4 Year Mortgages Make a Comeback

Dream Home

It must be Spring time, the mortgage wars are back.  It seems like a repeat of last year with Bank of Montreal (BMO) reducing the rate on their 5 year “no frills” mortgage to 2.99%.  There’s something about a rate below 3% that kicks off a flurry of responses from the competition.  Along with the usual warnings about the added costs of going with a “no frills” option, the banks promote their best offer.  Without a “no frills” offer in their back pocket most lenders decide to lead with the 4 year special at 2.97% – almost as long as the 5 year and just a little bit lower.  But best of all, it maintains all of the features you’d expect from your mortgage and your mortgage company.

The Royal Bank (RBC) had an interesting response this year with their employee pricing 5 year fixed mortgage.  They stopped short of advertising the terms, leaving the actual rate flexible depending on response.  The problem with this campaign is that RBC doesn’t offer employee mortgage rates that are any better than what they offer the public.  The biggest hiccup in this campaign, I’m sure, are all the RBC employees left scratching their heads and looking for their “special” mortgage rate.

Although BMO has ended it’s now famous 2.99% mortgage rate, the 4 year specials abound in the market.  The reality is that there’s no magic in a 5 year mortgage term and there’s no rationale to defend it as better than say a 4 or 6 year term.  The usual argument in favor of a 5 year fixed mortgage term is a good balance between long term security, mortgage rate and flexibility.  In fact depending on one’s circumstances a 4 year mortgage term could be a much better offer than it’s 5 year counterpart, but only time will tell.

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