Battle of the lenders: chapter 1

Five years ago, I thought my financial future was dismal.

I had a good job, equity in my house, and no debt.  Funny how the mind works, huh?  At any rate, after much thought and research, I thought one way to secure my long-term future was to make a real estate investment.  I talked to a few people who owned rental properties, searched for the best advice I could, then I purchased a little townhouse. (Just after that, I spent some time on my knees on the bathroom floor wondering what the heck I had just done!)

The downpayment was leveraged from the equity in my principle residence. I had no other money.

I totally get that not everybody who thinks they’re going to hell in a fiscal hand basket rushes out to buy a house. Truth is, I thought my day-to-day finances would be sufficient, it was down the road that worried me most. I don’t pretend to be a real estate expert, nor a financial expert, but I’ve owned one house or another  since 1987, and I’ve experienced first hand what happens in the market – good and bad.

Since I purchased this little townhouse, it’s been rented out to good tenants. Other than my initial downpayment investment, it hasn’t cost me much, perhaps a few thousand dollars over five years.  Meanwhile, the value of the property has increased about $40,000.  This is what I’m banking on  –  increased property value. When I’m old and retired, that’s when I intend to sell it.  Until then, I’m hopeful that good tenants will continue to reside there, call it home before they move on to their next place.

Almost five years has transpired since I made this gutsy move, and I have no regrets doing it. Now my primary lender is calling me wanting to renew early, to avoid the inevitable rate increase.  A different lender called me four weeks ago and wanted to take over the mortgage, also citing rate increases.  This mortgage has never been fixed, it’s always been variable.  I have totally won that bet over the last five years.  Saved a fortune in interest costs.  Right now my rate on that property is 1.4%.  Yep, that’s right – one point four percent.

I’m not expecting to get that rate, and the lenders are trying to talk me into locking in for a five year fixed rate of 4.39%.  I’m really reluctant to do that.  If I renew early with my current lender, I can still lock in to the way they calculate variable, which is prime minus .4%.

The banks would have to raise prime to 4.8% for this to be a draw, and increase it more for it to become a loss. Right now, at 2.25%, the rates would have to double.  They will likely, but the question is – over what period of time. If I win the bet over two or three years, then call it a draw or a slight loss over the last years, it could still be an overall savings.

Right now, two different bankers are hammering out some numbers for my little townhouse. Should be interesting to see how this shakes down.

What would you do?

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