Fixed Rate Mortgages
Fixed Rate Mortgages
Fixed rate mortgages offer a stable payment that does not change throughout the term.
With some lenders you have the ability to port and increase via blended rate or refinance with blended rate
to avoid a penalty
Statistically, most people don’t make it through a 5 year term for a variety of reasons such as:
1.- They move
2.- Need to refinance to access equity for debt consolidation
3.- To buy another property
Bond Yields
Unlike Prime which is dictated by Bank of Canada, fixed rates vary based mainly on bond yields.
Bonds are typically safer investments than stocks. When the economy is less stable and stocks do not look
attractive, the demand for bonds increases and their yields decrease.
When the stock market is booming, investors prefer to make a higher return on investments in equities,
this means there is a lower demand for bonds, so they decline in value and increase their yield.
Shorter Versus Longer Amortization
With some lenders, pricing may be better on 25 years or less. Longer amortization provides some security if income changes unexpectedly.
Payments can be increased to achieve shorter amortization, but if something happens to income, there is the ability to go back to the lower required payment
Initial longer amortization provides more flexibility for future purchases (rentals, cottages, home for kids
going to school) as some lenders will allow you to reduce your payment back to contract.
Situations where you would consider a longer amortization:
- Possible upcoming child care expenses
- Fluctuating income
- Future rental purchases
- Anyone needing a longer amortization to qualify
- Future second home or assisting a child to purchase
- Future rental purchase