Vancouver Home Mortgages – Choosing Between 1 Year or 5 Year Fixed Rate – Consult with a Vancouver Mortgage Broker

Vancouver Home Mortgages – Choosing Between 1 Year or 5 Year Fixed Rate

Lenders are motivated to push the 5 year fixed rate, and forecasters are predicting that rates for Vancouver home mortgages will rise in the spring of 2014. But, on the other hand these same forecasters have been doing that for 3 straight years and changed their tune each time.

From various studies, it seems these financial forecasters have a tendency to be predisposed to conservative upwards estimates when making these predictions. They may be even influenced by the predictions of the Bank of Canada which is also predicting rising rates, but they’ve been wrong before as well.

The one key indicator that should be watched closely is how well the bond market performs as its performance directly impacts which way mortgage rates will go. Its performance is affected by the influence of future inflation predictions and how the feds invest.

One guideline when comparing the best 5 year mortgage fixed rates is that they are generally 1.5 percentage points greater than the five-year bond yield which is currently at 1.29 %. This works out to 2.79 % for a supremely excellent five year fixed mortgage rate.

Canada has an AAA financial rating and it is interesting to note that there are quite a few countries with a lesser financial rating which have bond yields which are less than 1% which suggests Canadian bonds may even be undervalued. If this is true than this could increase the demand for Canadian bonds to boost their prices, lower the yield and result in lower mortgage rates.

So, what do you do – go with a five year fixed rate or opt for a shorter term or even a variable rate? If rates rise, than a 5 year rate would be the way to go, but what if they remain the same or even drop? If that’s the case then there are potential savings by opting to go with a 1 year rate, but is the risk worth it – and that’s the question you have to ask yourself.

One way to look at whether it worth the risk is to look at your situation. If money is tight, or you have high debt and or minimal savings, a lower credit score, or you have minimal equity and are looking at a longer amortization then you probably would be ill-advised to take the risk.

For others with more leeway in their overall financial situation they might think it worth the risk and have several options to consider such as:

– Simply going with a 5 year fixed rate

– Choose a 1 year fixed rate and renew to a 4 year fixed rate or go with 4 – 1 year renewable terms

Other options are available as well. The problem is what the rates might do if you pick a 1 year fixed rate. If the rates increased by ½ % during your 1 year fixed rate then you could be looking at a mortgage payment increase of between 10 – 20% when you go to renew.

The other side of the coin is that if rates fell by that same amount your mortgage payments could also be proportionately lower.

There is an upside and a downside to both sides of these scenarios. The truth is that even the experts aren’t always right, but there is a 50% chance that Vancouver home mortgage rates will either stay the same or even drop. If you’re in good financial shape then the gamble might be worth the risk.