Are you researching mortgage options for your dream home? You’ve most likely come across many different choices, including four- or five-year fixed mortgages. Five-year rates are currently more competitive than ever, but shorter-term rates are making a comeback, with some really attractive bargains. To attract attention, some lenders may offer a 3 or 4-year special rate that is lower than the 5-year fixed rate.
The lowest pricing attracts a lot of future homeowners. However, getting the lowest rate for a certain period does not always mean you will be getting the cheapest mortgage. If that were the case, 100 percent of those looking for a mortgage would pick variables over fixed since the rate is cheaper.
If you’re not sure which mortgage is right for you, this article will walk you through the many factors to consider.
Changes in Rates
Rates are presently at record lows because of the COVID-19 pandemic. Today’s 3.34 percent on a 5-year fixed rate was deemed a terrific deal in the summer of 2018. There’s a good chance that rates will rise from where they are now. However, we can’t anticipate pandemic rates to continue indefinitely.
By opting for a shorter term, you are foregoing one to two years of assured low rate protection in exchange for a slightly cheaper short-term rate. The cheaper rate may appear to be a good option right now, but it might wind up being a pricey move depending on where rates are at renewal time.
Your Own Needs
Another question is how long you believe the new mortgage will be enough for your needs. Many people believe they won’t need another mortgage for at least another five years, but things can and do change. If rates were to decrease significantly, consumers could desire to break early. Unfortunately, some people may be forced to refinance or sell ahead of schedule.
Let’s assume you had a choice between a 1.79 percent 5-year fixed rate and a 1.64 percent 4-year fixed rate. In this example, the break-even rate is 2.48 percent, which implies that the 1 year fixed rate upon renewal, to round out the 5 years, would have to be less than 2.48 percent for the shorter term mortgage to be the less expensive choice. If the rates were higher, you would have been better off going with the five-year fixed option.
Your Current Situation
Everyone’s circumstance is different. Many people will tell you to always go variable or always go fixed, but it doesn’t always mean either one is the best option for you. People will give advice depending on their personal circumstances, risk tolerance, and so forth. It’s what they believe is best for them, so they automatically assume it’s best for others.
Because each circumstance is unique, the perfect mortgage may change from one individual to the next. It will always be adapted to their specific requirements and objectives.
There was a period when shorter-term mortgages had cheaper interest rates than longer-term loans. The lowest prices in recent years, however, were nearly invariably for 5-year terms. As a result, demand for shorter-term mortgages has virtually vanished.
When looking at mortgage rates, most individuals choose for 5-year periods because they are the most common. This isn’t to say that a five-year loan is suitable for everyone; in certain situations, a shorter loan makes more sense. It will all be determined by your own requirements, preferences, and financial resources. You may always get advice from a mortgage professional to determine which choice is best for you.
Are you a first-time home buyer in Ottawa? Well, Ottawa Mortgage Services can help you. We provide mortgage agent services for first-time homebuyers, self-employed individuals, and commercial clients. We also help with refinancing, pre-approvals, and debt consolidation. Talk to us now.