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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 3-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 3-year fixed-rate mortgage. The guide covers the essential elements to consider in your mortgage term decision.
A 3-year fixed-rate mortgage is a loan product that allows you to pay a fixed monthly payment for the entire 3-year mortgage contract term.
A mortgage term is the length of your contract with a specific lender. Other mortgage terms offered are two, five, seven, and more. Packaging mortgages by the term allows you to select the correct length of time you wish to be in a relationship with a specific lender.
Also, the mortgage rates are likely not the same from one term to another. A 3-year fixed-rate mortgage and, say, a four-year fixed-rate mortgage may not be offered at the same rate.
One good thing about a 3-year fixed-rate mortgage is its consistent and predictable mortgage payment. That means your monthly payment will remain the same throughout the 3-year term of the mortgage.
The mortgage rate you get with a 3-year fixed mortgage would not change during your 3-year contract, even if the market mortgage goes up or down. Since your rate is fixed, your monthly payment, too, would not change. Thus, you enjoy a predictable and consistent payment.
The primary characteristic of a 3-year fixed-rate mortgage is that the interest rate is locked in for the entire 3-year period of the loan and would not change even if the market rate changes.
Unlike a variable rate mortgage, your mortgage rate for your 3-year fixed-rate mortgage is not attached to a benchmark rate, so it can’t fluctuate up and down. You will know exactly how much your monthly mortgage payment will be at the beginning and your mortgage balance at the end of the term. The payment will not change.
The expense certainty of this mortgage term makes it an excellent choice for budget-conscious borrowers.
You will likely be penalized if you break your mortgage term early. Suppose you wish to pay above your prepayment privilege or pay off the whole loan before the end of the 3-year term.
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All mortgage loans in Canada are offered for a specified period. In the case of a 3-year fixed-rate mortgage, your mortgage contract will expire in three years. At the end of the mortgage contract, you can pay off the loan in full, take ownership of the property, renew the mortgage, 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 3-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 3-year fixed-rate mortgage just expired. The details of your mortgage as of today are:
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 are required to 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 choose to move your mortgage to a new lender at the end of the mortgage term in a process called 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:
A 3-year fixed-rate mortgage will be right for you if:
A 3-year fixed-rate mortgage is not suitable for you if:
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It is worth comparing a 3-year fixed-rate mortgage to a 5-year fixed-rate one since most Canadians prefer a 5-year-term mortgage. Let’s see which mortgage term option is better for you.
When deciding between a 3-year fixed-rate mortgage, you should consider several factors and a 5-year fixed-rate mortgage. The below factors should be your starting point.
You should consider a 3-year fixed-rate mortgage if:
You should consider a 5-year fixed-rate mortgage if: