What is a 3-year fixed rate?
The
term “3-year fixed rate” is made up of two parts: the length of time and
the type of mortgage.
The length of term is how long
you agree to a certain set of conditions for your mortgage, and the type of
mortgage dictates the interest rate you’ll pay. A fixed rate mortgage means
that the interest rate won’t change throughout the duration of the term (in
this case, three years).
When the
term ends, your mortgage isn’t paid off. The end of a term means you’ll have to
get a new term, with new conditions and interest rates.
Who is a 3-year
fixed term best for?
There are a couple reasons to go for a 3-year fixed term:
1.
You expect to fully pay off your mortgage within
three years, or move
2.
You want to strike a balance between locking in
savings and the potential to renew at a lower rate
However, there are a few downsides to this as well:
1.
If rates are going up, you will have to renew
into a higher rate years sooner than a longer term
2.
If you want to switch lenders at every renewal,
you’ll have to pay more in switching costs
3.
If rates are going down, you would save more
money with a variable rate
How popular is a 3-year
fixed term?
In Canada, most homebuyers choose
a fixed rate mortgage. Mortgage terms between 2 – 4 years are the second most
popular option but are far behind 5-year
fixed terms. 2 – 4-year terms are the
most popular with homebuyers under the age of 55, at 23%. Those with a mortgage
over the age of 55 overwhelmingly choose a 5-yearmortgage
and are almost evenly split between a 2 – 4-year
term and a 6 – 10-year term.
|
Mortgage
Type
|
Mortgage
Holders Under 55
|
Mortgage
Holders
Over 55
|
|
1 year
|
6%
|
6%
|
|
2 – 4
year
|
23%
|
12%
|
|
5 year
|
65%
|
69%
|
|
6 – 10
year
|
6%
|
10%
|
|
11+
year
|
0%
|
2%
|
With the fear of rising interest rates, many
homebuyers and mortgage holders needing to renew will probably opt for a fixed
mortgage.
