Mortgage Term Review

Best-Mortgage-terms Here’s the latest mortgage term review, updated to reflect market-moving events of the past three months.

When comparing terms, ask yourself one question:  How long will it be before we see fixed rates this low again?

  1. Hey Rob,
    Here is one of the million questions for you.
    I am about 18 months deep into a 5 year Fixed Variable which is prime – 0.85 (no-frills). The fixed portion of the mortgage has me paying at a rate of 5.59%. This mortgage has performed for me very well up to this point, however with the all the indicators pointing towards upcoming rate increases next year the 5 year fixed rate mortgage looks better and better.
    Without trying to solicit too much free information, what are your thoughts on the options I should look at?
    As always, thanks!

  2. Rob,
    Regarding the 3-year fixed rates that are out there, would these rates also apply to rental or income properties? Some lends claim that certain rates are available for only principal residence properties.
    Thanks!

  3. bond yields are through the roof … I’m scared mortgage rates will go up any day … 5yr bond yields are up 50 basis points from their lows from three weeks ago … yikes

  4. Well, it seems the latest market moving event is the bond rally currently unfolding. 5yr GCAN bonds are currently floating around 2.39% today which is significantly higher than the recent Oct 19th low of 1.85%.
    I’m a little verklempt! Talk amongst yourselves. I will give you a topic, “Are cheap, fixed rate mortgages soon gone forever or is this blimp full of hot air”? Discuss!

  5. Hi Paul,
    Thanks for the note. It’s always tough to make recommendations without borrower details, so I won’t. But I can say that based on the Big 5’s rate projections (1.75% prime rate increase by Dec. 2012), the 5-year is compelling–even versus Prime-0.85 and even with your extra payments factored in.
    Based on today’s rates, the 3-year performs better in simulations however (but those rates will change soon).
    My question to you would be, who is your lender? Do they allow you to break early? Many no-frills lenders don’t, or charge big-time penalties/fees.
    Cheers,
    Rob

  6. Hi Dan, In most cases today’s best 3-year rates aren’t available for non-owner occupied properties, or entail a slight surcharge. Therefore (other things equal), a 5-year may be a better choice for a pure rental property. But there are other factors that must be considered. For that reason, it would be worthwhile to chat with a professional specializing in rental financing.
    Cheers,
    Rob

  7. Hey Rob,
    Thanks for the quick reply. I am with RBC. There are fees applied if I break, however I can move from the variable to a fixed rate at no charge anytime provided the term of the fixed product is at least as long as the remainder of the term I am currently in.
    So, to go fixed I would be looking at 4+ year fixed rates, likely selecting the 5 year term in this case.

  8. Roughly 18 months ago, I was reading this very blog and people were saying, “Fixed rates are already at all time record lows, and there is only one way for them to go in the future”. I ended up locking in with my lender at 4.29 percent back then. Guess what. All the nay sayers were wrong. Rates went down further. My lender is currently offering 3.59 percent on a 5 year fixed. So what’s to say that rates won’t fall even further?

  9. Hi Frank,
    Rates can always do the unexpected, which is why we don’t speculate on them beyond the short-term.
    All one can do is run what-if scenarios, consider the borrower’s risk factors, and point out the obvious (i.e. that fixed rates are at record lows, the bond market has had a major reversal, spreads are compressed, the market expects rates to rise, etc. etc.).
    The timing of rate increases is the hardest part. In 2009 many economists believed rates would rise faster than they have. A lot of people took that and the historically low level of rates as a sign to lock in.
    The fact is, it’s easy to second-guess past decisions with the benefit of hindsight. But folks don’t have that benefit at the time decisions are made. In your case, you have an incredible rate from a long-term perspective. I don’t blame you for wanting 3.59%, but there’s no way someone could have confidently foreseen a 3.59% rate back in spring 2009.
    In the spring 2009, fixed rates could be had for 3.69%–just 40 basis points above variable rates at the time (which were prime + 0.60% and above!). It’s hard to fault people for locking-in in that kind of environment.
    Cheers,
    Rob

  10. Rob- you said “it would be worthwhile to chat with a professional specializing in rental financing” Any recommendations in the west GTA or SW Ontario areas??

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