Warning: “Variable” Can Result In “Variability”

Mortgage | August 14, 2023

Earlier this year, there was a football game between the Kansas City Chiefs and the Philadelphia Eagles.

I think you might heard of it?

It was called the “SuperBowl” or something like that.

Apparently, and I just learned this, there are people who will wager or “bet” money on the outcome of the game, or on a multitude of possible outcomes during the game.

I decided to become one of these individuals, so I bet $1,000 on the Philadelphia Eagles to win with a nice gentleman who runs a company called “Bet 365.”

The Philadelphia Eagles did not win, however, and that made me upset.

You see, I had merely assumed that I would win, and once I had lost, I regretted making the bet.

You see, after the game was played, I realized that I should have bet on the Kansas City Chiefs instead.

But the craziest thing happened: Bet365 didn’t want to give me my money back!  Imagine that?

So I decided to take this to the media and I went to the Toronto Star to complain.

(womp womp)

Alright, this didn’t happen.

Not only because I am vehemently against gambling, and I blame our federal government for ruining televised sports and making me not want to allow my children to watch with me for fear of being inundated with celebrities glorifying throwing their money away (except for all you ‘sharps’ who are always winning, right?), but also because this story is for illustrative purposes.

I know what gambling is, in all its forms.

Some people, it seems, do not.

When we hear “gambling,” we usually picture people standing at a roulette wheel in a casino, putting quarters into a slot machine, or filling out a betting slip at the horse track.

But what is gambling?

Here are a few definitions:

“Play games of chance for money”

“Take risky action in the hopes of a desired result”

“The practice or activity of betting”

“The practice of risking money or other stakes in a game of chance”

I think you get the picture.

Is investing in the stock market considered “gambling?”

There are a lot of financial advisors about to hate on me right now, but could we apply the definition of “gambling” to buying stock?

I suppose it depends on who you’re asking.

What would Mark Hanna say?

“Number one rule of Wall Street. Nobody – and I don’t care if you’re Warren Buffet or if you’re Jimmy Buffet – nobody knows if a stock is going to go up, down, sideways or in fucking circles.  Least of all, stock brokers.”

Okay, okay.

Mark Hanna is a fictional character from “Wolf Of Wall Street,” played by Matthew McConaughey in what is one of my favourite movie characters of all time.

But to some, investing in the stock market is gambling.

To others, it’s a well-thought-out, researched, directed, strategic deployment of capital.

Either way, if you win, you get to keep your money.  If you lose, you can’t get it back.

So let’s agree that there’s a gambling element to investing.  And I mean investing in anything, whether it’s the stock market, real estate, gold coins, or a Banksy drawing.

Does anybody recognize this man?

That’s Cory Youmans from Dallas, Texas.

Last year, he was in the right place at the right time and caught “lightning in a bottle.”

Actually, he caught New York Yankees’ star, Aaron Judge’s 62nd homerun in the bleachers at the Texas Rangers’ stadium.

Even before the homerun was hit, the media, fans, and onlookers alike were discussing how much the ball would be worth once it was hit.  Seats for the left-field bleachers were trading at astronomical prices as it was more than likely that the right-handed hitting Judge would hit his 62nd homerun to left field.

I mean, that’s gambling, right?

Paying more money for left-field seats than you would for infield seats because you have a higher percentage chance of catching a baseball that could be worth millions of dollars.  Right?

Everybody knew that the ball would be worth a fortune, and as a result, the stadium security anticipated a potential mob of whoever caught it.

Here’s Mr. Youmans with a police officer who helped him “escape” with the ball:

Mr. Youmans became an overnight celebrity.

There were videos on social media of him walking with security and people asking him how much he wanted for the baseball.

In 1998, Mark McGwire broke Roger Maris’ homerun record, and at an auction in January of 1999, his 70th homerun ball sold for $3,005,000.

But Mark McGwire took steroids and many people think that his homerun record is tainted.

On the other hand, Aaron Judge is “clean.”  He’s also a Yankee.  He’s also a Yankee breaking the “legitimate” record of 61 homeruns set by Roger Maris, also a Yankee.

Early estimates had a “guarantee” of $2,000,000 for the baseball.

Here’s a Tweet from noted sports journalist, Darren Rovell:

But others began to suggest that Mr. Youmans could sell the ball for more than the Mark McGwire ball sold for.

In fact, this was confirmed in multiple articles:

Youmans confirmed he declined a $3 million offer and chose to auction the ball “after weeks of a lot of deep conversations” with his wife, sports reporter Bri Amaranthus, and his attorney.

The reasoning, of course wasn’t money in the end.

It was, apparently, fairness.

“It seems fair in the sense it gives anyone that is interested and has the means the opportunity to own it,” Youmans explained about the life-altering decision.  Dave Baron, Youmans’ lawyer, said the auction house thinks the baseball could sell for “significantly higher” than $3 million “based on New York, the New York fan base and how crazy it could get at an auction.”

If you know anything about the sports memorabilia business, or if you’ve watched “King Of Collectibles: The Goldin Touch” on Netflix, you know that auction houses will often give guarantees or advances on memorabilia that is special.

Despite being guaranteed $2,000,000 by Memory Lane, Mr. Youmans ended up going the straight auction route with Goldin Auctions.

Leading up to the auction, Mr. Youmans’ lawyer suggested on multiple occasions that the ball could sell for more than $3,000,000.  That quote above shows that he even said “significantly higher.”

What’s significant?  $3,500,000?

Could we be talking about $4,000,000?


Does anybody know what this ball sold for in the end?

Have a look.

Here’s the link to the auction page at Goldin Auctions.

A paltry $1,250,000.

That cost the buyer $1,500,000 with the 20% buyer’s premium.

So let me ask you again: please define “gambling.”

Did Mr. Youmans gamble?

Damn right, he did!

He turned down $3,000,000, allegedly, and ended up with less than half of that.

Sidenote: it’s worth reading about Mr. Youmans who is a cancer survivor and has absolutely no regrets about his actions in selling the baseball, and who is very open about the entire experience.

So now we’re at the point where many of you are thinking, “Okay, David, where is all this going?”


It’s time, I agree.

As much as I want to talk about sports memorabilia, this is a real estate blog, after all.

If you had to define the word “variable,” what would you say?

As an adjective: “able to be changed or adapted.”

As a noun: “an element, feature, or factor that is liable to vary or change.”

Okay, so let’s agree that when just as when it comes to defining “gambling,” we use the word “chance” or “risk,” we can also assume any definition of “variable” will use the word “change.”

Now, let me ask a question that I’ve been holding back for quite a while, but one that I simply can’t avoid asking any longer?

How come so many people are caught off guard by variable-rate mortgages?

It’s a serious question.

Even though, in theory, nobody is really “caught off guard,” but rather you’d like to think they’re just disappointed, I think that if we’re all being very honest, we know that many people have absolutely no idea what the difference between a variable-rate mortgage and a fixed-rate mortgage is, or at least they know, but they don’t know the consequences.

Is anybody else picturing Homer Simpson?

“That damn record company.  The first nine were only a penny.  Then they jacked up the price!”

Starting last year, we saw a lot of articles in the mainstream media about “what’s going to happen when rates go up.”  We read that a lot of people won’t be able to afford their increased mortgage payments, and we were told that there could be a massive sell-off.

Those of us that knew how variable rate mortgages worked were acutely aware of that, yes, when rates increased, so too would the monthly payments of many Canadians.

It goes without saying that some home-owners would end up with payments they could no longer afford, and it goes without saying that this would be a newsworthy story.

But an individual story?  I mean, one of those “tales from the trenches” stories with woe-is-me home-owner?

I sympathize with anybody experiencing financial stress, let alone financial peril.  But I don’t understand this article that appeared in the Toronto Star a couple of weeks ago:

“Barrie Area Woman Watches Mortgage Payments Go From $2,850 To $6,200, Forced To Sell”
The Toronto Star
August 3rd, 2023

It’s all over the place.

It talks about the woman who is being “forced” to sell her home, but it also talks about the COVID-19 pandemic (even though she bought after the pandemic), then delves off into food banks, and ends with talk about shoplifting.

There’s a lot happening here, and although I would be called an asshole by much of society for doing anything but siding with and defending the home-owner here, I think that much of the story is missing.

The headline tells the story, right?

A home-owner took a variable rate mortgage less than two years ago and started out paying $2,850 per month and is now paying $6,200.

Pretty self-explanatory.

But the theme of the story doesn’t make any sense.

The very first words of the article are: “The Bank of Canada recently hiked its overnight lending rate to five percent.”

That’s very, very indicative of where this article is going.

While the article isn’t blaming the Bank of Canada for this poor woman’s plight, the article sure doesn’t blame her for the variable-rate gamble either.

She says:

“To have to leave the home that we spent so much blood, sweat, and tears into building — everything was custom-built for our family here — and to now give that up, it definitely feels hard. But now, looking at rentals, we’re looking at rentals for $4,000 a month.”

It’s sad, no doubt.

But what’s this about “custom-built?”

They spent money on “custom-built” features, finishes, and furnishings?

Hmmm.  Maybe the money spent on those items could have represented a “rainy day fund” for if and when interest rates increased and mortgage payments increased along with them?

She says:

“It’s not like we’re struggling for work or anything.  We make good money.  We have good jobs, but it’s just, we want to be able to live our lives and not be putting every dollar toward a mortgage.”

Nobody does.

But what does “live your lives” mean?

Nice trips?  Consumer goods?  Custom-built features, finishes, and furnishings throughout the house?

And here’s the rub: when this woman accepted a variable-rate mortgage that resulted in payments of $2,850 per month, she could have likely accepted a fixed-rate mortgage that might have resulted in payments of $3,100, or something similar.

I would also add that the math doesn’t add up here.

I ran multiple scenarios and nothing about this added up.

Using a very basic example, we can see why.

Let’s say that a person paid $929,000 for a house with 20% down, and took a 2.29% rate with 30-year amortization.

That would result in a monthly payment of $2,851.92, or essentially the $2,850/month from the article, which is certainly rounded.

To get from $2,850/month to $6,200 per month would mean that a corresponding rate would have to reach approximately 9.6%, which rates have not.  Not even close.

Something in this story doesn’t add up.

Trust me.  I ran the numbers multiple times and with multiple scenarios.

There’s absolutely, positively, no way this story is accurate if we are to assume that it’s simply a case of a variable rate increasing.

It’s almost certain that there’s a home equity line of credit, second mortgage, or private loan in play here.

This article stinks.

The author goes from reporting on the increased monthly payments of variable rate mortgages to interviewing the executive director of the Barrie Food Bank!

From the article:

“A hike in interest rates for those with variable mortgages or loans will push more people to use our services.”


Now we’re linking variable rate mortgages to food bank usage?  What’s next: increasing variable rate mortgages to an increase in shoplifting?

Oh, wait.  We can read more about that if we simply get to the end of the article where things really go off the rails…

Do you know what I would love to see?

More articles about what mortgages are.  More articles about the features of mortgages, types, styles, risks, and rewards.

I would love to see more of a focus on the variable element of the variable rate mortgage and an explanation of the pros and cons therein.

For example, perhaps an explanation of how a borrower could “take a gamble” on a variable-rate mortgage and “win” in the long run if rates stay low, but also how a borrower could “lose” if his or her “risk” didn’t pay off.

Because that’s what this is, right?

That’s what the decision to take a variable-rate or fixed-rate is?

A gamble.

An educated guess.  A projection.  A well-thought-out investment.

But there’s risk involved, just as there is for anybody who places a bet, whether that bet is on “Kansas City versus Philadelphia,” or whether that bet is on “put options on Tesla versus call options on Tesla,” or whether that bet is on “variable-rates versus fixed-rates.”

It’s a risk.

It’s a bet.

It’s a gamble.

It’s a damn variable.

That article by the Toronto Star is a puff-piece.  It’s got a name, a face, and the “art” to go with it, notably, the home-owner standing out front of her dream home that she’s being “forced” to sell.

But it doesn’t help do anything except sell papers, get clicks, and rile people up.

It’s not the Bank of Canada’s fault.

It’s society’s fault for not making financial literacy a cornerstone of education.

And if we’re going to be fair, it’s the “fault” of those who made the decision, or bet, on the mortgage market.  Whether that’s the home-owners, the mortgage broker, their financial advisor, or the fortune-teller at the mall down the street…

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  1. Different David

    at 6:47 am

    Any chance that she got suckered into an adjustable rate mortgage? In order to sign her up, they offered her a teaser rate (i.e. their prime minus 1.50%) that bumped up to prime plus 1.50%?

    So that she got hammered by a double-whammy of increasing interest rates plus the elimination of her promo rate?

  2. Derek

    at 7:38 am

    Imagine simply buying any real estate any time soon. The ultimate gamble.

    1. John

      at 12:38 pm

      Imagine simply not buying any real estate any time soon. The ultimate gamble.

  3. Sirgruper

    at 9:17 am

    All life is a gamble. Hold cash and go into GIC’s and you are gambling that the rate after tax is going to beat inflation. In life you make decisions and hope. And if you do it enough you will see all the times you screwed up by going left vs right. That’s it with all investment and variable vs fixed mortgages. So you diversify so the screwups don’t kill you. Likewise your wins could have been better.
    But if you are betting on quality journalism, Globe might be a better bet.

  4. Nick

    at 9:18 am

    I saw this article and got really confused and yes it was because I could not understand how they got to that increased monthly payment based on interest rate hikes.

    Either way, its a huge trend in that paper lately to have these stories and they are done so poorly no one is siding with the people in the story…

    I still subscribe though so still poo on me…

  5. m m

    at 9:32 am

    The next big worry is HELOCs being throttled back. Would love to hear David comment on that.

  6. Derek

    at 9:42 am

    Maybe everyone who took a variable is deserving of scorn and derision and dismissal. King Ron Butler recently commented that an incidental consequence of the stress test was more people taking out variable mortgages… I mean gambling like moronic drunken sailors on variable mortgages.

    1. Nick

      at 9:53 am

      The act of taking the variable is not scornful(to me).

      Letting it increase without investigating your options which caused you to have to sell and uproot your family, that to me is scornful.

      For most people yes there may have been a penalty but you could have converted to a locked rate.

      1. Derek

        at 10:18 am

        In hindsight. There was a lot of ink written over the last few years about “should I lock in” and it always read to me as a multi-factored analysis with no clear right decision, absent a crystal ball and “wait it out” was sometimes the seemingly correct path. Of course, with the unprecedent pace and magnitude of the change in rates, everyone seems crazy to have not locked in at the first sign of raising rates (or at least some time thereafter).
        Incidentally, all of the non-gambling fixed rates are going to renew much higher too. At that point, for the ones that then struggle and get featured in The Star, we will have to talk about how they gambled on too much house thinking their fixed rates would stay that low forever. Idiots.
        A genius friend’s mortgage was renewing a couple years ago with about 10 years remaining in amortization. Took a 10 year fixed at a “low” but not the lowest rate. Gangster!

  7. Bryan

    at 9:58 am

    I am no fan of articles that don’t even pretend to pay lip service to personal responsibility (and this article goes much too far that way), but let’s not take the complete opposite point of view and call it balance. Can we not sympathize with the plight of people who are struggling with the repercussions of what seemed like good decisions at the time while also believing that those repercussions are their responsibility (and thus, importantly, not blaming others for it)?

    Yes, every investment/purchase is a gamble. Yes, a variable rate mortgage is a gamble compared to a fixed rate. Let’s not forget though, that Tiff Macklem came out in July 2020 and told the public that “If you’ve got a mortgage or if you’re considering making a major purchase, or you’re a business and you’re considering making an investment, you can be confident rates will be low for a long time”. You also had all of the news outlets and blogs (this one included) touting real estate as a fantastic investment (which I still think it is fwiw), and banks pushing clients to variable mortgages to get more people to sign on the dotted line with the promise of lower payments. This bet wasn’t taking the Eagles vs the Chiefs in the superbowl… it was taking the Chiefs over the Rams on November 27th as 15.5 point favorites. You pays your money and you takes your chances…. but we can and should still sympathize with the many people who are losing big on what seemed a very good bet at the time.

    1. Marina

      at 10:29 am

      I will grant you that it may have seemed like a good bet. But the rates did not rise overnight. There were many off ramps to this particular highway off a cliff.

      1. Bryan

        at 11:05 am

        100% agree. We can’t be sure exactly what this person’s mortgage penalty looked like, but facing 10% inflation, choosing to stay variable after that first or second rate hike was likely not nearly as good a bet. Maybe personal circumstances dictated they couldn’t lock in for some reason but I don’t know. I guess all that I am really saying is that when people took out these mortgages it would have been very reasonable to not think them risky…. so when they suddenly (faster than ever before in Canadian history) became risky a lot of people got caught flat footed. We as the general public should be capable of having sympathy for their circumstances without blaming others for their decisions.

  8. Marina

    at 10:28 am

    This is why we have never had a variable rate mortgage. To me, a mortgage on my home, where I live, where my kids are growing up, should be as low risk as possible. Don’t borrow to the max. Pay down faster. And always, always fixed rate. But that’s just me.

    And sorry but I have little sympathy for someone who goes variable, but then just watches it climb and does not lock in. This lady had options, outside the fact that there is something missing from the story. I do wish there was a mandatory finance class in high school. Not the stupid one where you just learn formulas and the miracle of compounding, but a practical one that explains debt, and investing and risk, and psychology. Then maybe fewer people would be in a mess right now.

    1. Derek

      at 10:45 am

      Fair enough. This story with a non-sympathetic protagonist is easily dismissed as someone who flew too close to the sun.

      But, what are the broader implications if there is a certain critical mass of people in a similar situation, sympathetic or not. What if there are thousands or tens of thousands of variable holders filled with regret. What if there are a similar number of fixed low raters renewing higher in the foreseeable future. What happens then? Obviously Ace will scoop up what he can haha, but it seems to portend some scary times for our society.

  9. Anwar

    at 10:38 am

    David I guess you and I are a lot alike. I read this article too and my bullshit detector sounded immediately. The numbers made no sense. I went straight to a mortgage calculator and found that the amounts used in the article are impossible. It’s likely that they took out a massive HELOC to finance all their custom renovations and furniture purchases. But the Star ate this up and never checked the facts. Although the writer probably doesn’t know what a HELOC is or how to calculate a monthly mortgage payment so this is what we should expect when you have unsophisticated people writing about personal finance.

    1. Josh Hryniak

      at 11:51 am

      Bridge tournament at the old folks home this mornin. Once he wraps up nap time he’ll be by to rant somemore about the woke media and woke kids and woke this and woke that and woke wokesters.

  10. Vancouver Keith

    at 1:34 pm

    The whole phenomenon of ordinary people taking on what are to me gigantic risks in real estate has puzzled me for much of my adult life. When I bought my first property, I had eighteen percent down and a double digit five year mortgage rate locked in – and serious debtor’s fright. borrowing over $100,000. When I was growing up, HELOC’s weren’t commonplace – expensive money rewarded paying down debt and saving cash. Going into debt for a vacation was regarded as living beyond your means, a habit sure to end in disaster.

    We saved our wages and paid it off in a decade, never going variable. Years later the madness seemed to peak at zero down and forty year amortization. Who buys with that much leverage, and has that much confidence in the future of the liquidity driving the real estate market when wages are falling in real terms, but that proves how much I underestimated the government fueled tidal wave of money into one asset class. You can make a fortune off of bad policy decisions – until you can’t.

    As for the stock market being a gamble, a few elementary precautions will prevent ruin. You are participating in leverage to the overall growth in the economy, and if you read Peter Lynch’s One Up on Wall Street, you can even learn to pick individual stocks profitably.

    As for going variable, when interest rates rise you can read the financial press and the level and duration of current interest rates was a consensus a year ago. Globe and Mail, Financial Post, BNN all said how high it was going. Look at the lock in rate and your income and make a move. It’s been ten hikes in a little over a year. That’s a trend in motion that anyone can spot.

    No “gamble” is worth losing your principal residence -where you live and for most of your life your biggest financial asset to boot. The extra cost of locking in to build equity to 50 percent of value, which covers a century’s history of correction and crashes is a small insurance premium against financial ruin. Warren Buffett has some excellent You Tube videos on the nature of risk management and debt.

  11. brodg

    at 3:50 pm

    I’m not a real estate or mortgage expert by any stretch of the imagination but I really enjoy this blog – in particular the comments section!

    I had a variable mortgage before I sold in 2020 so I didn’t feel the effects of a drastic increase in rates. But my understanding (from a mortgage broker) before I decided on a variable was that, historically speaking, a variable would cost you less. I also understood that this was not a guarantee but a “finger in the wind” projection based on some historical data I was not privy to, but believed because I trusted my broker (and still do). I also had the option to “lock in” at some point if I became uncomfortable with the rates – I never did because it never became painful.

    I never really considered it gambling, I mean, based on David’s description, I suppose it was, but in the end I felt like I was making a somewhat education decision that I had control over that would be based on my pain threshold.

    Again, not an expert, but it’s astounding to me that your average buyer would not understand this going in to the purchase. You shouldn’t be shocked at your mortgage payments increasing and why the heck did you not lock in when you saw what the BoC was doing before it became too much. SMH.

  12. Jimbo

    at 6:09 pm

    We should focus on the win here. The penalty for breaking this mortgage should be much better than if they went fixed.

  13. Ace Goodheart

    at 8:22 am

    Trudeau has just said that the Federal government is not going to help out with the situation people face in regard to their mortgages.

    When the fog of socialism lifts and we can look around clearly again, this may come as a shock to a lot of over indebted young people.

    I lived through the 1990s housing crash so I know what happens. Many people I knew went from owning multiple properties to bankruptcy and living in their parents’ basements.

    Right now, people still believe that the housing fairy will show up, take care of their mortgage, and that everything will be fine. Fog of socialism, it is hard to see through it.

    However when renewal time comes around and that infinity mortgage turns back into a 25 year payment plan, well, Cinderella, no more chariot for you. Just a pumpkin.

    I hate socialists because they always do this to people. Lead them down the garden path, promise the world, and then when things get heavy, they drop them and run away.

    Socialism doesn’t work. Everyone ends up with nothing. Hard work gets you stuff, not crying to governments for hand outs.

  14. sunshine

    at 10:24 am

    I am one of the people that ‘got lucky’ with interest rates. But really luck had nothing to do with it. I moved into my first place in 2010, and always went with the variable rate mortgage because I knew that it was not my forever home and the breakage fee would be massive should i decide to sell outside my renewal period. Turns out that the variable rate was the better option during this period, and I had enough of a cushion in my budget to cover any increase in payments should that happen. Fast forward 11 years, with a partner and a kid ready for our forever home, I knew that the historic rates in early 2021 were not going to last, and locked in for 1.65 fixed for 5 years, renewal in June 2026. I did the research, looked my options and educated myself before selecting the fixed rate- and i almost went with a 10 year at ~2.35%. My friends who refinanced around the same time to variable rates to get the lowest possible monthly payment are furious with me for ‘not telling them to get a fixed rate’. Its really an interesting mentality- someone else’s fault for not making good financial decisions… We really do need to get more basic financial education into the high school curriculum- like how interest rates and mortgages work- and how to budget to include a cushion for emergencies etc. just my two cents

  15. QuietBard

    at 8:53 pm

    Society seems to be all over the place. Somedays homeowners are the scum of the earth and should be flogged for their actions since they possess all the wealth. Other days we have articles like this victimizing home owners who through “no fault” of their own are facing hardships and should have our sympathy. Am I supposed to hate them or love them? Cant make sense of it all. Might as well head back to the race track and put my money on daisy. I know everything about this horse, her nutrition plan, exercise regiment, mental state of mind, ancestry. She comes from winners. It all leads to a sure bet

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