October 18, 2012
Choosing the right mortgage term is important. After all, if you chose the correct one, you may have saved enough money to add that addition to your home or to finally take your family on that dream vacation.
If rates evolved as recently predicted, today’s 2.97% five-year fixed would easily outperform a 5-year variable. The 2.97% five-year would be superior to almost every other mortgage term based on the interest cost to maturity. This excludes a 10 year fixed, but its performance would depend heavily on rates in years six through ten.
Research confirms that economists will most often overestimate future rates when current rates are below average. Having said that, if TD and Desjardins current rates were only half right, rates would rise more gradually. A 2.97% 5 year fixed still beats a prime -0.4% variable.
Given that the economist’s predictions can be inaccurate, the 2.97% five year fixed remains to be our best interest rate and the best value. It proves to perform well in most rate increases, and is typically the best for conservative borrowers who do not need to break their mortgage for 5 years. Another factor to take into consideration is relocation. Our mortgages are portable, so relocation is not a problem.
In today’s market a higher probability of rate increases than rate decreases has been the case. This being said the cost of picking a wrong term is lower in a 2.97% 5 year fixed than in a short term or variable rate. This makes the venerable 5 year fixed the best value for the majority of borrowers.
Thanks for reading and if you have any questions about mortgage terms, interest rates or anything else, please don’t hesitate to write a comment below.
As well, if you want to help us spread the word (and look like a mortgage rock star at the same time) you can tweet this:
“According to @MortgageForces the 5 Year Fixed (at 2.97%) is the best value for the majority of borrowers. “(Click to Tweet)