It may seem simple just to call or research online for the best rate and mortgage conditions to go along with it, but to borrower’s surprise, they find out that this is not the case at all. Instead, they find the interest rates is a matrix of rates depending on the mortgage type and loan to value. Quite often online and radio ads, lenders like to advertise Insured high ratio mortgage products with loan to values greater than >80% up to 95% which is less than 20% down payment when purchasing a home. Loan to value is the mortgage balance divided by the value of the home to give you the LTV. Insured mortgages are usually lower in rate as they are default insured which protects the lender should the borrower miss their mortgage payments. Then all banks may vary on what they can offer under this category and the qualifications needed to get it.
Another category is Insurable mortgage which the lender can pay for the insurance themselves then pass the cost to the borrower through the higher interest rates. If you’re purchasing a home, it’s greater than 20% down payment. So the interest rates in this category are usually higher than Insured High Ratio mortgages and there are no CMHC premiums. The rates differ in this category as well depending on the loan to value which is the following: Up to 65% or >65.01% to 70% or >70.01 to 75% or >75.01 to 80%. Then each lender will differ in what rates they will offer in this category as well as the qualifications needed to get it.
Uninsured mortgages are mortgages that cannot be insured. They are usually the highest in rates with all banks/lenders in Canada as there is no insurance for the lender should the borrower default on mortgage payments. The LTV is up to 80% and if it falls under any of the following, you need to look at uninsured rates: has a purchase price over $1 million, or an amortization greater than 25 years, or doing mortgage refinance, or is a single unit rental property.
Introduction
5 year fixed mortgages are popular and for good reason. These mortgages offer stability and security, as well as low interest rates that can save you money in the long run.
However, before you decide if a 5-year fixed mortgage is right for you, it’s important to understand the basics of how they work. A 5-year fixed mortgage rate represents the amount of interest you will pay on your mortgage over a 5-year period. This rate is locked in for the entire term of your mortgage, meaning that your payments will stay the same each month, regardless of changes in interest rates.
An amortization period is the amount of time you have to repay your mortgage. Most 5-year fixed mortgages have a 25-year amortization period. This means that you will be making the same monthly payments for 25 years until your mortgage is paid off in full.
Advantages and disadvantages of 5-year fixed mortgages
One of the biggest advantages of 5-year fixed mortgages is that you know exactly how much your monthly payments will be. This can make budgeting and financial planning much easier, as you don’t have to worry about your mortgage payments increasing if interest rates go up.
Another advantage of 5-year fixed mortgages is that some lenders may offer lower interest rates than variable rate mortgages. This of course depends on the current economy and other factors. The mortgage broker will research this all for you.
However, there are some disadvantages to 5-year fixed mortgages as well. One of the biggest drawbacks is that these mortgages typically have much higher penalties for early termination than variable rate mortgages. This means that if you need to sell your home or refinance before your 5-year term is up, you could be facing some hefty fees.
Another downside of 5 year fixed mortgages is that they can cost borrowers more in interest than shorter term or variable rate mortgages. This is because you are locked into a higher interest rate for the entire term of your mortgage. However, this all depends on numerous factors such as the economy, inflation, etc. Ask your mortgage broker about the impact of the current situation on interest rates.
Conclusion
If you’re thinking about getting a 5-year fixed mortgage, there are a few things you should keep in mind. First, almost half of all mortgages in Canada have a 5-year fixed term. This means that you’re not alone in choosing this type of mortgage. Second, almost 3 out of 4 mortgage shoppers choose 5-year fixed mortgage rates if the spread between a variable and fixed rate is less than 0.5%. This shows that 5-year fixed rates are often very competitive.
Finally, when you switch to a 5-year fixed mortgage, most lenders will be willing to pay your appraisal and legal fees. This can save you a significant amount of money when it comes time to get your mortgage.
Overall, 5-year fixed mortgages offer many benefits, including low-interest rates, stability, and peace of mind. However, there are some drawbacks to consider as well, such as high early termination penalties and higher overall interest costs. When you’re making the decision about which type of mortgage is right for you, be sure to weigh all the pros and cons carefully before making your final decision.
