10 Year Fixed Rate Mortgage or 5 Year Fixed Rate Mortgage

April 5, 2012

Should You Take A 5 Year Fixed Or A 10 Year Fixed Rate Mortgage?
Mortgage borrowers hava lots of choice when it comes to the term of their mortgage. Here in Canada, the most popular option is the 5 year term. The hard part was deciding between fixed vs. variable.  But with variable rate mortgages being priced out of the market right now we’ve got a new kid on the block. The 10 year fixed rate mortgage is gaining some serious attention and an option being considered by many mortgage borrowers right now.
The 10 Year Fixed Rate Mortgage: An Option For You?
Before last month when 10 year term mortgages became available for 3.99% I had never arranged one. They just weren’t that attractive. I went further back and asked my Dad if he could recall the last time he arranged a 10 year term mortgage. He couldn’t remember either. In fact, according to a mortgage industry report by The Canadian Association of Accredited Mortgage Professionals only 1% of Canadian mortgages are arranged as 10 year term mortgages. Far and few between.
The Ultimate Long Term Rate
The 10 year term fixed rate mortgage below 4% provides a borrower with the ultimate long term rate. A decision to take a 10 year fixed should be made according to ones risk profile and their short term mortgage needs. By taking a 10 year fixed a borrower is paying about a 0.50% premium today compared to a fixed 5 year at 3.49% for the long term rate security of 3.99%. It’s just like hedging your bets.
Some Features Of The 10 Year To Keep In Mind

  • According to Canadian law the maximum penalty that can be charged after the 5th anniversary of the mortgage is only 3 months interest. Before the 5th anniversary it’s the standard “greater of 3 months interest or interest rate differential” clause.
  • Depending on your lender a 10 year term mortgage is portable to a new property if you decide to move. Most lenders will also allow you to blend your mortgage if you require additional funds.
  • Most lenders will also allow your mortgage to be assumable, meaning that a purchaser of your home can assume your current mortgage. This might be very attractive in the future when rates go up.

Which Option Is Better?
There’s a lot of debate about which mortgage option is better. To date, I haven’t seen one clear winner. Both options offer benefits and drawbacks. Will there ever be a clear winner? Tough to tell. However, with interest rates having only one direction to go, I doubt any borrower will regret the decision to take on a 10 year after the first 5 years are up.
If you’re wondering whether to go 5 or 10 year, feel free to give me a call. I love question, and answer them all. If you’d like to meet face-to-face, reach out to me and we can set something up. Would love to hear from you and feel free to comment below and to share your thoughts.


Christopher Molder

Mortgage Broker

Christopher is a mortgage broker based in Toronto, Canada. And a son of a broker too. He’s a second generation mortgage broker. Following in his father’s steps he joined the family mortgage business straight out of university.