When people ask, ‘What is the best mortgage rate?’, they are often looking for the answer ‘the lowest mortgage rate’. This may be true for one type of rate, for example, fixed vs. variable (or the length of term for each), but how will you know which type of rate best suits your lifestyle? Like any choice in life, each has its own pros and cons, and the decision made should be based on suitability, possible change of events, or comfort level. The best mortgage rate is dependent not only on the interest rate itself but the terms, conditions, and flexibility as well.
It’s worth noting that the lowest mortgage rates are for high-ratio purchases (meaning purchases less than $1,000,000 with less than 20% down, and a maximum amortization of 25 years). Oftentimes, people and misled by the rate they hear or see advertised, only to realize it does not apply to their purchase or refinance.
So perhaps, people should really be asking, ‘What is the best mortgage for me?’ After all, mortgages have become less of a ‘one fits all’ product.
Let’s take for example the current rates of 5.49% for the 5-year fixed, and 6.09% for the 5-year variable (at the time of writing – September 2023). Sure, right from the start 5.49% is much lower than the variable rate, but is the fixed rate right for you? Are you planning to break this mortgage within the 5-year term – if so, the penalty needs to be accounted for and the variable will yield a much lower payment. If prime rates decrease in 2024, and if you’re risk tolerant, your payment will drop significantly, and you’ll benefit from some savings over the remainder of your term. But maybe the fixed is a safer bet for you. Is your current employment situation strong enough to afford fluctuations in monthly payments? Are you the type of person that needs to have consistency? Are you tight on budget, where a reduction in cash flow can break the bank for you? Or maybe, the 5-year terms aren’t the best terms for you regardless. Perhaps a 2–3-year term would be better suited for your shorter-term plans.
These are all important considerations – not just the rate at face value.
This example was simplified to give you a quicker understanding of what the ‘best mortgage rate’ means. Like buying a house and choosing your preferences for decor, choosing the right mortgage is a personal lifestyle choice. There are many more things to consider when choosing your mortgage such as prepayment privileges, penalties, security, and much more. It is important to go over these factors with your broker to be aware of what you can and can’t take advantage of.
At Canadian Mortgage Services, this is the length we go to provide our clients with a clear and concise understanding of what they are agreeing to. We cater to their needs by matching their lifestyle to a mortgage product that allows them advantages and flexibility. It’s more complicated and stringent than it sounds. Always remember, the lowest mortgage rate isn’t the best mortgage rate unless you can determine that it is the best suited for your lifestyle and any changes that may take place throughout the term. Call us today at (905) 455-5005.