Tuesday, 2 October 2012

Short term vs Long Term

Every few months this debate comes up.  Should our clients take short term at a lower rate
or lock into a 5 or 10 year term.

Today we have a 1 year rate at 2.64% and 2 years as low as 2.69%

Conversely the 5 year is priced between 2.99% and 3.09%. (Forget the 10 year term at 4.49%)

The difference in payments on a  $275,000. mortgage at the 2 year rate of 2.69% and at 5 years 2.99%  is only $42. a month.
Also clients with less than 20% down must qualify at the Canadian qualifying rate of 5.24%. Most of these folks wouldn`t qualify.

You need to ask yourself 2 things. What will rates be in 2 years and can I afford to take a major jump in payments.
I believe that rates will be significantly higher 2-3 years from now. My forecast is in the 4.5% to 5% range. Renewing clients will really be penalized at those rates

My advice is to take the 5 year term at the lowest rate I`ve seen in  over 25 years. 

Thats my 2 cents.
Bob                

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