“The data does make it look favourable for people to lock into fixed rates as opposed to variable, and it does justify the importance of actually talking to various people – mortgage brokers, bankers – to see what is best for the client,” Omer Quenneville of Centum Regal Financial told MortgageBrokerNews.ca.
A new poll, released by CIBC and conducted by Nielsen, found that 47 per cent of Canadians would prefer a medium-term (three-to-five-years) mortgage term, yet the bank speaks to the positives of locking in for longer terms.
"If interest rates rise in the next year or two, homeowners with shorter-term mortgages or variable-rate mortgages could see their payments move higher," Barry Gollom, vice president, mortgages and lending at CIBC. "Having a medium or longer term fixed rate can act as a measure of stability and protection - especially for those who have recently bought their first home."
According to Quenneville, this advice is self-serving.
“CIBC want people to lock in for (at least) five years, they know full-well, statistically that the average person will have to do something to the mortgage in the next three-to-four years and pay a huge discharge penalty to be able to accomplish their goals,” he said. “It’s becoming standard practice now for people to just pay that discharge fee. There’s no way out of it for them.”
The study also found that 27 per cent would choose a longer (seven-10 year) term and 19 per cent would prefer a shorter (one-to-two year) term.
Data that points to a requirement for more education among Canadians, according to Quenneville.
“Definitely go into a variable rate – five year variable; if rates start to climb, the discounts increase on a variable,” he said. “It’s unlikely they will climb over a quarter to a half point in the next few years, but if it should happen to climb a whole point the discount will increase as well and at that point you just break the mortgage, pay the three month penalty, refinance with the bigger discount and get the mortgage back down again. Long-term variable always wins.”
One big bank uses recently released data to encourage homebuyers to lock into longer mortgage terms, but is that the best choice in the current environment?