Offers shown here are from third-party advertisers. We are not an agent, representative, or broker of any advertiser, and we don’t endorse or recommend any particular offer. Information is provided by the advertiser and is shown without any representation or warranty from us as to its accuracy or applicability. Each offer is subject to the advertiser’s review, approval, and terms. We receive compensation from companies whose offers are shown here, and that may impact how and where offers appear (and in what order). We don’t include all products or offers out there, but we hope what you see will give you some great options.
When you’re a first-time home buyer in Canada, there are a lot of things to consider – including the type of mortgage you want. One popular option is a 4-year fixed rate mortgage, which allows you to lock in a low-interest rate for the first four years of your loan.
While a 4-year fixed rate mortgage may seem like a good idea, there are a few factors to consider before you decide if it’s the right choice for you. This article will explore the pros and cons of a 4-year fixed rate mortgage, so you can make a well-informed decision on maybe this type of loan is right for you.
A mortgage with a constant interest rate across the mortgage term is referred to as a fixed mortgage. Your interest rate will be unchanged for the duration of your mortgage if you choose a fixed-rate mortgage (within 1-10 years).
Home buyers looking for a reliable payment schedule, homeowners who manage a tight monthly budget, and generally more conservative buyers are good candidates for fixed-rate mortgages. In contrast to a fixed-rate mortgage, mortgages with a variable interest rate are subject to adjustments throughout the mortgage term.
When seeking a fixed interest rate with a short-term commitment, a 4-year fixed-rate mortgage is a fantastic choice for homebuyers. It will be simpler to avoid prepayment penalties if you choose a short mortgage term if you want to sell your house soon.
You should evaluate your financial status, ambitions, and risk tolerance while selecting the ideal mortgage term. Your interest rate may be set for extended periods, such as five, seven, or ten years, and sometimes even longer, with a longer fixed mortgage term. Short-term fixed mortgages, on the other hand, often have lower rates. In the event that interest rates change in the future, they provide less security, which is a drawback.
| Top 4-Year Fixed Rate Mortgage Partners in Canada | Get a Rate |
|---|---|
| nesto | Click here >> |
| Smarter Loans | Click here >> |
| WiiBid | Click here >> |
| National Bank | Click here >> |
| Coast Capital | Click here >> |
| EQ Bank | Click here >> |
| Tangerine | Click here >> |
| Homewise | Click here >> |
| Meridian | Click here >> |
| Mogo | Click here >> |
Even though requirements are based on the lender you choose, you should give some attention to the general fundamental requirements. You’ll need to meet these eligibility requirements in order to qualify for and be accepted for your fixed-rate mortgage. The following are some of the important documents that potential mortgage lenders will need to examine whether a borrower is qualified for a mortgage.
In order to verify your identification, you will need to provide a document issued by the government, such as your driver’s license or passport.
A credit report is a record that every potential lender demands, and it is used to determine whether or not an individual is creditworthy. Potential lenders will look at any negative information included in your credit reports, such as delayed or missed payments.
In order to even be considered for a mortgage, you need to have a satisfactory credit score. This means that you will need a minimum credit score of 560, but if you want to get the best mortgage rates, you must have a credit score of 680 or better. In the event that you have a low credit score, it is quite doubtful that you will be able to qualify for the best mortgage rates; instead, you will be required to make use of a sub-prime mortgage.
People who have a very bad credit history are welcome to deal with sub-prime mortgage lenders, but they should be aware that these lenders will demand higher interest rates. It is in your best interest for you to thoroughly comprehend how the level of your credit score influences the probability that you will be approved for a mortgage.
You will also be required to tender documents that prove that you are currently employed and earning an income. Documents such as salary stubs, bank records, and job letters could fall within this category.
If you have just started a new work, you should be aware that even if you have evidence of income, many lenders will want to see that you have kept the position for at least a year before they would consider lending you money.
Another thing lenders do is a mortgage stress test; you will need to do well on the mortgage stress test to be qualified for the desired amount of a mortgage. The qualification rate, established by the Bank of Canada, is increased for the stress test, which verifies that you will still be able to make your mortgage payments despite the increase.
Therefore, if you were given a mortgage rate of 3%, for instance, the lender may do a mortgage stress test to see whether or not you would still be able to make payments if the qualifying rate was increased to 5%.
Most people looking for a mortgage don’t explicitly seek to get one with a 4-year fixed term. In contrast, 4-year mortgage durations are often forgotten. However, a 4-year fixed rate provides a good balance between payment reliability and interest costs. The following are advantages of a 4-Year Fixed Rate Mortgage;
In fixed-rate mortgages, the amount of interest you pay on the money you borrow will not change throughout the mortgage duration, in contrast to variable-rate mortgages. This shows that with fixed-rate mortgages, the cost of living is stable and easy to estimate.
Rent also does not provide you with this level of certainty. And in variable-rate mortgages, your monthly payment might shift in tandem with the prime rate offered by your lender, which is a benchmark that moves according to the state of the economy.
There are various situations in which it practically makes more sense to take a risk with a 4-year term. For example, circumstances in which a 4-year fixed rate will have a lower interest rate than a 5-year fixed rate. If the prices for a 3-year and a 4-year term are comparable, selecting the longer term will save you from renewing your policy one year sooner.
Homeowners in Canada have consistently shown a preference for the fixed-rate mortgage with a 5-year term for a long time. Despite the fact that the typical borrower for a mortgage with a 5-year fixed rate pays it in less than four years. This indicates that many people would have been better off paying for a 4-year term, which will eliminate the often-crippling prepayment penalty of a 5-year fixed rate mortgage.
The following are some of the disadvantages associated with fixed-rate mortgages with a 4-year term:
Due to the short length, selecting a 4-year term instead of a 5-year term makes you stand a chance of renewing at a higher rate. In the event that interest rates begin to increase rapidly during the following four years, the rate you renew into after paying up your 4-year fixed rate mortgage might end up costing you more than the money you saved up front.
Choosing a loan with a longer duration, such as a fixed rate for the whole period (5 years, for example), might provide you with an extra year of insurance against rate hikes.
When opposed to mortgages with variable rates, fixed-rate mortgages often have more stringent prepayment penalties—because of this, breaking a 4-year fixed lease might be quite costly. This is due to something that is known as an Interest Rate Differential(IRD) penalty, which applies to fixed interest rates.
IRDs often amount to between 1% and 3% of your principal debt. On the other hand, the penalty for breaching the majority of mortgages with a variable rate is often merely three months’ worth of interest.
Interest rates on fixed-rate mortgages are often higher than those on variable-rate mortgages. As a result, you risk paying thousands more in interest than you would have with a variable-rate mortgage over the mortgage’s term.
Additionally, if mortgage rates decline while your mortgage term is still in effect, only borrowers with variable-rate mortgages will experience a decrease in their interest payments; borrowers with fixed-rate mortgages will continue to make the same amount.
When it comes to getting a rate mortgage in Canada, there are many ways to obtain a mortgage rate, such as in a bank, online lenders, Credit Unions or through a mortgage broker.
Nesto offers knowledgeable guidance on the ideal mortgage for you. Along with locating the best interest rate for you, Nesto also offers impartial guidance throughout the home finance process from their commission-free professionals. Additionally, it provides valuable tips on the kind of mortgage to choose if you’re a novice or are unsure of your options.
Nesto offers various types of mortgages, such as fixed rates between 1-10 years and 5-year variable rate mortgages. To get started, you need to fill out an application form, evaluate your choices for rates and mortgages, and wait for a response. You will either be pre-qualified to know how much money you can afford to spend while looking for a house (or receive a mortgage immediately when you make an offer on a property).
The following are situations in which you may want to use Nesto;
Other platforms through which you can get the best mortgage rates are Tangerine, Meridian, Homewise and so on.
Make your money do more.
Offers shown here are from third-party advertisers. We are not an agent, representative, or broker of any advertiser, and we don’t endorse or recommend any particular offer. Information is provided by the advertiser and is shown without any representation or warranty from us as to its accuracy or applicability. Each offer is subject to the advertiser’s review, approval, and terms. We receive compensation from companies whose offers are shown here, and that may impact how and where offers appear (and in what order). We don’t include all products or offers out there, but we hope what you see will give you some great options.
Bonds issued by the Canadian government significantly impact Canada's fixed interest rates. Bonds are a sort of secure investment that banks make available to customers. Because bonds are relatively risk-free investments, financial institutions often use their bond earnings to fund mortgages. There is a similarity between bond yields and fixed mortgage rates, and as bond yields go up, fixed mortgage rates usually follow suit.
Yes, but how simple it is to do so depends on whether your mortgage is open or closed. The interest rates for open mortgages are often higher, but you have a lot of freedom in how you may repay the loan. Depending on the precise conditions, you might be able to make significant early payments or perhaps pay off the loan all at once. Although closed mortgages often offer cheaper interest rates, they provide far less freedom. In some of the most popular mortgages, you cannot refinance without paying a hefty penalty and can only pay off the loan sooner if you sell your home.
A mortgage loan with a fixed interest rate for four years is a niche market offering. In Canada, a 5-year fixed rate is far more popular. You may get a better price if you opt for a 5-year fixed rate since these periods are more often offered. These are two reasons some why people opt out for 4-year terms;
Both fixed-rate and adjustable-rate mortgages offer benefits and drawbacks. When you know precisely the amount of money you must pay until the end of the mortgage term, it is much simpler to plan. This is why many Canadians choose the steadiness and predictability of a fixed-rate mortgage. Others, however, like the reduced interest rate that a variable mortgage offers, sometimes is an advantage to them .when compared to a fixed-rate mortgage, the interest paid on the mortgage may often save thousands of dollars, even if it may fluctuate with the lender's prime rate.
You will have paid off your mortgage, which is excellent, or you will still owe money, which means you will have to refinance your mortgage. There are several methods for doing this, and your existing lender will usually make it extremely simple for you to renew your loan with them. But if you can decide to try going for a different lender. Filling out an application for a mortgage renewal with a completely different lender is comparable to applying for a mortgage from the start.
Get the best rates in minutes
