Today, as a homebuyer, because interest rates are so low and there are indications interest rates may still fall, what mortgage term/product should you take?

FIVE YEAR FIXED MORTGAGE

Traditionally, most buyers have felt comfortable with a 5-year term. This guaranteed the borrower fixed monthly payments for 5 years. Today, a 5-year mortgage is available for as little as 5.10% (a 40 year low). By all accounts this is truly a remarkable 5 year interest rate! The only downside of committing to a "longer term" position is if rates continue descending then you are forced to sit on the sidelines. This being said there are two other options available to help negate this potential concern.

THREE MONTH FIXED MORTGAGE

Option one is to take a three-month fixed mortgage (currently available at 3.5%) and simultaneously, with the same lender, obtain a 90-day rate guarantee for a longer-term position (for example, a 5-year term). This strategy eliminates any interest rate risk. You obtain the benefit of a low three-month rate and during that period you can evaluate the interest rate movement. If interest rates go up significantly, you have already secured a 5- year term that would commence at the end of the three-month term. If at the end of the three month term rates have fallen and you are still of the opinion there is more downward movement then repeat the same steps (i.e., take another three month term and concurrently obtain a three month rate commitment.) I have recommended this strategy to my brother and his fianc� and it has worked out fabulously well with NO risk!! Remember, during the 90-day rate guarantee period if rates drop you can revise your own rate guarantee to reflect the lower rates.

VARIABLE RATE MORTGAGE

Another very popular mortgage product today is a variable rate mortgage. The interest rate moves with the prime rate and you typically have to commit to a 5-year period. Many financial institutions will offer an introductory six-month variable mortgage rate for as little as 2.75%. At the end of the six-month period, the rate will be set at prime less .4%. Today with the prime being 4.5%, your mortgage (after the initial six months) would be 4.1%. The "risk" with this mortgage product is if the prime rate rises substantially then both your interest rate and monthly payments will adjust accordingly.

You do have the option, however, to "lock in" the mortgage for the balance of the five-year commitment if you anticipate rates will be on the rise permanently. It is important to know in advance, the rate your lender will allow you to lock in for a longer-term position. If it is the posted rate as opposed to the discounted rate than this will clearly cost you more money.

Consult with your Realtor and Banker/Mortgage broker to determine which of these options is best suited to meet your needs.

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