Should you opt for the 3-Year fixed mortgage rate, you enter into a contract with your lender for 3 years. Under this contract, you'll pay a fixed rate of interest for the term of the agreement.
At the end of the 3-year term, you can choose a new contract that meets your financial requirements at the time. The contract term is different from the amortization period which denotes the total duration within which you'll pay back the borrowed amount.
The 3-year fixed mortgage rates vary according to the expected earnings from 3-year government bonds. These profits depend on the general economic conditions in the country. Your lender might set the interest rates according to his lending strategy and prevailing market conditions in the credit sphere. For an estimate on the future interest rates, you can track the expected earnings offered on government bonds.
Compare 3-Year Fixed Mortgage Rate
Although not many people opt for this program, under particular conditions, it can prove to be advantageous to the borrower. That’s because it offers them the positives of both, the 3-year and 5-year variable mortgages.
Pros of a 3-year Fixed Mortgage Rates in Canada:
The typical rates for the 3-year term mortgages are much lower than that of 5-year plans.
In case you estimate that the rates of interest are likely to fall, you can benefit from lower interest rates after the 3-year period is completed when it is time to renew your contract.
On the other hand, if you think that the interest rates are likely to rise, you can continue to pay lower rates of interest for the 3-year period.
You can strike the perfect balance between fixed low-interest rates and a short-term mortgage.
Further, you could plan on buying a bigger and better home in the near future. If you think you might decide to break the mortgage before the amortization period is complete, choosing the 3-year fixed rate might help you avoid some of the penalty charges.
You have the flexibility of choosing more favorable interest rates before the end of the amortization period without incurring any penalty.
Downsides of 3-year fixed mortgage terms:
In case the interest rates rise at the end of the 3-year period, you’ll have to sign up for a new contract at higher rates.
In case you decide to break the mortgage earlier than the due date, you might incur higher penalties in fixed rate contracts as compared to the penalty for a variable rate contract.
Here’s some added information you might find interesting:
According to CAAMP, around 1 borrower for every 13 might choose 3-year mortgages.
When you apply for the 3-year term contract, you’ll have to prove that you can pay the 5-year fixed interest rate which is the qualifying or benchmark rate that the Bank of Canada sets. This factor is especially true if you have less than 20% equity in the property you’re offering.
When you switch to a 3-year mortgage, your lender will likely cover your legal and appraisal costs. However, this facility is not available if you have a mortgage connected to a line of credit or a collateral charge mortgage.