If you’re mortgage shopping in Greater Toronto, Ottawa, Kingston, Pembroke or North Bay, and your mortgage is over $200,000, have a look at a 3-year term.

Most brokers now have access to 2.90% on a 3-year fixed, which is near the lowest rate ever for this term.  This promotion includes all the normal bells and whistles:  20% prepayment options, double-up payment privileges, portability, a 120-day rate hold, etc.

Despite the great rate, a lot of people shy away from three-year terms, preferring instead the security of a five-year mortgage.  At 2.90%, however, you have lots of breathing room. 

Amortization analysis suggests that interest rates could rise by 3% and most people may still be better off by choosing a 2.90% three-year term.  This assumes: 

• Successive 3-year terms (i.e., your first mortgage would be at 2.90% and you’d renew at 5.90% in three years)
• A 5-year (60-month) comparison period.
• Comparison against fully-discounted and fully-featured 1, 2, 4- and 5-year fixed terms, as well as 3- and 5-year variables.
• A 3% linear rate increase over five years, beginning in June 2010, and going up every three months thereafter. (This isn’t a prediction, just an assumption for analysis purposes.)

Other things to note:

Pre-approvals are not permitted on this promotion. Clean credit and a 620-650 minimum credit score are required. As always, please consult a licensed mortgage planner for details and to confirm suitability.