Sometimes It’s Hard To Know Which Mortgage Term To Choose
In this post, we are going to look at the general guidelines of a 10-year fixed term and compare it to other Mortgage Terms like 5-year fixed, and variable.
Most clients choose a 5-year fixed mortgage.
Generally speaking, the Canadian mortgage market is very insulated and historically has not seen massive volatility in rates. We would have to go back to 1989-1991. During this timeline, there were massive spikes in interest rates that inevitably caused clients to lose their homes. Can this happen again? Unfortunately, I cannot say yes or no. What I can do is explain the benefits and obstacles of a 10-year term.
10 Year Fixed Term
In a 10-year fixed term, your interest rate is locked during those 10 years. A variable rate in the market would typically come with a much lower rate. Market fluctuations would affect your Adjustable Rate Mortgage, as the Normal Variable Rate mortgage is hard to come by. 10-Year Fixed Terms offer no such increases or decreases. After the 5th year anniversary, you can look at the market and choose to break this 10-year term, with the exact same Mortgage Penalties as an adjustable-rate mortgage – 3 months of interest.
The 5-year term does give a general sense of stability to a client looking to calm their nerves when dealing with the choice of up and down or steady. 5-year terms typically come with one goal in mind – lock and renew in future. When discussing a 10-year term mortgage, paying your principal amount typically becomes the main focus. In essence, the 10-year term is built around a Mortgage Payoff Plan.
The rate for the 10-year term will often be higher than any other term, as such you need to adjust your budget to this new mortgage payment. When we look at how this payment affects your balance over 10 years you will see the difference. We can adjust your amortization on this mortgage to match the principal payoff balance, meaning you pay off your balance by the Mortgage Maturity date. There are many options when discussing the 10-year term.
Once again in the 10-year term, you are locked in for the first 5 years; after this date you can break the term, paying a 3-months interest penalty. If this makes sense, we can lower your rate. If you don’t need to access your equity, then you will not touch your mortgage for 10 years, and let the paydown happen.
Always talk to your Mortgage Broker/Agent about all mortgage plans. When picking a 10-year rate make sure it is built around a paydown plan. Let us know if you need any help or want to chat about mortgage options. Call us Today at 519-419-3825
