1 year Fixed Rate MortgageFixed-rate mortgage with fixed interest rate for 1 year
1-year fixed interest rate - how it works
A 1-year fixed-rate mortgage allows the borrower to fix the interest rate and the disbursement of their mortgage for a period of 1 year. The mortgage is due for repayment at the end of its life. The interest rate on 1-year fixed-rate mortgage loans is moving in close tandem with the Canadian government's 1-year bonds.
Creditors typically calculate the borrower's actual rate of return plus the rate they consider appropriate, taking into account prevailing economic and competition circumstances. Financially, the spread is the spread between what the bank pays on a sovereign loan and what it charges the client, and is generally between 1% and 2%.
You can see below that 1-year fixed-rate mortgage loans have been following bonds yield carefully over the last ten years, increasing in the years before the 2008 downturn and then declining sharply: Just about 6% of Canadians opt for 1-year mortgage interest but there are many good causes for this. Receive 12 month interest rate coverage and can do with your mortgage at the end of the year anything you want without punishment.
1 year mortgage is an excellent choice for borrower looking to see what the interest rate landscape will be like in a year. It is a low-interest replacement for the floating interest rate. A 1-year fixed rate is a good trade-off for Bank of Canada borrower concerns about interest rate increases. Fixed income returns have dropped sharply, so that interest rate levels for 1-year fixed-rate mortgage loans are almost as low as their floating rate equivalents.
It is no mystery that the 1-year fixed-rate mortgage is an outstanding option in today's bearish interest rate climate. Borrower can relish the lows for a year and then find even lower interest when their mortgage is due for redemption. There is a little more you can afford than you would with a good floating rate annuity offering.
Floating rate mortgages have interest rates that are near or consistent with the base rate, and have in the past surpassed most fixed rate mortgage offerings.