Short or Long Term Mortgages?

 Consumers have differing opinions on where mortgage interest rates are going. A simple fact is mortgage interest rates are not stable and can rise and fall dramatically with Canada’s economy. Unfortunately, no one has a crystal ball that can accurately forecast where mortgage interest rates are going. … In the past several years, Canadians have enjoyed a period of mortgage interest rates that have not been this low since the mid-1950’s, spurring strong consumer confidence and spending. This booming market, however, may be poised for a slow down, with forecasters warning that the prospect of looming interest rate increases, combined with high levels of household debt, may be making consumers more concerned about their financial stability.

 Here are some interesting historical facts about mortgage interest rates:

 • The average 5 year fixed interest rate over the past 38 years was 10.7%!

 • From 1975 to 1991, mortgage interest rates where never in single digits!

 • In 1976 consumers were taking out 5 year terms at an average of 11%, only to find their mortgage renewal five years later at a record 17-18%!

Adjustable rate mortgages, which fluctuate with prime, have performed better in recent years than fixed rate mortgages which closely follow the trends of the U.S. bond market; however, the advantages of an ARM mortgage may be diminishing in a rising interest environment! The prime rate of Canada may be swinging up from an all time low, and one must remember that the average prime rate since 1990 is 6.9%. It is very possible that prime may increase gradually over the next two years to its historical average.

Consumers who are carrying a lot of high interest debt like credit cards should consider refinancing this debt into their mortgage now, while rates are still lower than the historical average. And those who are living with a lot of debt should consider locking into a longer term mortgage to increase their financial stability and protect them from rising interest rates.