This should give us some rest.

The last part I can work on in order to increase my income is to boost my numbers at work so I can get a big fat bonus at the end of the year. So far, I am getting in the right direction to get a bonus that will pay for my RRSP contribution, pay for the capital I should have paid on my mortgage… and maybe go on vacation.

In the end, maybe that I only needed to get thrown away into this situation in order to make things ok financially with only one income!

image source: flickr

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