Especially when it comes to Canadian mortgages, we have all been aware of the competitive nature of the banking industry lately. There are so many products and features that can appeal to the consumer. The question always remains, what are the best choices. For years, the debate has always been whether to go with a fixed rate or variable rate. Today, the debate is whether to go with a 5 year fixed term or a 10 year fixed term.
For example, the 5 year fixed rate is currently 3.29% (rates subject to change. O.A.C.) I have a hard time believing that the rate will go much lower than this for a five year product with all of the normal prepayment options and portability features. When I bought my first home in 1990 (I know I am dating myself) I was paying an interest rate of 14.50%. We must remember that we cannot predict the future, even for real estate, but we do have the opportunity to consider a secured payment on our mortgage for the next 5 years.
Now, consider the 10 year fixed rate mortgage. In Ontario, at 3.89% (rates subject to change. O.A.C.), it gives a conservative homeowner a sense of security and the comfort of knowing what their payments will be for the next 10 years.
Here are some things to consider when looking at the 10 year term. First, make sure the mortgage is portable. This means that if you sell your existing home and purchase another home, you can move or "port" your mortgage over to the new property without paying any type of penalties.
Secondly, make sure it is assumable. With rates at historical lows, if you decide to sell your home and have no need for another mortgage, a potential buyer can "assume" your mortgage from you and continue on with the mortgage allowing you out of the mortgage contract without any type of penalties. Your low interest rate can now be used as a selling feature for your home.
Lastly, know what type of penalty would apply if you decided to break your mortgage contract early. All mortgages, unless they are an open product, have a penalty clause attached. It can be either an Interest Rate Differential penalty (IRD) or a 3 month interest penalty. The lender will always charge the higher of the two.
One nice feature of a 10 year fixed term is that after you have passed the 5th anniversary of your mortgage, the maximum penalty that would apply is a 3 month interest penalty. This is stated in the Interest Act that all lenders must follow. This is what makes this product something definitely worth considering.
There is no crystal ball that will predict what mortgage rates will be in the future nor is there one to help determine what is the best option. The most beneficial thing you can do is educate yourself and determine your comfort level and risk tolerance to future interest rate increases.
Call me conservative, but I myself feel the ten year it is one of the best products on the market right now. I am getting to the age where knowing I am securing something for 10 years is calling me in (remember I bought my first home in 1990 at 14.50%). Join our many happy clients, and see what a difference it makes to work with people who care.
Thanks for reading!
Your London, Ontario Mortgage Brokers at Dominion Lending Centres Forest City Funding FSCO# 10671