What mortgage product does your bank want you to take?
Here are some interesting stats…
-A Variable rate mortgage outperforms a fixed rate mortgage in over 88% of the time… According the Milevsky study done earlier this decade and updated in 2008….
-Variable rate mortgages have been at least 1.00% lower than the 5 year fixed rate mortgage over the past 25 years….and on occasion, better by as much as 2.00%.
-Canadians move every 3 years on average…meaning they must either refinance their mortgage or pay it out.
-a Variable rate mortgage has a fixed penalty of 3 months interest.
-a 5 year fixed rate mortgage has a penalty that is at least 3 months interest but has no limit…. and in the past 18 months, we have seen penalties of 6, 10 and even 14 months worth of interest.
-yet, 66% of Canadians have a 5 year fixed rate mortgage…
Is the 5 year fixed rate mortgage really the right product for 66% of Canadians? Can the 5 year fixed rate mortgage be the right product for everyone? Which mortgage product do you think your bank wants you to choose?
By the way, can you guess which mortgage product is the most profitable?…. you guessed it.. the 5 year fixed rate.
Make sure your Mortgage Broker does a needs analysis before they recommend a mortgage product for you…. There is no ‘one size fits all’ when it comes to mortgages…. Ask yourself, ‘who is this mortgage best for’…. my bank or me?
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Steve Garganis View All
As an industry insider, Steve will share info that the BANKS don't want you to know. Steve has appeared on TV's Global Morning News, CBC's "Our Toronto" and The Real Life TV show. He's also been quoted in several newspapers such as the Globe and Mail, The Toronto Star, The Vancouver Sun, The Star Phoenix, etc.
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Steve, why do you think the banks make the most out of 5-year fixed mortgages? Is it because of the high rate of renewals?
I was thinking that since more people are in the market for 5-year fixed, the market would drive prices down for these types of mortgages. I often seen 5-year fixed go for the same as 4 and even 3 year fixed.
Hi Brian,
Good question…. 5 year fixed rate mortgages are more like marketable investments. Banks and other financial institutions will routinely sell off their hi-ratio insured mortgages as insured loans. These loans are insured through CMHC or other private mortgage default insurers. Banks and other mortgage lenders are also wrapping their conventional mortgages and paying the default insurance to make the debts secured….
So in effective, these loans are guaranteed against loss. 5 year term is the market. This is why you will see new financial institutions or mortgage lenders come to the market with a 5 year fixed rate and few or no other products. It’s the easiest product to sell to investors…