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.