Financial professional admits he was wrong about mortgage choice

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With the overnight rate expected to see its first hike since 2010 in the near future, brokers may take a lesson from one expert who admits he made a mistake when picking his own mortgage.

Ted Rechtshaffen, speaking to the Financial Post, admitted that in 2009 he switched his variable rate mortgage to a fixed, after heeding warnings that variable rates would be on the rise. And that the move was a mistake.

“I was wrong. I had a variable rate mortgage and in 2009 I pulled the plug and went fixed,” Rechtshaffen, financial planner and president of TriDelta Financial told the Post. “I did mess up, but my question was what benefit do I get locking-in versus going variable?”

The perceived benefit, of course, was that a fixed rate would not have been affected had the overnight rate been hike. However, that benchmark rate has held steady for over four years – which means, had he kept his variable rate mortgage, Rechtshaffen’s mortgage rate would currently be 2.25 per cent today.

Not too shabby.

Still, it’s a decision that many in his position would have made at the time. Rechtshaffen explained that the gap between the five-year fixed and the variable was a mere 25 basis points – which, at the time, was a slight enough gap to warrant opting for the rate security offered by a fixed rate.

Today, however, brokers and mortgage holders are facing the same dilemma; with the overnight rate expected to be on the rise within the next year, will brokers advise clients to favour the security of fixed rates?

After all, according to Rechtshaffen “rates could move very fast once they go up.” 
  • Ron Butler on 2014-10-29 1:00:31 PM

    Who thinks the BOC rate is "expected to see its first hike since 2010 in the near future" no one I know thinks so.

  • stephen codsi on 2014-10-29 1:01:02 PM

    you think the bank rates might increase fast.
    really?????????????????????????

    economics 101,
    no economy, no inflation, hello!!!!!!!!

  • @kiltedbroker on 2014-10-29 1:03:12 PM

    I made exactly the same decision and don't regret it at all. The certainty from a fixed rate trumps potential savings on a variable rate for me... You know what they say: "A sparrow in the hand is better than two in the bush." I have other places I can go hunting for 2 sparrows. Whatever that means.

  • Lachman Balani on 2014-10-29 1:13:48 PM

    Define near future.and in 2009 what was his fixed rate and what variable? at that time Variable if I am not mistaken was prime+ X (Prime at 2.25%) and not prime - Y as it was in 2010 when prime rates went up to 3%.also Canadian 5 year bond rates were higher than they are today and the spread was + 2+% unlike today where the spread is around 1.20- 1.30% from can 5 year rates to mortgage rates.(Can 5 yr bond rates a t about 1.5% and 5 yer fixed average mortgage at 2.79%(can be lower).

  • Janice Ashworth on 2014-10-29 1:16:25 PM

    When my client ask which option I would recommend - I often suggest to my stronger clients that they take the variable but make the payments as if they had taken the 5 year fixed rate (subject to prepayment allowances). I do not think Prime will go up quickly and this strategy will cushion them in the event the rates start to move up. Of course - timing is everything and this is not a guarantee but it has worked out tremendously for my clients over the past several years. Janice Ashworth - Jencor Mortgage Corp.

  • Lachman Balani on 2014-10-29 1:21:17 PM

    and he says rates could move very fast once they go up ?once what goes up?yields on 5 year bonds? o/n interest rates? or does he think if o/n interest rates go up,yields will follow suit?
    or will mortgage rates go back up to the usual spread of 2+% over 5 year bond rates once o/n rates go up,even if 5 year bond yields don't go up?

  • James Shinners on 2014-10-29 1:35:54 PM

    I agree with Janice. We use the same approach. James Shinners-Mortgage Managers

  • Ron Butler on 2014-10-29 1:46:19 PM

    @ Jackson............. I am still pondering the sparrows, the hunting the sparrows, the roasting of the sparrows, the right sauce that goes with sparrows, etc, etc.

    @ everyone else......... the truth is we really don't know what will happen to interest rates, I say that to all the people I talk to. Variable has a couple of upsides: guaranteed low break penalty, convertible to fixed whenever the client wants and lowest rate on offer today. Downside is: the rate can vary.

  • Rayanne Soderberg on 2014-10-29 1:52:49 PM

    Why would Prime increase quickly when the BOC has indicated it's caution over the last years and has stated it isn't considering an increase until later in 2015? My belief is that it will move in small increments of no greater than .25% over several years hitting 4.0-4.5% (5.0%?) within 10-13 years. This is only based on my opinion of 27 years of experience in banking, nothing more than that. Here's a thought-would a variable rate of P-% not remain consistent if P increases? You would still be at (new) P-%, therefore, you would still be paying a mortgage rate at less than P. I have been in a variable rate mortgage for 8 years and will continue to renew to a variable, although I give my clients the choice based on their risk tolerance and budget.
    CML Canadian Mortgage Lender

  • Camilo Rodriguez, MortgagesLab on 2014-10-29 2:09:38 PM

    Since any opinions of future rates are only opinions, without losing sight of predictions of rates, the decision should be based inward (how much are you borrowing and how much can you tolerate if rates go up). When a person knows this, the decision becomes clear!

  • Ron Butler on 2014-10-29 2:16:05 PM

    I found you, Sparrow.

  • Faye Drope on 2014-10-29 2:19:41 PM

    The prediction of rates going up is not a long shot, it is inevitable. But with all other factors in play, and I being a person of reason believe that the next rate move will be down not up.
    For the record in 2009 I too panicked and locked in to 3.69%, and given the circumstances I would likely do it all over again.

  • Brian Lambert on 2014-10-29 2:20:06 PM

    For over the past 7 years all I ever pushed with clients is VRM and they have benefited greatly from it. Those clients that benifited the most are the ones that refinanced and dumped their savings from the REFI on their mortgage. That low rate and low amortization just killed their mortgage. As mortgage professionals we listen to a lot of noise coming from the media and big banks. You really need to read between the lines. Big Banks agenda is to scare clients into locking in to a fixed rate, this secures their profit over a fixed term. The media just churns the message as it makes for news. You should not believe either? Working in the investment world all these years I tend to make my decision on rates by looking at world markets and economies. Large economies are still not really doing any better over the past six years. Europe is in the early stages of a recession. Britain announced today that they will be in a low rate environment almost indefinitely. Has the U.S. our biggest trading partner really made inroads on their fiances, with the greatest debt in history? You will be lucky to see any improvement in the US until after the 2016 election and even then it will be a drag on their economy. From what I analyze daily, LOW RATES will be with us for a long time. Even if they rise, it would be only marginally as governments would have to allow time to see what effects that would cause any economy. We have seen the effects of raising rates in the past here in Canada, where they had to turnaround and lower them again. A great example was Australia just over a year ago, an economy similar to our own, they raised rates and the county went into a tail spin, rates went back down. Don't get caught up on the RATE DEBATE, look at the bigger picture worldwide, you will sleep better and your clients will thank you for being well informed.

  • Broker on 2014-10-29 2:21:18 PM

    Without risk comes minimal reward. I have left 4 mortgages in a variable and saved over 20,000. There is a saying for everything and everyone knows all. The only thing we know for certain is that a variable would have been the way to go for the past 5 years, if we are buying a new home today.... you are gambling either way as no one knows what really will happen with BOC prime or when.

  • Deborah on 2014-10-29 2:42:30 PM

    I agree 100% with Brian. Couldn't have said it better myself.

  • kevin irvine on 2014-10-29 2:56:04 PM

    if I'd locked in at fixed rate and paid more I would certainly live with it but would regret it as it cost me money. Luckily I didn't, did think about it but didn't but it was a gamble. I'm sitting at 2.25% on a mortgage and not only do I pay less per month but am also paying my mortgage off quicker. I wonder if some people don't know that the higher fixed rate not only has a higher monthly payment but also pays your principle down less each month as well.

  • LanceH on 2014-10-29 3:18:25 PM

    If they're 1st time buyers, I strongly recommend a 5yr fixed to get on their feet, anyone else, I print off Am Schedules showing the difference and tell them what I would do, but it's their decision, as they have to live with it!!

  • Brian Lambert on 2014-10-29 3:39:13 PM

    @ LanceH: It's our responsibility to guide clients into making the right mortgage decision even if it is foreign to them as professionals it's our duty to know the difference, otherwise you should be working for the bank?

  • LanceH on 2014-10-29 3:45:44 PM

    @Brian. Telling them what I'd do IS guiding them, (guiding and telling are 2 different things), and I did mention that I guide 1st timers. Clients aren't stupid and must be comfortable with what they get, and only THEY can know what that is.

  • Brian Lambert on 2014-10-29 4:14:30 PM

    @ LanceH: Wrong, today's client are not at all knowledgeable about mortgages and that discomfort comes from not knowing. You as a professional, if you allow a client to "live with it" knowing they are making the wrong decision, you did not do your job. I can't count how many clients came to see me wanting a fixed mortgage because they were uncomfortable with the thought of a VRM until they were taught the difference. When it came to renewal and they seen how much they paid down on their mortgage compared to any past mortgage, they were more than happy.

  • LanceH on 2014-10-29 4:23:26 PM

    @Brian. What part of "printing off the Am Schedules and showing them the difference" didn't you get? Or you're just in a mood to argue?

  • Deborah on 2014-10-29 4:32:18 PM

    that AM schedule will get filed in the same place as the mortgage docs they signed at the lawyers office (they get a copy of the AM schedule at the lawyers office too) 5 mins after they have signed, ask them anything about it and they don't remember. Not because they are uneducated or anything like that, just totally overwhelmed. You'll be lucky if they can even remember where they filed the docs, let alone what they contained.

  • LanceH on 2014-10-29 4:55:48 PM

    @Deb. . . . and I see you missed the part " . . . SHOWING THEM THE DIFFERENCE" (they come back to me a day or 2 later with their decision).

    If that's the level of reading comprehension some brokers have, I have my own concerns about how well they can explain anything!!

  • Deborah on 2014-10-29 5:02:31 PM

    careful with the defensive claws Lance. This isn't a discussion about who explains better or who has better reading comprehension skills. In my experience, it doesn't matter how much you explain to them, they are in the moment and won't remember most of it. Not criticizing or pointing fingers at anyone..it's just my observation.

  • LanceH on 2014-10-29 5:09:16 PM

    "defensive claws"? Ah yes, the reverse-offensive. A long time Lefty classic to be sure! That psychology doesn't work on me! Don't tell me you're not criticizing when it's all there for us to read!

  • kevin irvine on 2014-10-29 5:11:24 PM

    wow, lots of great chatter on this one. this should be a key part of any ones sales pitch to their clients on why brokers are far better than the banks. We take the time to educate about it all including differences in rates and penalties and it's the clients choice and you are their personal expert to give some advice and information and it costs them nothing for your expertise....do we think the bank does any of this or the staff understands any of this? This is a great sell and I use it every time and never loose a client to the bank. As far as fixed versus variable I honestly think they both can be the better option depending on the situation at the time of the deal.

  • Ron Butler on 2014-10-29 5:14:20 PM

    Whoa up here, the client's are absolutely entitled to make their own decisions, what's this stuff about "knowing they made the wrong decision" that's just arrogant. I deal with a ton of very smart clients, their opinion counts more than mine because it is THEIR MONEY. I lay out facts but we should not berate and push the clients into Variable. What if Prime rate soars in 2016? what then? Will all the brokers who insisted Variable was the only right option start refunding based on a wrong guess.

  • Arbitrage on 2014-10-29 6:21:12 PM

    @LanceH...I feel your pain. Reading comprehension seems to be a lost art. I use the "if it were me, here's what I would do" tactic as well. My crystal ball is not flawless so I would never sell anything as a sure thing. The client needs to ultimately make their own decision. I think some people exclusively recommend the VRM because it's easier to churn the book down the road...who cares what the client is comfortable with right? (please note the sarcasm)

  • Omer Quenneville on 2014-10-29 9:52:45 PM

    The flexibility of variable always trumps fixed. I always advise clients to consider variable. Statistically for the past 25+ years, it has been a winner. When rates go up, discounts get bigger.

  • walter on 2014-11-02 6:26:32 PM

    Rates will not go up anytime soon. Prime or fixed.
    Debts held are too great. Governments will not raise on their own to increase debt payments. Trend is to zero rates and thats where they will stay. USA increase in economic activity based on Williston basin activity related to oil. Oil is trending down, down will mean shut in oil and shut down drilling. War could mean interest rates up but war will throw people into Bonds thus driving down yields further. Economic storms are still out there brewing and 5 years of printing money and fueling a false economy along with driving stock market, will come home and bite everyone on the ass.
    While its said to be different this time, its never different this time. If fundamentals fail to live up to their constants, then all will collapse. Yes technology is creating new economics but too many regular folks living pay cheque to pay cheque but everyone only hears about the out of town or spots of economic activity that seem to be paying out good wages but when that stops?
    Wild card is weather related, nature impacts on economy. California dust bowl?? Towns and cities and food basket drying up you say?
    I would be more concerned about this than interest rates rising. And how long have we been hearing about rates rising, being imminent? Anyone know the story, "boy who cried wolf??

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