Lenders continue to offer the 4-year fixed rate mortgage even though it’s not a wildly popular choice among Canadians. With a fixed rate of interest for 4 years, this mortgage delivers security: you know that neither your interest nor your payments are going to change.
The 4-year fixed rate is based on Government of Canada 4-year bond yields.
Who chooses 4-year fixed rate mortgages?
The 4-year fixed rate is a go-to product for a certain set of borrowers. Families purchasing a home for children going away to college or university are a prime example: the 4-year term matches the number of years students are in school. For other Canadian borrowers, 4 years just happens to be the right amount of time.
The 4-year fixed versus the 5-year fixed
The 4-year term is often overlooked in favour of the granddaddy of mortgage products, the 5-year fixed rate mortgage. Currently, the two rates are almost equal, giving the 5-year an edge on paper. Borrowers get an extra year of interest rate protection without paying more. But 4-year fixed rates can be lower than its 5-year counterpart too. That means you can choose a 4-year term, save on interest, and gain medium-term security against rising rates and payments.
But every borrower is unique. Some may want to renegotiate or discharge their mortgage in 4 years rather than in 5. Our advice for picking a term? Evaluate the market conditions and your financial profile to get a clear understanding of which mortgage product you’re most comfortable with.