Does 10 yr fixed rates make sense now?…

Fixed rates are still low…  and a question I seem to get asked more often these days is, “when does it make sense to take a 10 year fixed rate?”  And the answer, for me, is almost never.

Today, you can find a good 10 yr fixed rate under 3.70%.   That’s a historical low rate for a 10 yr term.   When you hear ‘record low’, it’s worth taking a look.

THE GOOD:

• peace of mind… there is something to be said for knowing what your payments will be for the next 10 years.   It’s like buying insurance.
• we are at historical low 10 year rates.
• if you paid your mortgage out after the 5 year mark, your penalty is capped at 3 months interest (a hidden provision in our mortgage laws…. I’m sure the Bankers are trying to get this removed too).

THE BAD:

• it’s like buying insurance… and insurance always comes at a cost… today, you could choose a rate as low as 2.59% (depending on what term and product you choose).  Even a 5 yr fixed product is around 0.70% lower… that rate insurance will cost you around $9,500 during the first 5 years on a $300,000 mortgage.
• Canadians move or change their mortgage every 3 years on average… if you have to pay your 10 yr mortgage out, the penalties would be incredibly high.. !
• historical data tells us that it rarely pays to take a 10 year term…. instead, Variable or shorter term fixed rates make more sense…

For some people, 10 yr fixed is still right for them.  They want that peace of mind, even if it costs them that much more.  So yes, sometimes it makes sense.   For the majority of us, it’s probably not the product of choice.

As always, I welcome your comments and questions….. looking out for your best interest…!

Steve Garganis 416 224 0114 steve@mortgagenow.ca