By Admin on Feb 8, 2010 in Credit
Rych asked:
You need a $325,000 mortgage for your new luxury 600 square foot condo. You have chosen a 20 year amortization
period with monthly payments for the loan. You are tempted by the very low 1 Year Fixed Rate Mortgage but are concerned about inflation and worried that rates may increase by the beginning of the second year.
You need a $325,000 mortgage for your new luxury 600 square foot condo. You have chosen a 20 year amortization
period with monthly payments for the loan. You are tempted by the very low 1 Year Fixed Rate Mortgage but are concerned about inflation and worried that rates may increase by the beginning of the second year.
1 year Fixed Rate Mortgage: APR (compounded semiannually) 2.75%
5 year Fixed Rate Mortgage: APR (compounded semiannually) 4.30%
I used this mortgage calculator to work out these numbers:
The 1 year rate of 2.75% would give you a monthly payment of $1760.
The 5 year rate of 4.30% would give you a monthly payment of $2015.
As to which one you should take, it’s going to depend on your monthly budget and your own personal risk tolerance. The 1 year rate is very attractive, and the Bank of Canada has reiterated its commitment to leaving the Prime Rate where it is until June 2010, which suggests (although doesn’t guarantee, since fixed mortgage rates are actually tied to the Bond Market, not the BoC prime rate) that rates should hopefully still be relatively low this time next year. But if you aren’t comfortable with “hopefully”s and “probably”s, you should perhaps consider taking a longer term. Again, it’s a very personal decision.
LadyFINE | Feb 10, 2010 | Reply