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A 5-year fixed mortgage is slowly becoming the most popular mortgage term in Canada for 3 obvious reasons.
5-year mortgage rate represents your mortgage term and it should not be confused with amortization period. Your mortgage term is the time period for which your current mortgage rate will be locked. Amortization period, on the other hand, is the amount of time you can take to repay your mortgage.
Your mortgage term is the point at which you can renew your mortgage rate. Typically mortgages have a 5-year term and a 25 year amortization period.
If you say that the mortgage rate is fixed for a term, it means that a certain rate (%) will be fixed or decided for the entire duration of the term. On the other hand, variable mortgage rate means that your mortgage rate will fluctuate with the changes in the interest rates of the market.
For example, if your 5-year fixed mortgage rate is 2.35%, you are required to pay an interest of 2.35% over the entire term.
Perhaps the biggest advantage of 5 year fixed rate mortgages is that you know how much your mortgage payments will be and you don’t have to worry about changes in interest rates. You can plan your budget, set mortgage payments aside and forget about it. This, however, is not the case with variable rate mortgage.
When interest rates are low, it is recommended to lock in 5-year fixed mortgage rates. The five-year term offers stability as the chances of interest rates decreasing further are fairly low. An important thing to remember is that there is a chance you will pay higher interest rates on fixed mortgages if variable rates are low.
Five-year mortgages do have a downside:
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