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A fixed-rate mortgage is one of the most popular types of mortgage. Fixed-rate implies the mortgage rate you get for this type of mortgage does not change throughout your contract term, even if the market rates fluctuate up and down.
Fixed-rate mortgages are suitable for individuals who enjoy predictability and consistency in their budget management.
The 2-year fixed-rate mortgage is a type of fixed-rate mortgage product offered in Canada. This guide will help you make the right mortgage decision by explaining the details of this 2-year fixed-rate mortgage.
The guide covers the essential elements to consider in your mortgage term decision.
With a 2-year fixed-rate mortgage, your interest rate and mortgage payment will remain the same over the 24 months, even if the market rate goes up or down.
If you have a budget and want a predictable payment for the next two years, then a 2-year fixed-rate mortgage might work well.
This mortgage term gives you the unique opportunity to enjoy peace of mind for two years without worrying about short-paying your mortgage principal due to changes to the market rate.
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Just like the stock market, the mortgage rate that lenders advertise goes up and down. The rate might be 2.898% today and 3.02% tomorrow. With a 2-year fixed-rate mortgage term, you are protected from these changes in a mortgage rate for two years.
Mortgage contracts are designed to last for a specific period. The length of time the mortgage contract will last is called the mortgage term.
The mortgage term is the time you contract to hold the loan with a specific lender.
In Canada, mortgage terms can range from six months to 10 years. A 2-year fixed-rate mortgage implies that your mortgage contract with the lender will expire (or mature) after two years from the mortgage registration date.
With a 2-year term mortgage contract, you will be bound by the conditions of the agreement for two years. After the two years, you can pay off the loan to own the property outright, renew the contract with the lender, move the mortgage to a new lender, or refinance the mortgage altogether.
The mortgage term should not be confused with mortgage amortization.
Mortgage amortization is how long you are expected to pay off the mortgage loan, ultimately making your scheduled regular payments. The most common amortization periods in Canada are 25 years and 30 years.
Let’s say your mortgage has a 2-year fixed-rate term, amortized over 25 years, with a monthly payment of $2,000 to $3,000.
At the end of the 2-year term, you can choose to either renew or refinance the mortgage.
Mortgage refinancing allows you to replace your existing mortgage with a new mortgage under different terms and conditions. Refinancing a mortgage will enable you to customize your mortgage more, such as switching the rate type from fixed to variable, switching the terms from two years to three years, four years or even one year.
There are many reasons why you may choose to refinance your mortgage after the end of the 2-year term:
Mortgage renewal extends your contract to a new term with the same lender without increasing the loan amount or extending the amortization.
You will continue the remaining amortization period and the loan balance into the renewed mortgage term.
Let’s say your 2-year fixed-rate mortgage just expired. The details of your mortgage as of today are as follows:
You can only change the mortgage term, and the lender may change the mortgage rate if you refinance. The current mortgage balance and current amortization will not increase.
By law, lenders must provide you with a renewal letter at least two business days before the end of your mortgage term.
The lender is not obligated to renew your mortgage; likewise, you are not obligated to accept the renewal offer.
You can move your mortgage to a new lender at the end of the mortgage term in a switch. The new lender will require you to provide the name of the default insurance provider and your mortgage loan account number with that default insurance provider.
The renewal statement will contain the following information:
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A 2-year fixed-rate mortgage will be right for you if you:
On the flip side, a 2-year fixed-rate mortgage would not be suitable for you if:
A 2-year fixed-rate mortgage is better if:
A 5-year fixed-rate mortgage is better if: