Picking a mortgage is like buying a diamond. It’s an expensive purchase; you don’t want to screw it up; and getting started can be confusing. The first thing most people choose is their term. Here’s a Twitter-length review of several terms to get you thinking in the right direction.
Popular Fixed Terms…
1-year fixed: With rates under 3%, they’re a good alternative to 5-year variables—which should hopefully be at prime by the time these puppies mature next May.
2-year fixed: If convertible, then they’re another decent alternative to 5-year variables. You get an extra year of rate security for ~0.20% more than the best one years.
3-year fixed: A nice combination of risk and reward. Versus a 5-year, you’ll save significant interest the first three years. The tradeoff is more risk in years 4 and 5.
4-year fixed: The ugly baby that no one wants. There’s no value here. Go 3 or 5 instead, unless you plan to break in four years and want to avoid a penalty.
5-year fixed: Canadians love their 5-year terms. Now may be the time for the risk averse to grab one, with rates expected to jump later this year or next.
Longer Fixed Terms…
7-year fixed: A rate near 5% isn’t as exciting as 3.79% for a 5-year, so 7-years don’t sell very well. If you’re that concerned about risk, take a 10-year for the same price.
10-year fixed: The decade mortgage is available under 5% for the first time in modern history. Nonetheless, you may pay thousands more in interest versus a 5-year.
5-year closed variable: They say prime isn’t going any lower. So why gamble with prime+ variables? Get a convertible 1- or 2-year and wait for prime- to return.
5-year capped variable: You’ll get 3.25% today and never pay over 5.25%. Sounds good, but if you’re that worried, why not pay a little more for a fixed now?
5-year open variable: Closed variables are portable and have just 3-month interest penalties. So, unless you’re going to terminate early, save 0.30% and go closed.
Other Terms and Features…
5-year $0 Down: Despite posted rates falling to 5.25%, the cost of cash-backs is still atrocious. If you can’t put down 5% then renting sounds good in comparison.
5-year no-frills: If there’s any chance you’ll need over 5% pre-payment privileges you’ll be sorry for choosing one. If not, you’ll save some money (0.30% or more).
Open HELOC: : The All-in-One is our favourite. It has interest offsetting and automatic everything. We just wish the LOC was at prime again like in December.
Readvanceables: Love’em. Gotta have’em. Everyone with 20% equity should own one. They make you liquid, and you can’t put a price on liquidity. More…
Sidebar: There are a million and one exceptions to everything above, so call a mortgage planner for a detailed comparison of your options. Qualifying is contingent upon approved credit. These opinions are based on the market and terms available as of today. They will differ over time. This information is not advice and may change without notice!