Should You Consider a Short Term Fixed Rate Mortgage?
The Bank of Canada rolled back on their earlier indication that they would hold the prime rate steady through rest of the year by raising it on June 7/2023. If they don’t do it again on their July 12 announcement (dare they?) the very best buyers can hope for is that the prime rate sticks at 4.75%.
If you recall that variable rates are tied to the prime rate, and fixed rates are tethered to the Bank of Canada’s quantitative tightening policy, you’ll understand that both rates are about the highest they’ve been in more than a decade. Consequently, buyers all over the country are wondering what to do, Okanagan Valley prospects included.
Traditionally many buyers would take a wait-and-see approach. That’s no longer working for individuals, young couples, and family households. BC buyers are coming to terms with the fact that the real estate market won’t experience any dramatic shifts over the next year. Moreover, delaying homeownership is simply not an option any longer because the longer the wait the further away you get from building real wealth.
What should buyers (yourself included) do? One option that we think Okanagan Valley home hunters should explore, is a short term fixed mortgage. Below is a straightforward breakdown of why this may be the perfect solution for you, concluding with a clear call-to-action.
Why a Short Term Fixed Mortgage May be the Answer to High Interest Rates for Buyers in BC’s Okanagan Valley in 2023
Lower Risk than Variable Rate Mortgage
It has become a challenge (even for experts) to make accurate predictions about what the Canadian economy and subsequently what the Bank of Canada will do when it comes to prime rate decisions. We’re pretty sure that they’re not even certain at this point. Some speculate that they pull a proverbial “audible” on the eves of their respective announcements. Would anyone be surprised?
This uncertainty is making variable mortgage rates less appealing to the even mildly risk averse buyers. If you instead opt for a 1- or 3-year short term fixed rate mortgage you will find peace-of-mind in knowing what your mortgage payments are for the near future.
Less Commitment than Other Fixed Mortgage Rates
With fixed rates as high as they are (over 5%) you don’t want to trade no-risk for guaranteed high mortgage payments for 5-years or longer. By accepting a 1- to 3-year short term fixed mortgage, there is a real opportunity for improvement when it’s time for renewal. This renewal will arrive much sooner than if you had to wait for a longer term fixed mortgage to reach maturity.
Important Tip: A Mortgage Renewal Broker is the Key
If the idea of a short term fixed mortgage for your BC Southern Interior property purchase sounds appealing, proceed. However, don’t even think about do so without connecting to a mortgage broker who specializes in renewals. You will need them in your corner when the bank/lender comes calling.
Banks and other lenders will attempt to capitalize on today’s high fixed rates when it’s time to renew your mortgage. They will mail your mortgage renewal forms and request your signature, making it all seem so seamless. Unfortunately more than two-thirds of homeowners sign these forms and send them back to lenders without questions or negotiations. This is ideal scenario for the lender, but not for you. Not at today’s fixed rate. But when you partner with a broker, will have someone in your corner from today through to when it’s time to consider renewal options. A reputable broker can save you significantly more on your mortgage renewal because they have established relationships with other banks and lenders who are ready to compete for your business. As a result, you will enjoy better renewal rates compared to what you’d get if you went at it alone.