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Hello and welcome to another consumer tip, courtesy of your friends here at TMG The Mortgage Group. And welcome to another week of historically low mortgage rates.
A big question I am being asked is whether home owners should lock in for a 10 year term or a 5 year. At the time of this recording a 5 year fixed is approximately 3.1% and a 10 year is at 3.95%.
It is often hard to figure out which way to go. Determining the missing number that would make the 10 year vs 5 year decision a lot easier, would involve having a crystal ball and knowing what the 5 year rates will be in 5 years.
We both know, no one has a reliable crystal ball so we have to fall back on the mathematical calculation I learned about in grade 8.
The calculation has to do with averaging. What we want to do is find out what the rate would have to be in five years to make it worth while going with either a 10 year or a 5 year. I won't go into the mathematical formula but I have done the calculations and the magical number is 4.8%
So if you think 5 year mortgage rates 5 years from now will be under 4.8% then go with the 5 year fixed now, if you think they will be above 4.8% in five years (and historically they have been higher than this) you would opt for the 10 year.
No one knows where the rates will be so it comes down to where you feel the rates will be and how much risk you want to take on.
There are some additional considerations that come in to play and if you would like to discuss my thoughts on what you should do, feel free to give me a call or send me an email. I'm John Charbonneau here at TMG The Mortgage Group, reminding you that we are never to busy to let you or any of your friends know what your mortgage options are.