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Jamie David, Business Director Mortgages
Whether you're looking to take on a new mortgage or renew your current one, it's important to get familiar with all of the products available to you, even the slightly more niche ones.
Four-year mortgages aren't very common in Canada, with most mortgages being 5-year terms. However, 4-year mortgage terms can make sense under certain circumstances. Here's what you need to know in order to decide if they're right for you.
What is a 4-year fixed mortgage?
A 4-year fixed mortgage will have a constant interest rate over a four-year term. The term should not be confused with the amortization period, which is the length of time it takes to pay off your mortgage. The term, rather, is the period you are committed to the contractual provisions and mortgage rate with your lender.
Comparing 4-year fixed mortgage rates
There are a number of factors supporting the choice of a short-term rate like the 4-year fixed mortgage rate. Generally, if you believe you're in a falling interest rate environment, where rates will stay stagnant or fall, shorter terms are more beneficial. This is because your renewal date will be sooner, letting you take advantage of low rates when your mortgage is up for renewal. Short terms are also sensible if you're likely to break your mortgage within a few years – if you want to upgrade your home, for example.
Of course, with 4-year terms being so close to the typical 5-year term, the benefits of a shorter-term aren't as pronounced as they are with a 3-year or shorter term. Most people would consider 4-year terms to be a balanced term length, but offering a little more flexibility than a 5-year term.
4-year fixed vs. longer-term mortgage rates
4-year fixed rates are typically a little lower than rates on longer terms (like 5 or 10 years), but higher than short term rates, like 1-year rates. This is because longer fixed-rate terms can lock in a lower rate for a longer period of time. That might be great for you, but it puts the risk of a rate rise onto your lender. The higher rate is, therefore, a premium for locking in a lower rate for longer.
These relationships aren't always constant, however, especially in very low or high rate environments. You should always decide which term is best for you based on the current market and your present circumstances.
4-year rates compared to other term lengths (graph)
From 2006 - 2020
Historical 4-year fixed mortgage rates
Looking at historical mortgage rates is a good way to understand which mortgage terms generally attract the lowest rates. Historical rates also help you understand whether rates are currently higher or lower than they have been in the past.
Here are the lowest 4-year fixed rates in Canada for the last several years, compared to several other mortgage terms.
Jamie David is the Business Director of Mortgages at Ratehub.ca. A graduate of the Systems Design Engineering program at the University of Waterloo, she has over 15 years of business, marketing, and engineering experience in the financial technology, banking, education, energy and retail industries. She has worked in top organizations like TD Bank, Trading Pursuits, Petro-Canada, and the TTC. Her passion for personal finance, investing, education, and business strategy brought her to Ratehub.ca where she heads a very talented, cross-functional team that is dedicated to providing Canadians with the best mortgage experience all the way through from online search to (keys-in-your-hand) funded mortgage.
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Both Ratehub.ca and CanWise Financial are owned and operated by Ratehub Inc. When comparing mortgage rates on Ratehub.ca, you’ll see rates from a number of lenders and mortgage brokers, including CanWise Financial. All products are sorted according to the rates available to you and the selection criteria you’ve shared with us.
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