5 or 3 years ?
That is the debate I am having with my daughter and her future husband right now as they prepare to buy a house this late spring / early summer in Edmonton (in one of the Top 5 areas recommended by REIN, no less)
I'd say: go variable, not 5 but 3 years. With 5 years you'd pay a far higher mortgage penalty if they decided to move in 3 or so years which is more likely with younger folks. 3 year variable money is also cheaper than 5 year money, and variable is cheaper than fixed, currently around 2%, whereas a fixed rate is 2.39%. Sounds like a small difference. But 0.39% on a $450,000 mortgage is $1755 a year, or almost $150/month. Two meals out, c/o the bank ! I'd take that any day !
A fixed rate is essentially "rate insurance" and some folks prefer that so they can sleep better at night, but at almost $1800/year or $9000 in 5 that is expensive insurance indeed. The link below argue why rates will not go up for many many years, and as such the insurance premium is not justified. It helps mainly the bank !
2.39% is almost 20% more than 2% money. Also, we expect prime rate to be lowered one more time by the Bank of Canada as early as this summer if oil does not go up to $60/barrel. Since that is unlikely this year, due to the oil glut, I expect prime to be lowered to 0.5% from currently 0.75% and thus, banks will offer variable rates sub 2%, say 1.85% as early as this summer.
Now it is time to use a Mortgage Broker, refinance your mortgage to save, purchase revenue property as an investment.
We at MortgagePRO Ltd believe the best way is to go, get educated about mortgages and with the trusted Mortgage Adviser, us, you will be making better decision and will have a solid ground in the financial world.