Hi Ross, I have a question to ask you, about $$. My youngest son is going to buy a house in Kincardine and has been pre-approved for 250K at his bank. Good for him.The bankperson advised him to get a 2-year fixed rate when he does apply, and then afterwards 5-year fixed rate. What is your opinion of that, Ross ?
I hope you don`t mind my asking. I hope all is well with you. C.D., Etobicoke
I don’t understand the banker’s advice to your son. The two year rate is lower yes, and if the banker’s crystal ball is accurate, he must be assuming five year rates will be similar or even lower than where they are now. I don’t have the guts or the prescience to make such recommendations.
What if the banker is wrong? What if in 2015, the prevailing five year rate in 2015 is 5%, 6% or 7%. Will the bank give back to him the extra interest payments he will then be paying? – no of course not!
If he were my client (and I would be delighted if that were the case) I would simply steer him into a five year fixed rate, closed mortgage with a lender who has very reasonable prepayment terms (if things change before the five years are up). We could do that at 2.99%,and the mortgage would be fully portable. And if rates haven’t gone up within two years, I wouldn’t apologize, since it’s all about protecting yourself from adverse circumstances.
I mean, we insure our cars and our homes, but we don’t get upset if the house does not burn down, or if we are not in a car accident.