Keystone Risk Analytics

You'd need to provide the following information: -The amount of money that you're looking to borrow from the bank (or the amount left outstanding from your existing) -The 1-, 2-, 3-, 4-, and 5-year fixed rate mortgage rate that you would qualify for -The 5-year variable rate mortgage rate that you would qualify for

Speaking from my personal experience, ratehub.ca is a great place to find quotes that you can use to input into the MortgagePro tool. The best way to browse through RateHub's website for mortgage rates (without being constantly bombarded by all their prompts) is to go directly to their mortgage rates section (i.e., Mortgages > Mortgage terms > select any of the terms listed). Once you're at their mortgage rates section, you just need to enter some basic information about your mortgage and what you're looking for (e.g., renewing, 5-year fixed mortgage rate) and you'd be able to browse through all their rates. A couple of items to note when browsing through their rates: -If you're renewing your mortgage, it's important to specify whether or not you've got mortgage insurance on your existing mortgage. If you have mortgage insurance, you'd qualify for a lower rate. -RateHub will spit out a variety of mortgage rates given your inputs and they'll be ranked from best to worst (i.e., lowest rate to highest rate); you'd just need to chose the best rate (i.e., lowest rate) to use in our MortgagePro tool.

The best time to use the MortgagePro tool is when you're browsing for rates and when you've got your quotes from your lender/mortgage broker: -When you're browsing for rates, by inputting the rates into our tool, you'd have a better idea of what kind of mortgage you'd want before reaching out to your lender/mortgage broker. This is important because by becoming more informed about your options, your lender/mortgage broker can better service your needs. -When you've got your quotes from your lender/mortgage broker, it's important to run it through our tool one more time before you make a decision because this would give you the most accurate picture of the risks and benefits of the different mortgage options. When you were browsing for rates, you'd be using the best rates that you can get, but that may not be rate that you may ultimately qualify for.

In Canada, the most competitive fixed-rate mortgage option is the 5-year fixed rate mortgage and as a result, it's used as the default choice (and the safest choice) in our MortgagePro tool. To compare the different mortgage options, the MortgagePro tool would generate thousands of interest rate scenarios over the next 5 years and compare the performance of the different mortgage options under the different scenarios against the performance of the 5-year fixed rate mortgage.

The interest rate charged on your mortgages is determined by summing up the following components: -The interest rate paid by the Government of Canada when it borrows money (i.e., the risk-free rate) -The extra interest rate (i.e., the spread) paid by the mortgage borrower to compensate the lender for lending to the borrower The following are the main components that drives the spread that's charged on your mortgage: -Interest rate risk: mainly applicable to fixed-rate mortgages because if the interest rate stays higher than expected, the lender will miss out on potential gains by fixing your rates. -Default risk: the lender is compensated for the risk that borrowers will struggle to make their mortgage payments -Acquisition expenses (e.g., commissions paid to mortgage brokers/brokerage firms, internal performance bonus) -Term of your loan: the longer your term the lower the spread because the lender can spread its costs out over a longer period

The 5-year variable rate mortgage has a lower spread than the 5-year fixed rate mortgage because for the lender, there's less interest rate risk associated with the 5-year variable rate mortgage than the 5-year fixed rate mortgage. By design, a 5-year fixed rate mortgage would allow the borrower to immediately reap the benefits of market speculations (to the lender's detriment) whereas a 5-year variable rate mortgage would allow the lender to pass on that risk to the mortgage borrower. As a result, the mortgage borrower needs to compensate the lender for the additional interest rate risk when they borrow under a 5-year fixed rate mortgage (in the form of a higher spread).

While there are some lenders that offer 7- and 10-year fixed rate mortgages, their quotes are often extremely uncompetitive and as a result, there's no point incorporating those mortgage options into the comparison process.

The mortgage options lack competitiveness due to the following reasons: -Lenders don't like to offer mortgage that are locked-in for longer because they're riskier mortgages, which means that they have a required capital (i.e., less profitable for lenders). -With fewer lenders willing to offer these longer-term mortgages, there's more pricing power for the lenders that do offer these mortgages, which means that the rates charged on these mortgage are notably higher compared to more competitive mortgage options.

It really depends on your personal situation and your personal risk tolerance. The short answer is that if you're the type of person that would have trouble sleeping because you're worried about where interest rates are going, then, the 5-year fixed rate mortgage is likely your best choice.

The 1-, 2-, 3-, and 4-year fixed rate mortgages tends to be less competitive against the 5-year variable rate mortgage due to the following reasons: -The extra interest rate that's charged (over the Government of Canada securities) for the 1-, 2-, 3-, and 4-year fixed rate mortgages is much higher compared to the 5-year variable rate mortgage. -If the actual path of the BoC's interest rate is lower than what the market expects, then, the 5-year variable rate mortgage would be able to realize that benefit whereas the fixed-rate mortgages would not be able to do so.