Is a Five-Year Fixed Mortgage Right for You?
If you’ve been looking at the offerings of various lenders for mortgage rates, one thing that you might notice right away is how many of them primarily advertise their rates on their five-year fixed mortgages. And there are a couple of reasons they do this. The first is that five-year fixed mortgages are the most popular – accounting for about 60% of all the mortgages in Canada. The second reason is that regardless of which type of mortgage you choose – if you want to borrow from a federally regulated lender, you must first qualify for a five-year fixed mortgage. This is a rule that was introduced by the Canadian government in 2010.
Of course, like anything else, there are pros and cons to choosing a five-year fixed mortgage.
Pros of a Five-Year Fixed Mortgage
The main advantage of selected a five-year fixed mortgage is that you can be assured of paying the same rate for the next five years – so if interest rates are going up (which they have been recently), you can lock in your rate for the next half decade.
Since the payments are fixed, it may make it easier for you to budget and plan your expenses. Also, in most cases, you will find that the five-year mortgages generally have lower payments than mortgages with longer terms.
Drawbacks of a Five-Year Fixed Mortgage
But with all the advantages of a five-year fixed mortgage however, there are some drawbacks as well. Despite their volatility, in the past variable rate mortgages have proven to be the less expensive option than fixed mortgages in the past. (Of course, what happened in the past, isn’t guaranteed to happen in the future). If you expect interest rates to rise, a five-year fixed mortgage still makes a lot of sense.
Also, five-year fixed mortgages can have heavy financial penalties if you need to break them. So if you do choose a five-year fixed mortgage, you should make sure that you won’t likely need to sell your home within the next five years.
Put simply, five-year fixed mortgages are a good choice for many Canadians, but they are not the right choice for everyone. That’s why it is always a good idea to sit down with your mortgage broker and have an open and honest discussion about your financial situation and goals. That will allow them to help you determine whether a fix-year fixed mortgage is right for you.
If you are wondering which type of mortgage is best for you and your family, contact Matrix Mortgage Global today to arrange to speak with a broker.