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A beginner’s guide to Fixed Rate Mortgages

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By Rebecca Hills

Special to the Financial Independence Hub

Fixed rate mortgages are very popular in Canada. In fact, of the 6 million mortgages that have been taken out by Canadians, 60% are fixed rate mortgages. A fixed rate mortgage agreement stipulates that the borrower will be required to pay interest on their mortgage that will not fluctuate for a set period of time. Presently, the most popular mortgage in Canada is a three-year fixed rate mortgage.

In addition, interest rates for fixed mortgages will differ, depending on the province that you are living in, as well as the number of years on the term, and also the financial institution that you borrow from. Different mortgage brokers will also offer different rates, so doing your homework beforehand, while understanding your unique financial goals and situation, will help you avoid any headaches down the line. Here, our goal is to provide you with a beginner’s guide to the fixed rate mortgage scheme.

What is meant by Fixed Rate Mortgage?

As mentioned, roughly two thirds of Canadians opt for a fixed rate mortgage over a variable rate mortgage. A fixed rate mortgage is designed for people who are averse to risk, as having a set interest rate will eliminate the risk of interest rates suddenly skyrocketing in the future. Imagine a situation where interest rates increase exponentially and you are unable to afford the sudden spike in rates. Such a possibility would not be an issue when you lock in an interest rate for the entire term of your loan.

Also, please note that you don’t have to stick with a fixed rate mortgage forever. For instance, if you receive a job promotion or inherit some money then you may be more comfortable taking a risk and switching to a variable rate mortgage. Once your mortgage has reached the end of its term you can consult with your broker in order to determine if switching to a variable rate mortgage may be the better option when it comes time to refinance your home.

Evidently, in some cases a variable rate mortgage may be the better option, if interest rates happen to be low when you sign, and remain relatively low throughout the term of your mortgage. As can be seen, both fixed rate and variable rate mortgages have their pros and cons, so if you are not sure with which to go with speaking to a financial advisor or broker may help with your dilemma.

Should I choose a fixed or variable rate mortgage?

There are many advantages to fixed rate mortgages. For instance, you won’t have to worry about your payments increasing over the duration of the mortgage term. There are also many options to choose from, from 2- or 3-year terms, to 5- or 10-year terms. In some cases you may also have the option to sign a 6-month fixed rate mortgage or one as long as 25 years. There is also the matter of certainty, as you will know exactly what your mortgage will cost at all times. Knowing exactly how much you will be required to pay will also streamline your billing, and also help you create a budget that is safe and secure. Continue Reading…

9 MoneySense ETF All-Star experts unveil their new Desert Island Picks

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A new feature this year is Desert Island picks: the 9 MoneySense panelists each pick the one ETF they’d be happy to buy and hold while stranded on a desert island.

By Dale Roberts, CutTheCrapInvesting

Special to the Financial Independence Hub

I was a panelist for the Best ETFs in Canada. That was an incredible experience and I thank Jonathan Chevreau and MoneySense for the opportunity. When you land on that page you can have a look at the full panelist list, and the bios. It’s an incredible list of ETF experts and of course I am humbled to be included.

From that main landing page simply hit those buttons to have a look at the ‘Best’ Canadian, US, International and Fixed Income offerings. The all-in-one ETFs page includes those popular asset allocation ETFs that deliver ‘complete’ and well diversified and re-balanced portfolios with annual fees in the range of .20%. As Robb Engen of Boomer and Echo offered ‘those ETFs are a game changer’.

Do you really even need to get into the minutia of each individual assets for each region and each fixed income offering? We know that our basic asset allocation; the overall mix of Canadian to US to International stocks plus the ratio of stocks to fixed income will take care of the bulk of our returns and risk characteristics. Many investors are embracing these one ticket solutions, they’ve pulled in considerable assets in quick order. Here’s a little help on how to select the ‘right one’. Please have a read of Which Vanguard All-In-One, One-Ticket Portfolio Should You Invest In?

Vanguard got the nod from the MoneySense panel. That said, the offerings from iShares and BMO are all great. They have some slight differences with respect to asset allocation. Here’s BMO Keeps It Simple With Their One-Ticket Solutions.

But of course the self-directed investor will often want to shape their own portfolio. They may be able to order and arrange assets for greater tax efficiency. We can select ETFs that allow us to avoid US withholding taxes. We can create portfolios with greater growth potential. Many self-directed investors want control.

Not a lot of change, but change is a coming

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As Jonathan Chevreau notes in the overview “Despite some major changes in our panel of experts, this year’s ranking has in the main affirmed most of our “All-star” picks from previous years and in particular 2018.” This is plain vanilla, couch potato investing for the most part. It’s supposed to be boring. The lists include broad-based market indices and many core bond offerings. There is nothing ‘too exotic’ going on here. With fees at a rock bottom level, it’s difficult to replace the core large cap or total market index funds.

But what about that change that might be on its way?

Indexing does not have to be plain vanilla. We might be able to arrange our portfolios to deliver greater returns or better risk adjusted returns. Retirees might be able to create a wonderful mix of income and growth that delivers more generous and more reliable retirement funding. Indexing can deliver on that factor-based investing that can include the size premium (small and mid cap and equal weight), lower volatility, value, quality and more. For now, those types of funds are not on the lists but I would not be surprised to see new categories created to cover the spectrum.

I would also like to see REITs and foreign bonds included in the mix.

Continue Reading…

Don’t doze off on the Euro

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By Jeff Weniger, WisdomTree Investments

Special to the Financial Independence Hub

It seems like things go bump in the night only when you’re deep asleep.

Doze off on the currency markets if you choose, but don’t come crying to us if you fall out of bed because the euro wakes you with a bang.

You can be forgiven for taking your eyes off EUR/CAD lately, with all the urgent drama in Q4. But the euro may jolt you awake—trading ranges are meant to be broken (see figure 1).

Figure 1: EUR vs. CAD

Figure 1_EUR vs. CAD

Street Consensus

Wall Street doesn’t publish many EUR versus CAD forecasts. But there is plenty on both currencies relative to the USD. Fortunately, if you know Street consensus on currency A vs. B and A vs. C, you can back into the strategists’ views of B vs. C.

Let’s do that.

Figure 2 shows the 15 most recently published forecasts for CAD and EUR vs. USD, with the arithmetic for EUR vs. CAD. Sentiment on this pair is mixed, with the median and average forecast coming in 2 cents off of the spot rate. Continue Reading…

Investing in IPO excitement

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“Don’t let your guard down when investing in the excitement of initial public offerings (IPO).” — Adrian Mastracci, discretionary portfolio manager & financial advisor at Lycos Asset Management.

Levi Strauss is the current IPO euphoria darling. Investing in IPOs can be very exciting, often creating plenty of buzz and fascination. They can also be risky propositions.

Many IPOs are overpriced or priced to perfection

Many IPO stock prices turn out overpriced, or priced to perfection. IPOs are the first sale of stock by private companies to investors. Most IPO companies usually hire a securities firm to manage the stock offering and exchange listing.

It is very difficult to predict how the IPO stock price behaves after it becomes listed. Hype and excitement can overcome all signs of rational thinking.

IPOs allow initial private investors to cash out

Typically, there is limited historical data to analyze. Most IPOs are companies going through growth periods. Many IPOs are vehicles for the initial private investors to cash out or reduce the size of the holding.

Shares of IPOs can be hard to get in quantity when investor demand is high. They are better suited for speculators who have time to follow daily price gyrations. Having an iron clad sell strategy is critical.

Investors need to be convinced that an IPO’s upside potential is real. Not all IPOs have fared well after the buzz of initial excitement. Expect large price swings in both directions and often. Continue Reading…

MoneySense ETF All-stars 2019

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The latest MoneySense ETF All-stars has just been published for 2019. click on the highlighted text in the headline to access the full article: Best ETFs in Canada for 2019 (you don’t need to subscribe to access).

I’ve been writing this annual feature every year since 2013, always with the help of several ETF experts. This year, as the article reprises, there were a few changes in the makeup of the panel but we more than replaced the departing analysts, for a total of nine in total, including several returning experts. Among the newcomers are two regular Hub contributors: fee-only planner Robb Engen of Boomer & Echo, and CuttheCrapInvesting blogger Dale Roberts. Bios of the rest are below.

While there are more than 800 ETFs available on Canadian stock exchanges, our “All-Star” list remains an elite one: despite the multitude of new product launches in 2018, we increased the number of All-stars from just 21 to 25, although we also added a new feature we dubbed “Desert Island picks” to give a little more latitude to the individual preferences of each analyst.

Canadian Equity ETFs

All four Canadian equity ETFs are returning under the new revised panel: VCN, XIC, HXT and ZCN. There were also a couple of vigorous debates about Canadian equities, particularly about the fate of Horizons HXT, a swap-based total return product that has long been a pick of the All-Star panelists because of its tax-efficiency in non-registered portfolios. Last week’s federal budget added the possibility of regulatory risk to HXT and more than a dozen other similar products from Horizons. For 2019 at least, the panel opted to retain HXT as an All-Star, and we will monitor developments in the meantime. In the meantime, caveat emptor. (See Dale Roberts’ post on the topic.) Go to this MoneySense link for the chart of the winners and further commentary.

US equities

Here the panel again stood pat, opting to retain all four of our 2018 US equity picks: XUU, VFV,  VSP and ZSP. Go to this MoneySense link for the chart of the US equity winners and further commentary.

International Equities

The panel was in favor of retaining our three international ETF All-stars from previous years but also decided to add two new ones, both from Vanguard. The returning picks include the two from BlackRock: the iShares Core MSCI All Country World ex Canada Index ETF (XAW) and the iShares Core MSCI EAFE IMI Index ETF (XEF.) Also back is Vanguard’s Emerging Markets ETF (VEE). A new addition this year is VXC, the Vanguard FTSE Global All Cap ex Canada ETF. Also new this year is VIU, the Vanguard FTSE Developed All Cap ex North America Index ETF. Go to this MoneySense link for the chart of the International winners and further commentary. Continue Reading…