The common question among homebuyers would be, “ what is a good mortgage rate in 2017 ?” To answer this, you have to look at two types of mortgage options based on interest rates—fixed and variable.
Homebuyers who have a fixed-rate mortgage are among those who would not be immediately affected in case mortgage interest rates across the market go up. That is because their rates are fixed on a specified rate for a specific duration. They would have to be wary though when the time to renew their contracts comes. That is because the rates that they might be getting could already be the adjusted and higher one.
Upon checking the market, a five-year mortgage with fixed rate could have an interest ranging from 2.5% to 2.7%. These rates were prevailing prior to the pending interest hike, which when implemented could add in a few percentage points.
While more consumers prefer fixed-rate mortgages in the past, such products are still attractive despite hikes. That is because even if rates continue to go higher in the coming months or years, your home loan would have a fixed rate, which is set when you obtained it. Because rates are expected to further rise over the years, this type seems more attractive these days.
In general, homebuyers who are holding variable-rate mortgages are expected to pay more in interest in the coming months. This is because such loans have interest rates that are adjustable based on the interest rates set by the regulators. Thus, if the central bank hikes rates, these borrowers will also surely pay more for higher rates.
But such mortgage products are still more preferred by many homebuyers. That is because their rates are pegged in prevailing market conditions. Interest rates may increase but those could also go down again in the future, depending on market dynamics. When rates go down, variable-rate mortgages tend to be significantly cheaper than the fixed-rates.
Comparing the two options and upon checking current market rates in Canada (as of August), a variable-rate home loan could have a rate of about 2% for a five-year term mortgage. On the other hand, a counterpart fixed-rate mortgage could take a rate of about 2.5% to 2.7%. This makes variables much cheaper. Economic analysts and financial services experts are expecting that the adjustments would not be very drastic when interest rates are adjusted soon.