The 10-year fixed mortgage: Is stability worth it?
While the vast majority of homeowners opt for the a 5-year (or less) fixed term, there are some Canadians that prefer to lock in a 10-year rate. Choosing a 10-year term is a great option if you want stability throughout your mortgage.
In an unpredictable world where interest rates fluctuate, a 10-year fixed mortgage can offer peace of mind with long-term, stable payments. However, this product comes with trade-offs, like slightly higher interest rates and potentially large prepayment penalties. That said, in certain situations, it can be the perfect solution for homeowners who prioritize predictability over short-term savings.
The appeal of the 10-year fixed mortgage
Most Canadian homeowners go with the 5-year fixed term because it strikes a good balance between interest rate security and flexibility. With a 5-year term, you have the option to renegotiate your mortgage every 5-years without committing further.
Only about ~5% of Canadian borrowers choose the 10-year fixed term. But for those who are tired of the uncertainty that comes with rate fluctuations, the 10-year fixed term can lock in a predictable rate for the next decade.
The risks and penalties of breaking a 10-year mortgage
Only a minority of people keep a home for 10 years. That raises the odds they’ll renegotiate before maturity and pay a penalty to get out of their 10-year mortgage.
While some homeowners benefit from locking in long-term rates, others learn the hard way about the penalties associated with breaking a 10-year mortgage early.
In Canada, prepayment penalties can be particularly steep during the first five years of a mortgage term. After that, the penalty drops to three months’ interest, as mandated by Canadian law.
When does a 10-year fixed mortgage make sense?
For those nearing retirement, property investors, or anyone who values long-term stability over flexibility, a 10-year fixed mortgage can provide peace of mind.
Some borrowers are motivated by memories of the painfully high rates from the 1980s, locking in a 10-year term is about avoiding a repeat of those nightmare scenarios and ensuring peace of mind for the long haul.
It’s a long commitment, and unless you have a very specific reason—like starting a business or seeking certainty in retirement—it’s often a tough sell, especially with today’s rate landscape. But if you’re seeking stability and are comfortable locking yourself in, from time to time, you can make a case for it.
The bottom line about 10-year fixed mortgages
The 10-year fixed mortgage isn’t for everyone. In fact, it’s not for most people.
While it offers stability and predictability, it comes at the cost of higher initial rates and the risk of significant penalties if you need to break it early. However, for those with specific long-term plans and a clear vision for the future, it can be a solid choice.
Contact your favourite mortgage broker to learn more and discuss the potential benefits and risks before making a decision. Whether you’re looking for security or flexibility, the right mortgage product is out there—you just need to find the one that best aligns with your needs.
Please remember!Removal of stress test for straight mortgage switches is effective Nov. 21, 2024The Office of the Superintendent of Financial Institutions (OSFI) confirmed that they will remove the mortgage stress test requirement for uninsured straight mortgage switches starting Nov. 21, 2024. This change will allow borrowers to switch lenders at renewal without having to qualify at the higher stress test rate. |
Candace Perko, Mortgage Broker
