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Fixed Mortgages: 10 Year vs. 5 Year

10-Year-Mortgage-Research After our 10-year mortgage story, one of our readers posed the question of how often 10-year mortgages were a better choice than 5-year mortgages.

We did a study on this a few years ago and decided to update it for this story.

To see how 10-year terms sized up, we:

  • Looked at all available 5-year fixed rate data back to 1967–the earliest 5-year data readily available.*
  • Added a 1.25% premium to 5-year fixed rates to arrive at an approximation of 10-year rates.
  • Compared the 10-year rate to the average five-year rate a borrower would have received for two consecutive 5-year terms.

The data showed that homeowners would have come out ahead by choosing the 10-year term in only 49 out of 508 months.

While not a strictly scientific result, this statistic (1 out of 10), is similar to findings in the prominent fixed vs. variable studies. In other words, it appears borrowers don’t win long-term by paying big rate premiums for “safety.”

Some people will nonetheless say it’s different this time, and feel it’s worth paying 1.25% more for five extra years at a pre-determined interest rate.

There’s no denying that rates are at all-time lows today. Moreover, the odds of rates rising in the short to medium term appear greater than the odds of rates falling.

Nonetheless, the available data and modern low-inflation monetary policy both support the premise that 10-year mortgages are too expensive.  Therefore, for most, it appears wise to avoid them.


Sidebar: Special thanks to the Bank of Canada for the data used in this study. * Data Notes: Prior to 1978 the conventional mortgage rate data was a simple average of rates charged by a number of large institutional lenders, including chartered banks for residential mortgage loans as at midmonth. Between 1967 and 1970 the average 5-year rate data also includes rates for 25-year mortgages.