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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

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.


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.