It’s almost become a cliche that interest rates are at “historical lows,” that’s how long they’ve been offered at extreme discounts. But along with those historical lows, banks have also started offering cheap, cheap fixed rate mortgages with 5 and 10 year terms. This has nudged aside the “fixed or variable?” question for now, and has homebuyers and homeowners wondering whether they should take the five-year term or the ten-year term. So when it comes to your fixed-term mortgage deal, should you five-it or dime-it? It’s a tough question, with discounts on one being only slightly more than the discounts on another. And when it comes right down to it, it’s simply a matter of personal preference, and how long you plan to stay in your home.
Those who like the security of knowing that they’ll be making the same monthly payment every month might be more comfortable knowing they can take advantage of that security for the next 10 years rather than the next 5. However, those who feel as though they have a little wiggle room in their mortgage budget may want to take the 5-year fixed term. It will still save you money during the short-term, and you won’t be locked into something if you’re not completely comfortable with it.
But this doesn’t mean that the five-year fixed term is the be-all-end-all of mortgages, either. If you plan to live in your home for 10 years, you may be better off going with the 10 year term. However, the case is still somewhat muddled because even if you lock in for a 10-year rate, you can still break your mortgage. There are some requirements with doing this, but if you have lived in the home for five years and want to break the mortgage, under Canadian law the lender can only require that you pay three months of interest – the penalty for breaking the mortgage.
It’s not an easy issue, and even one that has many experts stumped as to which is the better deal at the moment. It’s important to remember that if you want to get the best deal, now is the time as BMO’s offer is set to expire on Wednesday, and the other major lenders who are trying to keep up with it will most likely pull theirs too.
CAAMP, the association of mortgage brokers in Canada, says that fixed rate mortgages currently make up 1% of the mortgage market share, but they do expect to see this change as the 10-year starts to look more attractive to more buyers. If you’re unsure as to whether or not the 5-year or 10-year is right for you, speak to an Ottawa mortgage broker who will be able to go over your own situation with you and advise you on what’s right for you.
