Given all the Bank of Canada increases, eight to be exact, in the last 12 months, it’s no wonder those consumers with mortgages, or even those looking to buy their first home, wonder when we’ll see some decreases. No one can predict where it’s all going.
The thought process of some has been to try and catch the market when rates have come back down. So does a homeowner or buyer choose a shorter term mortgage, say, a three-year, hoping to renew in a shorter time frame, hoping rates go back to 2018 and 2019 levels? Or do you opt for a longer five-year term, locking in a rate and payment, taking advantage of stability and predictability?
Opting for a shorter term often means a higher rate. You are also rolling the dice, hoping to come up on the downslope of rate fluctuations when you renew in 3\three years. The key word is “if” rates come down. If they don’t, you could have wasted years at a higher rate. Also, if rates aren’t lower but higher in the short term, you could be subject to an even higher rate hit at renewal time. But what if they are softer? Ah, there’s the rub! Or you could sign for a longer term on the other side of the page, but if rates drop halfway into your term, you’ll end up paying a higher rate than those lower current ones. Furthermore, you would be subject to high prepayment penalties to try and take advantage of those lower rates.
Each client’s mortgage and financial picture is individual and specific to their needs and risk tolerance. Therefore, getting unbiased advice is critical. Mortgage Brokers represent the client, not the bank, and are neutral in their direction.
This topic of a longer mortgage term versus a shorter one stands the test of time. Whether rates are up or down, it’s a conversation that comes up frequently, and that’s a good thing. Making sound mortgage decisions is vital to your unique situation. Connect with any of our Mortgage Brokers, and let’s discuss your situation and what mortgage solution makes sense.