Variable Mortgage - 3yr Closed Term VS. 5yr Closed Term?

[Merriora]

Hello

I am currently looking at getting my finances in places for my new mortgage and have a commitment for a 3yr Closed Term Mortgage at PRIME - 0.XX. From what I see, most banks offer a 5yr Variable. Other than 3yrs VS 5yrs, what is the actual difference since it floats with PRIME?

With a Fixed, I know that I will be paying X% for Y years and if I believe that rates will be going up significantly, then I would want to lock in for as long as possible (ie: 5 - 10 yrs), so I would probably go for a 5 year Fixed instead of a 3 year. However, with a variable, I can`t see an advantage or disadvantage with a 3yr VS 5yr.

What are the advantages/disadvantages with signing a 3year Variable instead of the standard 5year?

Thank you

 

[mortgageman]

One thing I might consider is "What is your plan for the property?" Are you holding it for longer than three years or are you considering sell or refinancing sooner than that. There are lenders with products (MCAP`s VIP Select comes to mind) where after three years you can get out of it without interest penalities. This mortgage has a two month interest penalty, as opposed to the traditional three months, if you want out during the first three years.


QUOTE (Merriora @ Jan 28 2008, 10:19 PM) Hello

I am currently looking at getting my finances in places for my new mortgage and have a commitment for a 3yr Closed Term Mortgage at PRIME - 0.XX. From what I see, most banks offer a 5yr Variable. Other than 3yrs VS 5yrs, what is the actual difference since it floats with PRIME?

With a Fixed, I know that I will be paying X% for Y years and if I believe that rates will be going up significantly, then I would want to lock in for as long as possible (ie: 5 - 10 yrs), so I would probably go for a 5 year Fixed instead of a 3 year. However, with a variable, I can`t see an advantage or disadvantage with a 3yr VS 5yr.

What are the advantages/disadvantages with signing a 3year Variable instead of the standard 5year?

Thank you

 

[RobMacdonald]

This decision will be similar to your decision process around fixed terms. Just a few months ago when the banks were offering Prime minus 1%, I bet people now wished they could have got a 10 year term. It`s the same for this. If you`ve got a great discount off prime, then take it for a longer term.

Also keep in mind, that some lenders offer VRM products that are closed for 3 years, and open for the last 2, but your discount is locked in.

 

[Merriora]

QUOTE (RobMacdonaldCMT @ Jan 29 2008, 01:00 AM) This decision will be similar to your decision process around fixed terms. Just a few months ago when the banks were offering Prime minus 1%, I bet people now wished they could have got a 10 year term. It`s the same for this. If you`ve got a great discount off prime, then take it for a longer term.

Also keep in mind, that some lenders offer VRM products that are closed for 3 years, and open for the last 2, but your discount is locked in.

Excellent replies...thank you.

I never considered the idea of the minus 1% or minus 0.75% as being something that changes if your credit and circumstances remain the same. I was under the impression that this (minus) would be somewhat consistent over the years.

In today`s market with a decent to good credit history, what (minus) percentage are most currently receiving?

Thanks,

 

[MikeMcCrae]

I am seeing -.4 -.6 is pretty standard.

 

[RobMacdonald]

Typically .6 is bout the best avlaiable, with a few anomailies or rate sales by the major banks. We actually look at a few other unique strategies with front end loaded VRM`s. This allows a deep discount as high as 1.9% for 6 months, then a higher rate for the remainder. Clients will consider locking in to fixed term mortgages after the initial period if the rate enviorment supports the decisions. All indicators make this for an excellent strategy.

We will be highlighting this strategy at the next meetings in Calgary and Edmonton.