The short answer is “no”. There was a time last year when 10-year rates where within a ¾ percentage rate of 5-year rates. That made for a good argument, for more conservative mortgage holders, that a longer term made very good sense. Those days have changed, the spread is now over 1% making the interest premium much less attractive.
Historically, 10-year terms have performed less favourable than a 5-year term. When comparing two consecutive 5-year terms, the 10-year would win out only 10% of the time (data going back to 1967). As it stands now, 5-year rates would need to jump 2.50% (before maturity) before the 10-year would cost less.
A 10-year term on a rental property isn’t a bad strategy though. In Barrie, investors are only allowed to increase rent annually by 2.5%. What if 5-year rates have dramatically increased by the time your 5-year Barrie mortgage has matured? Your monthly cash-flow could be severally impacted. A 10-year term would allow you to increase your rental income enough to help cover any potential increases down the road.
On the other hand, the variable rate is getting more attention these days. The rate discounts have slowly been reinstated after being slashed in 2012. You can now find discount of up to .50% below the Prime Rate. Although it carries much more risk, the short-term gains will likely temper this. Economists expect the Prime Rate to remain stable for the next 1 to 2 years and then a slow rise.
As you can see, there are a number of mortgage strategies out there for Barrie homeowner’s. You need to figure out the right one for you? A broker can help you create a plan that will help you become “mortgage-free”. The best part is that a broker’s services are usually “free” for most mortgage clients.
Darren Robinson is a Barrie mortgage expert, dedicated to offering the best mortgage strategies and provides personal assistance to help people qualify for difficult mortgages and loans. Call 705.737.6161