10-year Fixed Mortgages Break 5%

10-Year-MortgageIf 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 17 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.

  1. “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.”
    Links or it isn’t true.
    At what point was a 1% spread a better choice and in what conditions?
    I’m thinking that, compared to historical rates, borrowing at 4.99% guaranteed for 10 years is a pretty good deal no matter how you slice it.

  2. Does anyone else aside from me wonder why banks would even consider locking in at such a low historical rate for such a long time? Are they really dumb, or really smart?
    I’m going to go with really smart. The fools are those that drag their payments out for 25 or 35 years. Don’t do this people, pay your mortgage off and be free! Don’t get into the debt trap. Go VRM and pay the sucker off ASAP.

  3. “borrowing at 4.99% guaranteed for 10 years is a pretty good deal no matter how you slice it.”
    I’m thinking that you’ll lose money 9 out of 10 times or more with a ten year mortgage. This sounds very similar to the variable & fixed debate.

  4. Lose money is really a broad term. People lose money choosing active managed mutual funds every day and yet study after study comes out that a huge portion of managed mutual funds don’t beat their index/benchmarks.
    I guess the question really comes down to: In how many 10 year periods over the past X number of years is the split 5 year periods more expensive vs less expensive at 1%, 1.5%, and 2% rate differentials, and what cost is acceptable for a person to pay for knowing they have 10 years of a consistent rate?
    I’m not sure I have the time to figure that out, but the 5 year rate data is available on the bank of a Canada website. It looks to me like a large portion of the 60’s and 70’s it would have been better to lock in at glancing, just after a period in the 50’s of low rates . . . kind of similar to what we are seeing now.

  5. Historical comparisons beyond the last 18 years are of limited use. The Bank of Canada (and other central banks) didn’t adopt an inflation target until 1991.
    As Vince alludes to, it’s similar to the variable vs. fixed debate. You’re paying a premium for rate certainty. In the case of a 10 year, you’re paying more of a premium for a longer period of rate certainty.
    If you’re actually convinced that inflation is going to get wildly out of control, then perhaps a 10 yr fixed is the way to go – the 1 time in 15 or whatever that it pays off. Myself? I’d bet on the scenario that is far more likely.
    Al R

  6. I took a ten-year term at 5.0% about four years ago. I thought rates couldn’t stay so incredibly low, but looks like I was wrong. A fixed interest rate has to be viewed as an insurance policy, we are comfortable with ours.

  7. I locked in for 10yr at 5.85 last year at PC. I knew it was a mistake, but I chose to take bad advice. Can anyone here offer advice as to what I might be looking at for penalties? Or if I can even break such a mortgage. Oh boy, this game is far too intense for this soul….

  8. Aaa, stop worrying about it. Can you afford your living quarters and like owning it? 5.85% is a pretty good rate looking back, and you’re only 1 year in to a 10 year term. All the variable lovers might be singing your tune come 3 years from now, no one knows…. but you know what you’ll be paying the whole time.
    Same with Anjo, you won’t know how well you did until your term is over, no sense in guessing now.

  9. “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.”
    —- What does that mean? Can the auther eliberate it in more details?

  10. What about a 5 year mortgage – how many years is it before you don’t have to pay IRD penalties

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