In Canada, there are several options for mortgages, from five and ten-year mortgage rates to a shorter two year fixed rate mortgage. Some homeowners opt for the two year fixed rate mortgage due to low interest. Your interest rate is locked in for two years so you know exactly what your monthly payment will be for a twenty-four month time frame. This is helpful to staying on budget. The two-year option is a great choice when you might need to save money, including during maternity leave or perhaps during time away from work. As the homeowner, you must learn as much as you can about the two year fixed mortgage rate so that you understand more how the housing market works.
When you secure a two year fixed rate mortgage, you will have to switch your mortgage once the two year time frame is up. Be sure to remember that you may have to pay a switching cost more frequently with this option, if you switch lenders. If you aren’t prepared to have the extra money for switching, it can lead to budget issues in the future. Focus on staying with the same lender or finding a lender that will absorb any switching fees to save money.
Know the Rates
It is important to pay attention to interest rates as your renewal time frame approaches. If you forget to check on the current interest rates, you may end up having to pay a higher rate once the renewal process begins. With a shorter fixed rate term, you run the risk of having to switch to a higher rate faster than you would with a longer term loan. As the borrower, you will begin to renegotiate the mortgage towards the end of the two-year term. The 2-year bond yields of the government of Canada will determine the mortgage rate at the time of renewal.
Neglecting Your Credit Score/Rating
Lenders will want to ensure that you can afford a monthly mortgage payment based on a higher posted 5 year fixed rate. This is considered the qualifying rate. If you neglect to check your credit rating and score before applying for a mortgage rate, you may find that you do not qualify. Be sure to keep track of your credit score and check your rating, making any changes needed to increase the numbers so you will qualify for the shorter term loan.
Benefits of a 2 Year Fixed Rate Mortgage
Most home owners will choose a two-year term due to the rate and payment being lower than more other terms. With a lower rate, more money goes towards the principle, allowing you to pay off your home mortgage at a faster rate. Refinancing flexibility is higher when you choose a two-year rate as you have the ability to renegotiate a mortgage sooner without facing a penalty. In the end the mortgage you will choose will come down to personal comfort and preference.
At Mortgage Guys, we can help you find the best-fixed rate mortgage option. Let our lenders find the best rates for your home mortgage needs. We are prepared to find the best deals in the industry so that you can pay less to own your dream home.