2 Year Fixed Mortgage Strategy
Welcome to The Mortgage Minute on CalgaryMortgage.com. Thanks for taking the time to tune in. Today we’re going to talk about the two-year fixed-rate mortgage strategy. This is a strategy that I personally love for clients who may be variable rate clients, but who may not be getting the best variable rates due to the economic conditions. So let’s take a look real fast at variable versus fixed rates like we have in our previous video.
The one key determining factor when you look at variable versus fixed rates and how you should choose between a variable versus a fixed rate, is based on the interest rate at the time you get the mortgage. If the variable rate mortgage is at least 50 basis points, or .5% lower than the fixed rate mortgage at the time you get it, then you should almost always take the variable. Unless it’s going to keep you awake at night knowing that your interest rates could change. That being said, sometimes, the discounts on the variable rates go away and there isn’t that big of a difference between the five-year fixed and the five-year variable, like today. So today for example, if you looked at interest rates, 2.59% would be the five-year fixed, 2.4 would be the five-year variable. So, it becomes hard to choose between these two rates.
But there is another option. And this is a cool option that we developed a few years ago, as sort of a variable rate strategy that’s not a variable rate. And the option is the two-year fixed mortgage. It also works with a one-year fixed mortgage, but we like the two-year because it gives a little bit more certainty, a little bit more security. So, we don’t have very much of a difference between the fixed and the variable rate, but we do have a significantly larger difference between the five year fixed and the two-year fixed.
So we’ve got this 2.19% interest rate. That 2.19% interest rate, in our opinion, in today’s market, is the best mortgage you could possibly get. The reason why is because in two years, you’ll get to decide what you want to do again. But for now, you’ve got a significantly lower rate then whats available in the variable or the fixed, and you’ve got some security for two years. So it’s kind of a best of both worlds strategy.
Now the one key thing to remember here is that this strategy works best with a monoline lender, so a lender that only sells mortgages. The big banks, if they give you this 2.19% rate, are probably going to add a discount in, they’re going to…sorry, let me clarify that. They’re not going to add a discount in. What they’re going to say is that they gave you a discount. And that discount will end up creating a higher payout penalty if you ever need to pay out the mortgage. You can see what I mean by watching this video on how Interest Rate Differentials are calculated.
So, we suggest you get that rate from a small, monoline lender, a lender that’s probably using money from one of the big banks that you deal with anyways, and look into a variable rate two years down the road, or reassess and see what the best mortgage rate is at that point in time. We love this strategy. We think this will save you money. And as long as you aren’t going to get stressed out by the fact that interest rates could move, it’s going to be a great option. Thanks for tuning in.