What does a 5 year loan mean?
A 5-year
You'll likely have to pay a higher interest rate.
A longer term is riskier for the lender because there's more of a chance interest rates will change dramatically during that time. There's also more of a chance something will go wrong and you won't pay the loan back.
If you are risk-averse and prefer stability and certainty, a 5 year fixed mortgage may be a good idea for you, as it will protect you from any interest rate rises and give you peace of mind for the entire set period.
However, if current 30-year mortgage rates are too high, a 5/1 ARM rate can make sense — especially if you're planning to relocate within five years. You may even want to stash the savings from a five-year ARM payment into a moving expense account.
Longer commitment: A five-year fixed rate mortgage is a longer-term commitment, which means that you're locked in to the mortgage rate for a longer period of time. If you anticipate that you might want to move or refinance your mortgage within the next five years, a shorter-term mortgage may be a better option.
Being accepted does not mean that you have to accept the money. Instead, it simply means the lender has accepted your application and is willing to loan you the funds you applied for in the form of a loan. Fortunately, choosing not to accept a loan that you are approved for does not yield any consequences on your end.
What are the mortgage interest rates today? As of March 18, 2024, the best 5-year fixed mortgage rate in BC is 4.79%, while the best variable mortgage rate in BC is 5.95%.
The expected decreasing inflationary pressure, plus the added impact of a falling federal funds rate in 2024, is likely to push mortgage rates lower. But while the Fed raised its benchmark rate fast in 2022–2023, it's expected to bring rates down at a much more gradual pace in 2024 and beyond.
Mortgage rate predictions 2024
While there's some dispute on exactly how much rates will decrease, the general consensus is that mortgage rates will go down in 2024, and they could even end up close to 6% by the end of the year.
Some ARMs may require you to pay fees or penalties if you refinance or pay off the ARM early, usually during the initial period (the first three to five years) of the loan. Prepayment penalties can total several thousand dollars. It's important to know about these potential extra fees before you take out an ARM.
Can you refinance a 5 year ARM?
You can refinance an adjustable-rate mortgage, and it's just as easy as refinancing any other loan. By refinancing, the borrower is replacing their existing loan with a new, updated loan – usually a fixed-rate mortgage.
After the first five years of the loan term, rates become fully indexed interest rates that adjust annually. In many cases, interest rates increase and the new rate can be as much as 5% or 6% higher than the initial rate.
If you break your closed mortgage contract, you normally pay a prepayment penalty. This fee can cost thousands of dollars. Before breaking your mortgage contract, find out if you'll have to pay: a prepayment penalty and, if so, how much it will cost.
If you have a fixed-rate mortgage, your mortgage payments will not drop over time. However, the amounts that comprise your loan do change over time due to your amortization schedule — the schedule of your payments.
| Product | Interest Rate | APR |
|---|---|---|
| 30-year fixed-rate | 6.753% | 6.838% |
| 20-year fixed-rate | 6.710% | 6.817% |
| 15-year fixed-rate | 5.929% | 6.068% |
| 10-year fixed-rate | 5.726% | 5.935% |
You should not use a loan to fund weddings, vacations, other luxuries, monthly bills, or investments because doing so can quickly lead to overwhelming debt.
A prepayment penalty is a fee that some lenders charge when borrowers pay off all or part of a loan before the term of the loan agreement ends. Prepayment penalties discourage the borrower from paying off a loan ahead of schedule (which would otherwise cause the lender to earn less in interest income).
Short-term loans can hurt your credit if they are not managed responsibly or if they require a hard inquiry into your credit, which can drop your score by about 5-10 points.
These loans are considered less risky compared to long term loans because of a shorter maturity date. The borrower's ability to repay a loan is less likely to change significantly over a short frame of time. Thus, the time it takes for a lender underwriting to process the loan is shorter.
Short-term loans can actually be a really good option and make financial sense. Less Interest – More and more interest is added to your balance the longer you owe money to the lender. With a shorter term, you will be paying everything back quicker. Thus, there is less time for interest to accrue.
What banks have the best mortgage rates right now?
- Better, 3.89%
- Bank of America, 4.20%
- Citibank, 4.23%
- Amerisave, 4.33%
- DHI Mortgage Company, 4.34%
- PNC Bank, 4.35%
- Home Point Financial, 4.35%
- Navy Federal Credit Union*, 4.38%
A five year mortgage, sometimes called a 5/1 ARM, is designed to give you the stability of fixed payments during the first 5 years of the loan, but also allows you to qualify at and pay at a lower rate of interest for the first five years.
In today's market, a good mortgage interest rate can fall in the high-6% range, depending on several factors, such as the type of mortgage, loan term, and individual financial circ*mstances. To understand what a favorable mortgage rate looks like for you, get quotes from a few different lenders and compare them.
If inflation falls significantly and the economy enters a deep recession, it is possible that mortgage rates could fall back to 3%. However, this scenario is considered unlikely by most economists.
Goldman said it expects 30-year mortgage rates will drop to 6.3% by the end of 2024, and fall slightly in 2025 to 6% as the Fed starts to cut interest rates. Previously, Goldman had expected the 30-year mortgage rate to be at 7.1% by the end of 2024 and at 6.6% by the end of 2025.
