The four-year fixed mortgage offers a better rate than five-year terms because it gives more flexibility to refinance earlier deprived of a penalty.

Clients choose four-year mortgages for two main reasons:

  1. They do not expect to pay a mortgage longer than 4 years (the usual Canadian renegotiates or ends their mortgage in 42 months).
  1. They are cheaper than a 5-year fixed mortgage, but not more than a 3-year.

Disadvantages of four-year mortgages:

  • Fixed rates have a higher penalty as opposed to a variable rate for an early end.
  • If rates jump considerably, the renewed rate after 4 years may cost you more than your savings when choosing a four-year instead of a five-year fixed mortgage.

There are a few more delicacies about four-year mortgages:

  • The lenders usually make you prove you have enough money to get a four-year term grounded on the higher posted five-year qualifying rate. The Bank of Canada set that all mortgagors with less than 20% equity have to qualify on the higher “benchmark 5-year rate”.
  • Only one in sixteen mortgagors chooses four-year mortgages.
  • People choose a four-year term when buying homes for their children in the university since they match with the time to get a four-year degree.
  • The moneylenders usually pay your appraisal and legal fees when you move into a four-year mortgage. (Reminder: Mortgage connected to a line of credit or a collateral charge mortgage must be refinanced when you switch lenders.)