Best options beyond five-year terms

nolan With interest rates remaining at all-time lows and, for the first time in years, staying that  way this fall, some consumers are starting to wonder whether a five-year fixed mortgage is    the best option – especially given recent news of payout penalty nightmares.

As a result, we have selected our top three non five-year mortgage products for the fall market.

Three-year fixed This is the best variable rate on the market. Why? The three-year fixed is currently priced close to variable rate mortgages, but provides three years of rate protection. That makes it a great alternative to a variable rate, especially for those with low risk tolerance.

One thing to watch out for, however, is it may have a higher penalty than a variable-rate, so make sure it is a mortgage you are willing to keep for the full term.

Variable rate mortgage This is making a comeback. With variable discounts as high as 0.70 per cent, they are once again priced significantly lower than the five-year fixed rate. In historical terms, when the price of a variable rate is this much lower than a five-year fixed, the variable will outperform.

Another major benefit is variable-rate mortgages only have a three-month interest penalty, making them cheaper to get out of than a fixed-rate alternative.

The hybrid This is our favourite for clients who aren’t ready to let it ride on a variable-rate mortgage. Part fixed, part variable, the hybrid is the best of both worlds. It lets borrowers hedge the risk of a variable-rate mortgage with the security of a fixed, and gives them an average rate of around 2.75 per cent.

Furthermore, borrowers can choose to pay down either the fixed- or the variable-rate portion independently, which provides a significant amount of flexibility. Regardless of which mortgage you choose, the decision should be based on risk tolerance and financial personality type. For those who have low-risk tolerance, a fixed-rate mortgage will allow for a good nights sleep. For those who like to live a little, a variable rate will provide a potential payoff with the option to lock in if rates start to rise. And for those who just can’t decide, the hybrid mortgage is the way to go. One last thing to keep in mind is to be aware of your partner’s risk tolerance.

If one is more risk averse than the other, then stick with the more conservative options. Adverse financial emotions can destroy a relationship.

Choosing the right mortgage for a couple is about finding common ground and making sure both people can sleep at night if rates start to rise.

Nolan Matthias holds a bachelor of arts in Economics, is the co-founder of Mortgage360 and the author of The Mortgaged Millionaire. Call Nolan at 403-615-6132 with your questions or to set up an appointment with an Accredited Mortgage Professional (AMP).