Mortgage Brief - Go Long? Go Short?

In Canada, interest rates on mortgages have been at very low levels for several years now. This has created a very bull market in the Toronto area. Prices have been steadily climbing for the past 12 years.

And for years, clients always ask me whether they should get long term financing - typically 5 year terms on a mortgage that would be amortized over 25-40 years OR should they investigate short term rates - as in a Variable Rate Open Mortgage. This mortgage would still be amortized over a long period of time but the interest rate would fluctuate as the Prime Lending Rate set by the Bank of Canada changed.

I am going to go out on a limb here: buying real estate in Toronto and especially in areas like Leslieville and Riverdale where I work is a very expensive proposition. I can see why people might choose a fixed rate and know for certain that their mortgage payments will not fluctuate! But here's the rub - did you know that on average - people move every 3 to 4 years? What happens when you move before the end of your five year term - PENALTIES! Your hard earned money - GONE! There is no way the bank will let you get out of this obligation unless you are moving up to another house and a bigger mortgage!

While Open Mortgages with Variable Rates might scare some people, for me personally they are the best option. And in the long run, it has been proven they save you money!

Earlier this year, I had to renegotiate my mortgage. I had previously been locked into a long term commitment but this time, I decided to take out an open variable rate mortgage. Turns out, I am moving in 3 weeks. Wasn't planned - but sure beats having to deal hefty fees payable to the BIG BANK!

For more information contact Sue Pimento - the Mortgage Coach at suepimento@invis.ca