TD Drops Its 10-Year Fixed To 4.99%

TD-Bank If the fear of rising rates makes your arm hairs stand up, consider this new option from TD:  a 10-year fixed rate of 4.99%.

TD says it’s the bank’s lowest 10-year rate ever.  It’s definitely one of the lowest long-term rates we remember a bank advertising.

On the face of it, 4.99% for 10 years seems like a relative gem for a variety of reasons:

  • Fixed rates are almost guaranteed to go higher in the next 12-18 months (Yes, we know, famous last words…). Where they stop, nobody knows.
  • Just 15 months ago people were paying over 5% for 5-year mortgages.
  • 4.99% is low for even 5-year rates, when viewed over the long term. In the last 10 years, for example, discounted 5-year rates have averaged 5.22%.

So if you want a 10-year term, TD’s offer is compelling.  It's available through both mortgage planners and TD
branches.

But a 10-year isn’t ideal for everyone. 

To illustrate, try comparing the obvious alternative:  two successive 5-year fixed mortgages.

If you:

  • Get an initial 5-year fixed rate of 3.69%
  • Set your amortization to 25-years
  • Make the same payments on the 5-year fixed that you would with a 10-year fixed (for the first five years),

…then 5-year rates would have to increase roughly 4% by renewal (in five years) in order for the 10-year fixed to save you more money. 

That’s possible, but if we are to believe that Canada is in an era of modest growth and low inflation, it doesn’t seem overly probable. Indeed, very few economists seem willing to predict 4% higher rates within 60 months.

Whatever the case, ‘safety’ comes at a price and insurance is rarely cheap. On a $200,000 mortgage amortized over 25 years, you’re guaranteed to pay over $12,000 more interest for a 10-year fixed in the first five years.  Is it worth it?  The odds suggest it probably isn’t (see: 10-year Fixed or 5-year Fixed). 

Every homeowner is different though. If you’re unsure about the best term for you, talk to a mortgage professional for a 2nd opinion.

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Sidebar: People hate lender penalties, especially the evil IRD.  One nice thing about 10-year terms is that you can break them after five years with just a 3-month interest penalty.  So if rates are a lot lower than expected in five years, you can refinance at a fairly reasonable cost.

  1. What a rate.. Really like the analysis.
    @the sidebar: Even still, when calculating the IRD, would it not be ridiculously large within those first 5 years, as the remaining term is so long?

  2. Since we can assume TD is in this gig to make money, this has to be an indication that they do not believe we will see rates rise all that high over the next 10 years, right? Otherwise they make less money on the folks who sign up for this 10 year rate.
    I know rate speculation is a sucker’s game, but that’s really what Banks do when they set fixed rates, isn’t it?
    And, yes, I know that fixed rates and prime are not strictly linked, but the two are rarely divergent by more than a point or two. Currently they are about as divergent as they have been over the last 10 years.

  3. Wow, not really, you can 15 yr mortgages in the USA for 4.15% and 30 yr mortgages for the same as TD’s 10 yr rate. How come we can’t have that here?

  4. Bob
    Not really. Lenders usually lock in a profit spread when the mortgage funds. So it doesn’t matter what rates do. They don’t care.
    Jim

  5. Yes. If you plan to break your mortgage within 5 years then don’t get a 10 year.
    Very few people do that I find. People who get 10 year terms are usually in for the long haul.

  6. Considering that in the US you could have had a 30-year mortgage at 4.75% a few months ago, I really don’t see what the big deal is about 4.99% for a third of that time.
    The 10-year term market in Canada is very limited so I really don’t understand who they’re hoping to catch with this one. With adjustable rates set to go up this summer, perhaps they’re trying to get the type of people who are still procrastinating about choosing adjustable or fixed. Remember that TD’s “special” rate for a 5-year term is around 4% so I guess they’re trying to appeal to those who’d rather pay an extra 1% and lock in for the double the time.

  7. “A few months ago” and today are really two different things and you can’t compare US and Canadian rates. They are very different rate markets.
    As far as 4.75% is concerned. In the US that means 4.75% plus points (pre-paid interest) plus high closing costs. These things routinely add 1/2% to 2% to the mortgage.

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