What is a 5 year fixed rate?
The term “5 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, five 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 5-year
fixed term best for?
There are a couple reasons to go for a 5-year fixed term:
1.
You want to strike a balance between locking in
a low rate and taking advantage of future rate drops
2.
You want a simple monthly payment for budgeting
purposes
3.
You are worried that rates will rise soon
4.
They are often the cheapest term option, after
1-year terms
However, there are a few downsides to this as well:
1.
If rates go down, you’re stuck paying a higher
rate
2.
They can have high penalties for breaking early
How popular is a 5 year fixed term?
In Canada, most homebuyers choose a fixed rate mortgage.
|
Mortgage
Type
|
Purchase
During 2016
|
Renewal
or Refinance During 2016
|
Did
not purchase, renew or refinance in 2016
|
All
mortgages
|
|
Fixed
rate
|
80%
|
74%
|
66%
|
68%
|
|
Variable
(adjustable) rate
|
17%
|
21%
|
27%
|
25%
|
|
Combination
|
3%
|
6%
|
6%
|
6%
|
During 2016, 80% of those buying a home opted for a fixed
term mortgage, most likely because of the expectation of rising interest rates
in the years to come. The figure of the amount of fixed mortgages in 2016 is
14% higher than the amount of fixed mortgages that were not up for renewal in
2016, having been purchased up to 10 years prior.
