Canada Mortgage and Housing Corporation reports that approximately 70% of all mortgages across Canada are fixed rate. And, by far, the 5-year renewal option is the most popular at 60%. Fixed rates are, however, available in any option ranging from 1 to 10 years. We’re here to compare your choices and advise which term best suits your unique needs.
When selecting a ‘fixed’ rate, there will be zero fluctuation in payments – you’ll have that same rate until your mortgage term expires. The ‘term’ refers to the duration of your current rate, whereas your ‘amortization’ is the length of time it will take to completely pay off your mortgage.
It’s important to understand that all borrowers must meet the standards of approval for the Bank of Canada’s benchmark 5-year fixed qualifying rate even if you choose a mortgage with a lower interest rate and shorter term. This benchmark is in place to both reduce the lender’s risk as well as ensure you can comfortably afford to pay back your mortgage.
Benefits of Fixed-Rate Terms
For many people, the convenience of knowing exactly what you’re going to pay each month towards your mortgage offers added peace of mind. A fixed rate, therefore, makes sense if you fall into this mindset because you have secured a fixed term that guarantees your payments will never change. In fact, you can think of a fixed rate as an insurance policy that dictates your rate will not rise over the term you’ve selected (1-10 years).
Fixed-rate mortgages are the to-go option for homebuyers and homeowners who are looking for a reliable payment schedule, manage a tight monthly budget, or are generally more conservative. For instance, young families with large mortgages relative to their income may be better off opting for the peace of mind that a fixed rate provides.
Popularity of the 2-Year Fixed-Rate Mortgage
While the 5-year fixed-rate option is undeniably the most common selection for Canadians, it’s not always the best for everyone. Your decision should be based on your risk tolerance as well as your ability to withstand increases in mortgage payments. This is where our expert support is even more invaluable.
A popular reason why borrowers select a 2-year term is due to the belief that rates will fall within the next two years, so you’re trying to time the market. Statistics also reveal that those who select a two-year term are most likely to continue with two-year terms throughout their time as mortgage holders.