We reached out to a number of the mortgage brokers we work with at Ratehub.ca, and asked them which mortgage rates they are recommending to their clients right now. The 5-year variable and 5-year fixed mortgage rates consistently topped brokers` lists. With mortgage rates on the rise, the widely held belief is locking in to a 5-year fixed mortgage rate at 3.59%, which fixes your payment for five years, is much less expensive than the premiums on 7-year or 10-year rates. Brokers are also recommending the 5-year variable mortgage rate, at 2.10%, as an attractive deal for clients who are comfortable with variable mortgages.
Though the 5-year fixed mortgage rate has increased from 3.39%, the lowest in 2010, Drew Donaldson, of Safebridge mortgages, reminds us that, historically speaking, 3.59% is still comparatively low. In January of 2008, for example, discounted 5-year fixed mortgage rates were as high as 5.89%.
With mortgage rates expected to rise, we can understand why Canadian mortgage brokers are suggesting fixed mortgage rates, but why do they recommend the 5-year term? According to James Laird of True North Mortgage, the 5-year term achieves a nice `sweet spot.` It is only .40% higher than the 3-year fixed mortgage rate but a full 1.4% below the 10-year fixed rate. In other words, locking in your mortgage rate for an additional two years justifies a .4% increase, but locking in for an additional 5 years is not worth the 1.4% spread.
Donaldson also emphasizes the importance of the client`s unique situation. Though 5-year mortgage rates at 3.59% may be the best option for the average consumer, for some of his clients, the 3-year fixed mortgage rate is optimal. Drew urges clients to consider their long-term plans and goals when selecting the mortgage term. If clients have purchased a starter home, for example, and hope to move in less than 5 years, or plan to consolidate debt and refinance, then the 3-year rate at 3.19% may be most attractive.
The 5-year variable mortgage rate
All of the brokers we spoke with came back to the 5-year variable mortgage rate. With discounts as high as .90% off the prime rate, rates are as low as 2.10% (the prime rate is 3.0%). Although brokers realize the prime rate will most certainly increase over the next 5 years, there is debate over when it will increase and by how much. In the meantime, clients in variable mortgage rates right now can enjoy low payments. Todd Lovallo, of Vertuity Mortgages in Manitoba, lays out his clients` options very clearly. Still, he will proceed to reveal what he would do if placed in the clients` shoes, what he`s done with his own mortgage in the past, and what`s he`s currently doing: the 5-year variable mortgage. After all, it`s one thing to recommend a product – it`s another to recommend the one you are using.