As interest rates continue to climb, potential homebuyers or people with existing mortgages are exploring new ways to minimize the cost of their loans.
An option that has recently gained more attention is the short term fixed rate mortgage.
These kinds of loans can save you money in the long term if you use them strategically. The rates do tend to be higher than those of variable rate mortgages, but in today’s unique economic climate they can provide a good “middle ground” option for borrowers who don’t want a variable rate mortgage.
Why is this?
It all comes down to how the term length corresponds to current predictions regarding the direction of the economy and the Bank of Canada’s Prime rate.
Interest rates are currently high because the government is trying to reduce inflation.
However, since high interest rates tend to damage the economy, the government is predicted to lower interest rates again and once inflation is down to the goal of 2%. They expect to meet that goal by 2024 and subsequently announce the rate decrease.
Since the term length for a short term mortgage is typically two years, a short term loan agreement that you enter into now will come up for renewal following the predicted rate cut around 2024. This would put you in a position to renew at a lower rate than you would be if you went with a more common 5 year term.
And the result would be savings on your interest payments.
Ultimately, this approach may or may not work for you. It all depends on your budget, preferences, and goals. This is why it’s always best to consult a professional mortgage broker who can help establish the best possible plan for you. Contact us today to discuss how we can minimize the cost of your mortgage and maximize your enjoyment of your new property.