# 3 or 5 year mortgage term?



## digitalatlas (Jun 6, 2015)

So I'm finalizing the financing of a property, and just this past week, all the banks reduced their variable rate mortgages until the end of the month, which just happens to work out for me, and I can get basically prime -0.9 on either a 3 or 5 year, 30 year mortgage.

So my question is, would you go with the 3 or the 5? It kind of depends on what you think will happen at the end of 3 years, if you can get a better deal then or not.

From my recollection, and the bottom of this page on ratehub (https://www.ratehub.ca/prime-mortgage-rate-history), it seems that in the past 10-12 years, there hasn't been a discount of more than 1% below prime (and I think this is for 25 year amort). In that case, in 3 years, I probably won't get better than p-0.9, so maybe I should opt for 5 years?

I had previously considered 3 years because I was getting a little better rate last month (when I started the application, but it's taken a while), and also this would mean the terms on a few of my properties come up for renewal around the same time...so I was thinking maybe I could use that as leverage for a better deal.

What do you think? Thanks.


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## fireseeker (Jul 24, 2017)

Only you can decide if the potential reward of having the properties coming due at the same time outweighs the risk of same. Laddering sounds more appealing to me, but I can be risk averse.
P-.0.9 is pretty spectacular historically. If you're committed to variable, it's hard to see why one wouldn't maximize today's unusually competitive pricing on such mortgages.


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## SW20 MR2 (Dec 18, 2010)

We got a P-1.05 from First National on a 5-year variable 2 months ago. FWIW, this is on a conventional, non-insured mortgage for about $300k. It was a renewal coming off of a 2-year fixed mortgage. If you have a good credit history, check with the monolines to see what you can get.


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## birdman (Feb 12, 2013)

Not an easy choice but if it were myself and I was 100% sure I would not be selling the property for 5 yrs I would take the 5 yr mtge. By doing this you have peace of mind for 5 yrs as opposed to the possibility, albeit perhaps slim, that the rate on the suggested shorter 3yr term you are considering be increases significantly at renewal. Your risk tolerance and ability to handle a higher rate should be considered. Another possibility that was sometimes used when I was in the business was to split the mortgage into 2 or 3 separate terms, eg say 1/3 in one yr, 1/3 in 3 yr, and 1/3 in 5 yr. As I have been retired for many years I am not sure if this is still available in the marketplace. Just a thought.


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## digitalatlas (Jun 6, 2015)

Thanks everyone for those thoughts, it helps me go through my thought process. I am leaning towards 5 years. As I said, last month when I originally applied, the situation was different and the 3 year was every so slightly more attractive than 5 year. But now the 3 and 5 are the same. 

I'm pretty confident I will not be selling in 5 years, that was not the point of this venture. And being variable, I could break the mortgage by paying 3 months interest, in a jam. 

I haven't heard anyone offer those kinds of split mortgages, but I kind of unofficially ladder some mortgages across some properties anyway. Plus, I may still end up doing this unofficially anyway in a few months. 

Right now, they require 35% down because it's a rental, and I don't have a tenant yet. I said, how can I get a tenant if I don't even have possession of the place? Who's going to give me first and last on a place they haven't seen, which I don't technically own yet? The bank says that's not their problem...

Anyway, once I do get a tenant, and there's deposits on record for a few months, they are willing to give me up to 80% LTV, which means there's potentially another 15% I can get a mortgage for without tying up my cash. Then I will look at whatever offers are available later this year.


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## My Own Advisor (Sep 24, 2012)

If you're pretty confident you're not selling the place within the next 5 years, 5-year variables are still (historically speaking) very cheap.

If you might sell, go with 3-year variable term.


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## MarkLinMTG (May 2, 2018)

That's a great rate, especially for a rental property! I wouldn't hesitate to go with the 5-year since the penalty should be the same (3-months interest) and also because it's an investment property which you plan on holding on to.

Find out how the bank is registering the mortgage (standard charge vs. collateral charge). If it's collateral, see if they will register at the 80% LTV or higher so you don't end up refinancing when you go back to ask for an increase.

Another option is to ask them if they'll take a fair market rent assessment from a Realtor or Appraiser to allow you to go up to 80% LTV right off the bat.


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## BryanBouchard (May 15, 2018)

My vote strongly favours the 5-year variable. This is assuming you have no intentions of selling in the next 5 years (without repurchasing at least). I like variable right now over fixed, and I'd be pretty happy with Prime -0.9%! I have one term coming up for renewal this summer, so I'm trying to get this rate as well.


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## Mortgage u/w (Feb 6, 2014)

5 year variable is the way to go. Why consider 3 year if the rate is the same? You have the benefit of converting to a fixed rate any time regardless the term so might as well lock in your discount for the longest period.

As others have said, there are even better discounts out there - I have seen as low as -1.20% for insured business. 
I'll say it once again - don't only shop a rate but rather a product. All mortgages are different and should cater to your individual needs.

About the 35% down.....it seems unusual that the bank is asking you that. You either fell on a rookie underwriter or there is more to your story that you left out. Normally, a pure rental is minimum 20% down. I don't understand how putting in a tenant gives you the ability to finance more than if you don't have a tenant. Is is a qualification issue? Are you indeed buying a rental property?


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## digitalatlas (Jun 6, 2015)

I ended going with 5 year variable. Would have been lower rate than minus 0.9 but I wanted 30 year. This was a better product for my needs, but TD wanted 35% down without tenant. I tried talking them out of it, but wasn't a starter. This is actually a heloc, not regular mortgage, but they actually required 35% for either one... Dunno

My lender from previous purchase would do 20% for a regular mortgage. I think they just make things up. I qualify without trouble at any institution.. So.... Go figure...


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## Mortgage u/w (Feb 6, 2014)

HELOC is indeed 35% down. DOF changed the rule for HELOCs a few years ago - no institution can finance more than 65% LTV.


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## Mortgage u/w (Feb 6, 2014)

I don't think you saw correctly.......rates under 2% are nowhere to be found.


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## OnlyMyOpinion (Sep 1, 2013)

Peterhawk has dropped in from another country. 
Four posts to date are incoherent.
SPAM IMO.


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