Consider a 10-year term for your mortgage if you are worried about future interest rate increases.

Planiprêt | 17 June 2013

Economic experts will tell you that, aside from 2 or 3 exceptions over the last 25 years, it has always been wise to take out a 1-year term or a variable mortgage. That being said, rates are currently at an all-time low, so doesn’t it make sense they will increase soon? If you believe that the rates will move upward over the next few years, it might be time to consider taking a long-term mortgage. In Quebec, the vast majority choose a 5-year term for their mortgage. But why not secure your rate for 10 years? Today, June 17, 2013, the 10-year rate is only 3.69% and the 5-year rate is 3.04%. For a $200,000 mortgage, the difference in monthly payments between a 5-year and 10-year rate is $68.10. The difference between the 1-year and 10-year rate is $113.79. In other words, the difference between these payment schedules is equivalent to a form of insurance against payment fluctuations over the next 10 years. Who should opt for a 10-year term for their mortgage?

Buyers/owners who cannot absorb a rate increase in 5 years
Buyers/owners who value peace of mind and don’t want to worry about interest rates for the next 10 years.

What will happen if I have to sell my property or refinance it? It is possible to take a transportable mortgage that you can bring to the next property? For a refinancing, your rate could be blended with the new rate. In both cases, you will not pay any penalties and you can keep your low rate. What is the drawback to taking a 10-year rate? If, in the first 5 years of the mortgage term, the rates are lower than your 10-year rate, and you decide to sell your property without buying another one (therefore, not transporting the mortgage), the penalty will be calculated on the loss of interest for the number of months remaining on the contract. This could prove to be rather high. The rates would have to be lower than your 10-year rate, otherwise the penalty would only amount to 3 months interest. Therefore, if you are looking for peace of mind, and the 10-year rate seems like an interesting solution, call me and we can discuss your options. Because every client is unique, I would be able to analyze your personal financial situation and needs to help you make the best possible decision. For more information regarding the different mortgage options available on the market today, do not hesitate to contact me. It would be my pleasure to answer all of your questions and help you through the process.

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Consider a 10-year term for your mortgage if you are worried about future interest rate increases.

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