How This New Mortgage Trend Could Affect You
It’s official! Mortgage rates are on the rise, which can mean only one thing - higher interest costs for consumer mortgages. However, it’s essential to note that with the current rising interest rate and large spread between fixed and variable rates, it’s tough to predict the better choice for a five-year term mortgage. So let’s consider some options.
Fixed or Variable?
Variable rates are still low at approximately 1.5% lower than the current five-year fixed rate.
Prime will rise this year, but by how much and how fast is the big question.
If it takes more than two years before the variable rate goes higher than today’s fixed-rate, then you are better with the variable.
Prime is expected to go up between 2% and 2.5% over the next few years. If it’s a slow rise (usually 0.25% at a time), then the variable is best rather than locking in at today’s fixed rate.
However, if you don’t lock in and Prime rises a lot quicker, it could cost you more than if you had locked in at the current fixed rate.
Which one to choose?
For most first-time buyers, it’s usually better to have a fixed rate and know your payments over the next five years. Also, for homeowners that are nervous and can’t sleep at night worrying about the rate rising, they are better to lock in and have certainty.
The best way to take advantage of a variable rate is to fix your mortgage payment as if you were on the five-year fixed rate but go with the variable product. All the extra monthly payment amounts will go straight onto the principal and pay your mortgage down much faster. Also, since you have set the payment higher than the required amount, your payments don’t have to change when Prime rises until it exceeds the minimum. It may not occur until the end of the five-year term.
If you don’t know what option to choose, get in touch with Jeff Cody today. With over thirty years of experience as a mortgage broker in Ottawa, I will help you secure an appropriate mortgage for your needs.
My services include first-time homebuyer mortgages, purchase and refinance mortgages, self-employed mortgages, and mortgage renewals/ transfers.
I serve clients across Stittsville, Kanata, Perth, Cornwall, Kemptville, Smiths Falls, Almonte, Prescott, Munster, Lanark, and Brockville, to name a few places.