10 Year Fixed Mortgages

If you look hard enough you’ll find some brokers able to quote 4.99% for a 10-year fixed mortgage.

It requires a 30-day “quick close,” but nonetheless, this is the first time we’ve heard of a decade-long rate lock for under 5%.

That might well entice the most risk-adverse of borrowers. However, 10-year mortgages are far from a no-brainer.

A 10-year mortgage is basically an insurance policy for the last five years of the term. Borrowers pay significantly more interest for that extra five years of assurance. Take a $100,000 mortgage amortized over 25 years for example. You’d pay $5,455 more interest over the first 60-months with a 10-year at 4.99%, compared to today’s typical 3.85% 5-year fixed mortgage.

Looking back through history, there haven’t been many times when a 10-year at a 1%+ rate premium was a better choice than a 5-year. But, we’ve also never had a 0.25% Bank of Canada rate.

Given the Bank of Canada has dropped rates 4.25% in the last 16 months, one might assume they’ll hike at least a few percent when the economy improves. If that happens, perhaps 10-year terms at 4.99% will be remembered fondly a year from now, and viewed as a bargain.

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Sidebar: People hate lender penalties, especially the evil IRD. One nice thing about 10-year terms is that 3-months interest is the most homeowners pay to break the mortgage after five years. That’s thanks to the Interest Act.