To better assist the consumer base, brokers should educate their clients on the primacy of term durations, and not just the importance of mortgage rates.
Most people tend to feel that things will change only by the tiniest degrees in the next decade or two, which is why making them aware of the impact of their terms should take top priority, according to RateHub co-founder James Laird.
“Sometimes it is new relationships forming where someone buys a condo, gets a five-year fixed-rate, but then they meet someone and get married... That usually dictates a change in the residency that they have and the mortgage is broken,” Laird said, as quoted by The Canadian Press.
Laird added that the penalties involved in terminating fixed-rate loans are harsher than those for variable-rate violations. Going for a longer term can protect borrowers in case of interest rate hikes, but conversely, a prevailing environment of low interest rates—such as the present—make variable-rate options more appealing (despite these being more expensive at the onset).
In addition, bond yields (which influence fixed-rate products) have seen steady growth since the 2016 U.S. elections.
Mortgage Brokers Ottawa managing partner Frank Napolitano noted that the rate difference between a 5-year and a 10-year mortgage has been hovering between 1.5 to 2 per cent.
“That's a big jump in rate, especially in that initial five-year period, to have to pay just to get that rate for the following five years,” Napolitano said.
5 highlights from CREA’s first release
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