How Low Can it Go?

January 28, 2013

Mortgage Monday

We’re talking about the 10-year fixed mortgage rate.  Last year we saw them dip below the 4% mark (see some previous posts from last year: 10-Year Mortgage Below 4% & Should You Consider a 10-Year Mortgage?) and many Canadians started to make the switch to the previously unpopular 10-year term.  The 10-year mortgage continues to be popular this year, with rates dropping even lower.

Last week, mortgage brokers started seeing rates below 3.8%!  Just a few short years ago, anything below 3.8% for a 5-year term was considered fantastic, but now Canadians can lock in for 10 years at rates below 3.8%!

Usually, the main concern about locking in for 10 years is the penalties.  If you have to get out of that mortgage early for one reason or another, mortgage penalties can be outrageous – especially if you have to break the mortgage in the first 5 years of a 10-year term (though with most mortgages you can easily port it to a new house, so it’s not like you’re locked into that property for 10 years…).  But what most people don’t realize, in Canada, the most your penalty can be beyond the first 5 years of the term is a 3-month interest penalty.  So once you’re out of the first 5 years of a 10-year mortgage, the penalty to break that mortgage is quite low.

The best way I’ve heard it described is this:

Think of it as a slightly higher 5-year rate, and with that slightly higher rate, in 5 years you have the option to renew at the same rate for an additional 5 years. The cost of not exercising that renewal option is only a 3-month interest penalty.


A 10-year fixed rate mortgage is not for everyone. But if you’re looking for rate (and payment!) stability, and are likely to stay in your mortgage for at least 5 years, be sure to talk to your favourite mortgage broker about the 10-year term – it could end up saving you tens of thousands of dollars over the next decade.

About Tim

Tim is a mortgage agent in Barrie who specializes in helping first-time home buyers. He works with a variety of lenders and can help customize a mortgage with the best rates & options that fit the needs of each customer.

View all posts by Tim

No comments yet.

Leave a Reply