Lender | Rates |
---|---|
While most mortgages in Canada have a term length of a few years, with 5-year fixed mortgages being especially popular, a 6-month mortgage is also an option for home buyers. As the name suggests, a 6-month fixed mortgage has a rate that is locked in for a period of 6 months. It also means that the borrower is only locked in for 6 months, which is its main advantage.
If you’re looking for the shortest mortgage term, then you’ve found it with a 6-month mortgage. Most lenders in Canada don't usually offer fixed mortgages for less than 6 months. A notable exception is National Bank, which offers a 3-month fixed mortgage.
In addition to the 6-month mortgage, the next shortest term options are typically 1 or 2-year terms. These still provide some flexibility and potentially lower interest rates compared to longer-term mortgages, but may not be as short as a 6-month term.
A 6-month fixed mortgage may be a good option if you are planning to sell your home in the near future or if you prefer shorter mortgage terms with more flexibility, due to their shorter commitment. However, it's important to carefully consider the potential risks and disadvantages of a 6-month mortgage term before making a decision.
Additionally, it's important to note that a 6-month fixed mortgage is not as common as longer-term mortgages in Canada. This means that there may be fewer options available.
If you’re looking for an alternative to a 6-month fixed closed mortgage and want the ability to pay off the mortgage at any time without penalties, then an open mortgage is an option. The difference between open and closed mortgages is that an open mortgage is a type of mortgage that allows you to pay off the entire balance at any time during the term without incurring any penalties. As an open mortgage, the term length can be longer without impacting your ability to prepay your mortgage early. There are even 6-month open mortgages available at some lenders if you need even more flexibility.
With a closed mortgage, how much you can make in additional payments is often limited. This limit is typically 15% or 20% of the original principal each year, with interest penalties for paying more than this. In exchange for this, closed mortgages have lower interest rates, while open mortgages have higher interest rates.
If you’re looking for an alternative to a 6-month fixed mortgage and want the ability to benefit from decreasing mortgage rates in the near future, another option is to get a variable mortgage rate. This type of mortgage follows the market and adjusts its interest rate based on changes in your lender’s prime rate, which is affected by rate decisions by the Bank of Canada. As a result, when interest rates decrease, so too does your mortgage rate. However, it’s important to keep in mind that if interest rates increase, so will your mortgage rate.
If you sell your home before the end of a long-term mortgage, you may be subject to penalties or fees. This is because when you take out a mortgage, you are agreeing to pay back the loan over a specific period of time. If you end the mortgage early by selling your home, lenders may charge a mortgage prepayment penalty. This may be avoided by porting or transferring your mortgage, if it won’t be fully paid off.
On the other hand, with a 6-month fixed mortgage, you have the option to refinance or switch to a different mortgage term after the six months is up without incurring any penalties. This can be beneficial if you plan on selling your home within a short period of time.
Qualifying for a 6-month fixed mortgage is similar to qualifying for any other type of mortgage. Lenders will check your credit score, income, and debt-to-income ratio to determine if you are eligible.
However, since a 6-month fixed mortgage often has a higher interest rate than other mortgage terms, the mortgage stress test may have a higher mortgage qualifying rate. That’s because the stress test will be either at your 6-month fixed mortgage rate + 2% or a floor of 5.25%, whichever is higher. This means that you may need a higher credit score or a lower debt-to-income ratio to be approved for this type of mortgage.
Most convertible mortgages are for a 6-month term with a fixed interest rate, while some lenders also offer 6-month variable mortgages. Convertible mortgages are a type of mortgage that allows borrowers to switch to a longer-term closed fixed mortgage at any time during the term. This can provide flexibility and allow for potential savings if interest rates decrease.
Disclaimer: