The two- or three-year mortgage has the option of regular payments and may be renewed at a lower rate (variable or not) at the time of renewal. (Photo: 123RF)
GUEST BLOG. The market is becoming more and more demanding for new buyers when it comes to obtaining a mortgage. That said, interest rates fluctuate and are likely to stabilize again in a few years following this unexpected hike.
How can shoppers remain vigilant? By obtaining a two or three year mortgage. In fact, it is currently becoming the most popular option among buyers. The two- or three-year loan provides for the possibility of regular installments and can be renewed at a lower rate (variable or not) at the time of renewal.
Why a short-term fixed rate?
In Canada, the most common mortgage term is five years. However, in recent months there has been a shift to two- and three-year fixed loans.
This trend is due to several reasons. First, mortgage rates have peaked since January 2009. This means that buyers are deciding to bear a load of high rates now to get a better rate in a renewal period that will come sooner (three years over one year). ).
Many homeowners are also more comfortable with regular monthly payments with a fixed rate than a variable rate. As a result, we are seeing more and more buyers choosing a three-year fixed rate mortgage.
People are right to prefer a fixed but short-term mortgage rate. How come? Interest rates have risen and this scenario offers them the best of both worlds: the ability to make regular monthly mortgage payments, albeit at a larger amount, with the opportunity to renew at a lower rate two or three years later. .
Advice
In response to this shift in preference, some tips apply to potential homebuyers.
First of all, you need to consider the possibilities of prepayment to pay less interest. It is an important asset to guarantee a lower cost of debt, regardless of the duration or type of loan.
Then you must know that even if we hope that rates will fall after two or three years, it is difficult to predict exactly the state of the economy over time. It is therefore necessary to consult a professional to implement a strategy at the time of renewal.
It is also important to keep your goals in mind. If lower payments are the buyer’s main goal, a short-term mortgage is a good idea. If the goal is to pay off your mortgage as soon as possible, adding prepayments is a good option. A well-planned strategy is needed to ensure the best results.
Note: the above are my personal views and experiences and not the position of nesto inc. I am not a licensed mortgage appraiser or mortgage broker.
