4.84% 5yr fixed vs 5.21% 3yr fixed?

[jeff325]

I'm thinking that at this moment,, mortgage rates can't decrease any further than 4.9% in 3 years. And during that time, I'm playing more in interest because waiting. Then I gotta wait 2 more years for it to go probably slightly lower than 4.84%. but I'm still paying more interest during that time.

The only advantage of the 5.21% 3yr fixed is that I can renew earlier

Do I have my math right?

 

[dragontie]

@jeff325 Let's put this into some forward thinking.
Let's say in the next 2 years rates drop to the 2.5% range.

What are the mortgage break penalties for the 5yr term (2 years in) vs 3yr term (2 years in)

Because at that point in time it may be worth breaking the mortgage and signing a new fixed 2.5% term.

Variable mortgages carry a break penalty of 3 months interest. A 5 year fixed term with 12 months off can cost upwards of $20,000 to break the mortgage. (But could be saving you $1000/month by doing so)

 

[vickk225]

@jeff325 Unless they do in fact go lower than 4.9 in 3 years....which....nobody knows

 

[jmarie196812]

@jeff325 Nobody knows for sure what will happen in the next 3 years to 5 years. Consensus with News and BoC is that it will go down at least by 0.5 percent this year.

What I think is important is below:
1. If the rate is fixed at 4.84% are you good to pay it off monthly comfortably?
2. Will you have any financial regrets if the rates indeed go lower in next 3-5years?
3. Have you looked around enough that above is the best rate you can get?
4. Have you done your due diligence to comfortably say that rate will not be much different if you take the 5 year fixed rate?

 

[dafedex]

@jeff325 All the major banks are predicting 4% by end of 2024. Take their predictions as you will.

 

[bellachook]

@dafedex 6 rate cuts this year? Recession a month ago?

 

[dafedex]

@bellachook That’s still the big bank projections. And 4 cuts.

 

[mnmlst]

@dafedex Lol, shit ain't moving until mid 2025

 

[dafedex]

@mnmlst I have no crystal ball. I’m just pointing out what the banks are predicting.

 

[prinn]

@jeff325 One thing to consider is: you have 5 years in the contract vs. 3. Aside from interest rates, you are buying yourself a bit more time.

I guess my point is mortgage rules have gone through drastic changes since I got my first 1- whos to say at time of renewal, you would be in the same position and the bank is going to renew on a signature.

 

[dragon7]

@jeff325 Neither is better than the other. It’s either a slightly lower rate for a longer term or a slightly higher rate for a shorter term. For the banks both make sense, for you it will depend on your current financial situation and where you think you will be in 3-5 years and what your state of mind is. Are you a pay and forget it kind of person or are you more of a risk taker?

I would go for the lower rate, but that’s got a lot to do with my own personality, not the economics.

 

[robingood]

@jeff325 Who offered you the 4.84?

 

[friendlycat]

@jeff325 I don't have a crystal ball so I wouldn't say mortgage rates can or can't do anything in 3yrs.

I can say I'd take the lower 5yr rate though and put the extra money I'd have paid in the 3yr into a monthly pre-pay.

 

[marvin42]

@friendlycat With a .4 difference between 5 and 3 years when the rates are so high and in talks of lowering them soon, taking 5 is a no no for me.

 

[charist]

@marvin42 It would need to be less than 4.1% in 3yrs for this deal to make sense.

That is a lot.