The mortgage term is the time interval for which your mortgage rate of interest is valid. And, if you choose the 1-year mortgage, you can lock in a fixed interest rate for the period of one year. At the end of this term you have the option of looking for more economical rates or better terms and conditions that the same or different mortgage provider might offer you. Should you choose to want to change your mortgage, you won’t incur any fee or penalty. It might interest you to know that around 6% of Canadians prefer the 1-year mortgage plan.
The 1-Year Fixed Mortgage is Suitable for Particular Investors
Given the unstable nature of the mortgage market, if you think that interest rates are likely to rise in the coming years, you could opt to lock in a favorable interest rate by choosing a 5-year mortgage rate. However, if you’re unsure of the status of the mortgage market, you can opt for the 1-year mortgage rate that is usually lower than the 5-year mortgage rates. In this way, you can review market conditions at the end of the year and plan your further strategy.
To avail of the benefits of changing market conditions, you could also consider opting for the variable rate mortgage where interest rates vary according to the bank rate fixed for each month.
Positives of a 1-Year Mortgage Plan
- The 1-year mortgage plan is ideal for investors looking to keep their options open for more economical rates.
- If you’re wary about the interest hikes declared by the Bank of Canada that can impact the variable interest you pay, choosing the 1-year plan is a great option.
- You get to lock in a good interest rate for 12 months, and make any changes you want at the end of this period without incurring any penalty.
- Given that bond yields have dropped, the interest you’ll pay on a 1-year term is close to the current variable mortgage rate of interest.
By choosing the 1-year mortgage plan, you can avail of economical interest rates and the flexibility to choose better terms at the end of the year.
