Choosing the right mortgage rate is definitely a difficult task. It is difficult to choose between 1 year and 5 years given the fact that it is impossible to predict rate changes in the future. For example, do you think mortgage rates will increase soon? Or do you think they will stay at the same level? The answers to these questions will help you in the decision making, but know that in the end it is as unexpected as a game of poker. So what can you do to get the most out of it?
The incorrect forecast of the mortgage rate is one of the main reasons why some homeowners are caught with large mortgage payments. In fact, most Canadians opt for a fixed rate of 5 years for fear that the annual fixed rate will rise unpredictably. Also, in order to increase their profits, banking institutions are more inclined to “handcuff” you to a fixed rate over five years even if often this rate is not the most advantageous for you.
What do the experts think?
Bank analysts and the main players in the financial industry expect a rate increase for the year 2014. However, we see the same kind of prediction for previous years, predictions that for the most part did not even happen. It should nevertheless be mentioned that no expert predicts the reduction of the rate.
According to a Globe and Mail report , there is an upward trend in speculation surrounding mortgage rate fluctuations. Taking this into consideration, it is now difficult to give credibility to the many forecasts issued by banking institutions.
What to do with the bond market in all this?
Historically, in Canada, mortgage rates are 1.5% higher than bond yields over a 5-year period. Fluctuations in the bond market, one might say, are directly proportional to the mortgage market, ie an increase in the bond market is likely to result in an increase in the mortgage rate.
What should you do?
Do you choose mortgage rates over 5 years only for fear that the annual rate will increase? It’s hard to admit. In fact, the best solution is to get the advice of an expert. However, be aware that no expert can predict 100% market fluctuations so take advice with a grain of salt.
Freeze your mortgage rate in advance when it’s time to renew
If there is one thing you need to remember, this is the next. A little before the one-year or five-year period ends, freeze your mortgage rate. This will protect you from short-term rate increases and allow you to better evaluate the options available on the market. Currently, a large number of banks offer freeze periods ranging from 3.4, or even six months, so feel free to take advantage of this benefit.