The 10-year Fixed Mortgage
Practically speaking, the 10-year fixed is Canada’s longest mortgage term. Some lenders have 18- and 25-year terms, but their rates are not economical.
People choose 10-year terms because they desire much longer rate and payment certainty than a 5-year fixed.
Ten-year mortgages have a few disadvantages, however:
- Fixed rates can have higher penalties for early termination. Major bank penalties, in particular, can be relatively extreme as they are calculated using the bank’s posted rates instead of its actual rates.
- 10-year mortgages have historically cost borrowers much more interest than variable and shorter-term fixed rates.
- 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.
Here are a few more tidbits about this particular term:
- Roughly 5% of borrowers choose a 10-year fixed term.
- Most lenders pay your legal and appraisal fees when you switch into a 10-year mortgage. (Note: You cannot typically “switch” a collateral charge mortgage or a mortgage linked to a line of credit. Those types of mortgages must be refinanced when changing lenders.)
- The maximum penalty by law is three months’ interest if you break a fixed mortgage after 60 months.
- 10-year terms are generally the most profitable term that a mortgage salesperson can sell (because the compensation is highest).
If you want to guesstimate where 10-year rates are headed short term, keep an eye on Canada’s 10-year government bond yield (below).