Think outside the bun

This is the Taco Bell motto.  It is meant to remind us that fast food is not ended with hamburgers. Tacos are quite delicious in itself.

Crediting of the world's equivalent of the "bun" is a 5-year fixed mortgage. As hamburgers, fast food, 5-year fixed is to mortgages. It was the most popular term in Canada years.

Yet despite its prevalence, qualified borrowers owe it to yourself to think outside the 5-year fixed. A little additional risk, sometimes there may be many more reward.

Standard 5-year mortgages are especially popular in uncertain/increasing speed markets (as today). People who can afford the risk, and those who do not meet the requirements for shorter names, often choose a 5-year defined by default.

Even individuals, rock solid financial resources often gravitate to 5 years. A large part of the proceedings because they do not wish to overthink the safety of long-term mortgages. In other cases it is because nobody ever showed them how a 5-year fixed terms really cost in the long term.

No matter how popular a 5-year terms are, however, mortgages are not based on the allegation.  For those who can stomach the chance of a higher rate, there are other compelling alternatives. One happens to be a 3-year fix.

Lenders as Merix financial, HSBC, and others still have three years of courses within the scope of the 3.35% or better. What is 59 + basis points below the current pricing for 5 years.

On these courses (from the standpoint of pure math and hypothetical) 3-year fix performs better in our internal simulations of other conditions, either fixed or a variable, 1, 2, 4, 5, 7 or 10 years.¹

Hike big banks, the forecasting of the 2% rate crusade in 24 months, 3-year fixed mortgages model even better than variable-rate mortgages (primarily because of the low level of 3-year and its 36 months of the rate-caused).

This does not mean 3-a a year you will save more money than the other conditions. It just means they offer very good value with decent odds of savings interest.

Of the $ 300,000 mortgage with 25 years of repayment 3.35% three years will save you about $ 5,130 over 3.94% five-year fixed. This is more than 36 months.

After 36 months, you can move in the other term you want (e.g. 1-year fixed, variable or another 3-year fixed). While your refresh rate is about 5% or less, you will come out of today's 5-year fixed.

Several other points for 3 years:

• You can make your payment a fixed 3-year equal to the 5-year fixed payment, thus reducing your repayment even faster.
• People tend to refinance 5 years approximately every 3.5 years on average. Three-year term by the people without penalty, just before many of them are prepared to renegotiate their mortgages.

"Optimal" (if there is such a thing) change rates fluctuate and borrowers finance.

All her considered, however, three years fixed is the sweet spot of the market of mortgage at that point in time.

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Sidebar: Economist rate forecasts are subject to error, so that they are only a rough guide. Your financial resources and the sensitivity of risk are of paramount importance in the selection period. Always consult with a mortgage professional for advice specific to your circumstances.

¹ on the basis of depreciation write-off comparisons, use large Canadian economists published 2-and 5-annual percentage rate forecasts, historical brainstorm and deeply discounted rates to all fixed and variable terms.

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Rob McLister, THIS YEAR'S CMT MUSIC