With the recent rate cuts from the Bank of Canada, there’s been some more optimism about purchasing a home in Ontario over the last few weeks. However, we have yet to see a huge cluster of buyers emerge from the sidelines, as many are still playing the wait-and-see game.

What is different is the questions that I’m being asked. Many believe we will soon see a reduction in interest rates, so many ask the fixed versus variable or 3 vs 5 years questions. Many will not even consider a five-year fixed rate right now, the most popular product for many years now, as they have been told it is a bad idea. Unfortunately, there’s no one answer to the best mortgage product, as so many factors go into making that decision.

I want to share a quick story about an interaction I had:

As I tend to cycle quite a bit, I got some treatment on my back at a local physio, and we started chatting about mortgages. He told me that they signed up for a five-year mortgage at the beginning of the year at an interest rate higher than it is today.  So he asked me if they made the right choice. Now, keeping in mind, I don’t know this person’s financials or why they chose the five-year in the first place, but what I thought was interesting was he said he was speaking with a real estate agent a few days before, and they pretty much scolded him for taking the five years vs a shorter term.

First, I told him that while real estate agents can be an excellent resource for helping you find or sell a house, they should refrain from giving mortgage advice. They are not licensed, and most need up-to-date knowledge of all the products available and why one is better. Most importantly, they don’t understand your financial situation and goals, so take that feedback and throw it out.

At the approximate time, he got his mortgage, there was quite a gap between the five-year and the three-year rates, so he would have paid a fair bit of a premium to go with a three-year instead of a five-year. I then explained how you can use an everyday Mortgage calculator (like the one found on my website😊) to figure out what interest rate he would need to renew in three years to make it worth it to pay the premium. I also explained that the five-year year comes with additional risk if you break the mortgage early. Still, he was with a lender with a favourable calculation on their return fee. If rates come down quite a bit more than what you’re paying, there may be value in looking at making a change, but it would make sense to worry about it now. After our conversation, he felt a lot better about his decision.

Like with anything, there are always lots of opinions out there. It’s like when you go to a party, and you start talking about mortgages (maybe not the best party), and the first thing people tell you is their rate as a badge of honour. Truthfully, mortgages are much more than a rate or the term you’re on. They are a part of your financial portfolio and must be treated as such. What works for one person will only work for some.