According to Statistics Canada, 74% of Canadians have fixed-rate mortgages. These mortgages offer a home loan containing fixed interest rates for an established term. While the norm trended towards five-year terms, skyrocketing interest rates show an emerging trend to three-year terms.
In this article, we will examine fixed-rate mortgages in Toronto to provide you with the best options possible.
What are the benefits of a fixed rate mortgage?
Fixed-rate mortgages are appealing because they provide stability. The interest rate remains steady throughout the term. This consistent rate becomes financially responsible when interest rates increase due to inflation or other economic causes.
When contrasted against variable mortgages, where payments fluctuate according to the prime rate, sometimes fixed mortgages make more financial sense.
Short-Term Fixed Mortgages vs. 5-Year Fixed Mortgages
Historically, five-year fixed mortgages have been the most common. However, lower interest rates made variable rates more popular, but just for a season. Most homeowners feel that five years provide the perfect balance of security and time.
The Benefits of 5-Year Mortgages
This type of mortgage comes with the predictability of knowing that payments will remain the same over 60 months. Despite paying higher interest, your property is protected against interest rate increases.
Choose a five-year mortgage if you want:
- Need to budget
- Want to save money
The Benefits of 3-Year Mortgages
During fluctuating interest rates, homeowners may find that the three-year mortgages become more lucrative. Interest rates are lower than five-year plans while providing the same stability.
Choose this type of mortgage if:
- You are unsure whether you will remain at this property due to job relocation, starting a family, or potentially taking care of elderly parents.
- Interest rates are currently high with the chance of shortly decreasing.
- You want the stability of fixed-rate mortgages, but don’t want to be locked in at a high-interest rate for a longer duration (and rates are expected to decrease).
- There is a need to reduce financial strain and maintain positive cash flow.
Despite providing financial stability, homeowners need to assess the possibility of experiencing penalties if they need to break the mortgage contract.
How to Determine Which Mortgage is Best
If interest rate spikes look like they are for a shorter duration, then a shorter term is advisable. It will provide financial stability while locking in a lower interest rate. Furthermore, if a move is potentially on the horizon, then three-year terms become sensible.
If you want to make consistent payments and/or need to work within a budget, then select a five-year term. It is advantageous to invest in this mortgage if you have a low-risk level during times of high-interest rates. Furthermore, since homeowners renew their mortgage, you may want the consistency that a five-year term provides.
Before deciding on fixed-rate mortgages in Toronto, however, consult with our financial advisors at Northwood Mortgage. We are knowledgeable regarding interest rates and are familiar with the economic market. We will help you achieve your financial objectives.
To learn which mortgage term will benefit you the most, call Northwood Mortgage at 416-969-8130 to book your appointment or contact us here.