Are you buying a home, or is your mortgage up for renewal? Then you’re likely looking at the current state of mortgage rates, wondering which term length and rate to choose — especially with a Bank of Canada ‘rate pause’ finally afoot.
Peter Esper, long-time True North Mortgage broker, is trusted by his clients to steer them the ‘rate’ way.
He’s seen the popularity of the 5-year variable mortgage rate drop like a stone as interest rates have risen. And despite the possibility that rates may decrease in the future, a variable rate is still a riskier choice for tight budgets.
The 5-year fixed rate, usually the most popular choice for his clients sporting a low-risk appetite, now carries the added risk of paying a higher rate for longer.
Plus, if rates do go down, breaking a 5-year term to take advantage of rate drops may incur costly penalties — not a palatable choice when there are potentially better options with a shorter term.
“The 3-year term is the (mortgage) sweet spot.”
Peter explains, "I’ve been getting lots of deals recently – I’d say this week I’ve sent in almost 20 deals and most are going with the 3-year term. The 1 and 2-year terms are much higher on the rate at the moment — plus there’s still some volatility in the market, so the 3-year mortgage is the sweet spot.
“In 3 years, rates are anticipated to be much cheaper, so clients will reach a point sooner to get into a lower rate and payment (to save more) than if they were to go with today's 5-year fixed rate term.”
Peter also advises clients that “if they’re already used to that payment amount and can manage to keep it as-is when they renew, their interest savings will go directly toward their mortgage principal. They’ll pay off their loan years quicker to save even more on interest costs."
With current economic volatility, especially with the recent U.S. bank failures' effect on the Canadian bond market — shorter terms are now in an upfront position to see mortgage holders through to calmer markets and rates.
Today, it may be the 3-year term, but 1, 2 or 4-year rates may also offer better options than a 5-year term for the next while.
That's why Peter says he supports his clients “both with short-term decisions and the long-term picture" for the best mortgage-savings strategies to help them reach their financial goals.
A short-term rate is appealing to more than just Peter's clients.
True North Mortgage brokers, on the whole, have seen a dramatic change in their clients choosing shorter terms during the past 6 months. They’ve seen an over 44% increase for the 1 and 2-year fixed-rate mortgage terms, and an over 140% increase in those going with 3 and 4-year fixed-rate mortgage terms.
That trend reflects True North clients veering away from the standard longer-term choices, with a decrease of 44% for a 5-year fixed-rate and a whopping 84% down for a 5-year variable-rate mortgage.
What are some benefits of a shorter-term fixed mortgage rate?
Right now, shorter terms, such as 2 and 3-year fixed rates, may come with a slightly higher rate but offer the chance to renew earlier and penalty-free into (anticipated) reduced rates later. And even though your best rate on a 5-year term may be lower than a shorter term now, a truncated time frame could help you save cash overall.
If you choose a 5-year variable rate thinking it’ll come down sooner rather than later — it’s still at risk for more budget changes, plus you’ll endure an even higher rate. A more conservative short-term fixed rate can provide payment certainty and more savings while you try to wait out the higher rates.
The downside of a shorter term? If rates keep going up, you’ll pay a higher rate sooner. We’re all crossing our fingers that we’re coming into rate drops, not more hikes, after our central bank’s fastest tightening cycle ever.
Short terms can offer a middle ground for rate-risk.
A shorter-term strategy may offer you a middle ground to average out more savings over the life of your mortgage. It's not as 'high-risk’ as riding out the ups and downs of a variable-rate term and may offer increased savings over the typical 'safer' 5-year fixed-rate choice. In fact, short-term rates are usually lower than 5-year rates in calmer market conditions.
Don’t go it alone — get a lifetime of lower rates with True North.
Should you go short or long? (Term, that is.)
If you talk to a True North Mortgage broker, like Peter (who is very fast to respond, like their other brokers), you’ll quickly discover that they care — they know the rate trends and can get you your best rate, no matter which term you choose.
Plus, they’re salaried and non-commissioned, which means you get unbiased mortgage advice that’s all about you.
Make the easy choice with a True North Mortgage broker. With over 13,000 5-star reviews — the most in the business by far — you’ll get a simple application process and the right mortgage fit to help you save thousands.
Fast, expert mortgage advice can make the difference, saving you money and time. Contact Canada's No. 1 Mortgage Broker today.