There are a lot of considerations that prospective home buyers must factor into their decision to take out a mortgage loan. Two such considerations are:
- “Should I go with a fixed-rate or adjustable-rate mortgage?”
- “Should I take up a 5-year or 10-year mortgage?”
Fixed-rate mortgages are incredibly appealing because, in Canada, they are not subjected to the fluctuating interest rates in the country’s housing market. The interest rate that you agree on with the lender at the beginning of the mortgage term is the interest rate that you pay for the entirety of the term.
Yet, after you’ve decided on a fixed-rate mortgage, there is one more matter to settle:
Will your mortgage endure for five or for ten years?
Five and ten-year mortgage terms are among the most common in Canada. Each come with their own advantages and drawbacks, some of which you may not have thought about. Continue reading to learn the differences between five and ten-year fixed-rate mortgages.
When Interest Rates Go Up
Let’s say that you are able to negotiate a mortgage at 5% interest for five years. This means that, at the end of that five-year term, it’s time to renew for any remaining balance on the property. Renewal often means the renegotiating of terms, including interest rates. If these rates have increased over the past five years, you will be stuck paying more in interest than you did before.
If you’re fortunate enough to lock in a low interest rate for ten years, such as that same 5% mentioned above, you’ve got a lot longer before you have to worry about increasing interest rates. For this reason, many homeowners and real estate brokers sing the praises of 10-year fixed-rate mortgages.
When Interest Rates Go Down
Just as interest rates in the housing market can increase, they can also plummet. With a fixed-rate mortgage, you are locked in to your interest rate no matter what – at least until the end of the mortgage term. If you have a five-year fixed-rate mortgage and interest rates have fallen in that time, renewal could grant you the opportunity to take advantage of these lower rates.
If you’re in a ten-year fixed-rate mortgage, however, this locks you in for much longer. This is good news if the market causes interest rates to increase, but what about when interest rates decrease? There are risks associated with both types of mortgages with fixed rates.
Consult a Real Estate Broker to Discuss Your Options and Risks
The average person doesn’t have an in-depth understanding of the real estate market in Canada. There are a lot of elements that factor into the interest rates determined by the market, much of which is complete gibberish to plenty of people. To obtain some clarity on the subject and for an assessment of your personal risks when choosing five or ten-year fixed-rate mortgages, it’s best to consult with a professional in the industry. A mortgage broker will be able to help you understand the market and make the best choice for your circumstances. For more information please see https://askross.ca/second-mortgages-toronto-and-gta/
