Very Low Interest Rates

[Sledder]

Here in Canada it's expected that the Bank of Canada will drop it's rate by 0.5% again tomorrow. If that gets passed along by the banks in whole then it will bring the prime lending rate down to 2.5%

Now my mortgage is set to 0.75% below prime so I'm looking at 1.75% which is great news for me but I just have to wonder how much lower they could possibly go? We must be getting close to hitting rock bottom.

What does everyone think? Are you able to enjoy these low rates?

 

[Holdfast]

I have a tracker mortgage on my main home pegged to 0.9% above Bank of England base rates for the lifetime of the mortgage. Since BoE is currently 1%, that means I'm paying 1.9%. Actually, it's a lot less than that since it's also an offset mortgage, so I'm only paying interest on about 40% of the outstanding balance.

My buy-to-let property is on a discounted tracker of 0.1 below base rates, so I'm only paying 0.9% on that one. Mind you, that deal expires later this year. But even then it only reverts to 1.5% above base rates I think, so it won't be worth refinancing it if base rates remain low.

With base rates likely to fall to 0.5% this week and maybe right down to zero soon after, basically my mortgage interest payments have all but evaporated. For my own home, that just means I'm paying off more capital. For the buy-to-let mortgage which is interest-only, it means nearly all the rental income (minus fees) is profit.

So yes, I'm enjoying the low rates!

Mind you, I want to add another buy-to-let soon, and it's really hard to find a really good deal without stumping up 25%+ deposit. That will loosen once the market starts to improve, so I'll have to time things just right and then move in quickly to grab another place.

 

[apostle83]

Holdfast - HOLDFAST - has an ARM? RIGHT NOW it's advantageous, but what are you going to do in two years when interest rates are at 30%?!

 

[Holdfast]

I could see the current clusterfuck was coming (I didn't think it would be THIS bad, but the general picture was obvious) so I deliberately picked variable tracker mortgages to benefit from the cuts.

Interest rates won't spike up that suddenly. Sure, there's a big inflationary pressure potentially being built in right now with all the bailouts/easing/stimulus/etc/etc but it won't explode that quickly. So the interest rate rises will be slower. And so there'll be time to switch to a 5 year fixed rate deal before the big spikes arrive to tide me through the higher rate period.

And besides, the amount of capital I'm repaying monthly now thanks to the low rates, combined with the high percentage of equity I already have in the property means that it really would take rates of around 30% for me to lose out over the life of the mortgage.

And don't forget that if inflation REALLY goes up massively (which is what it would take to get to the preposterous rate of 30% you're suggesting), then my equity share of the property actually goes UP as the house price rises. Making it easier to refinance, and also eroding the real value of the loan very aggressively since my income will also go up as a result of that inflationary pressure.

The maths works out.

 

[Guartho]