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Ten Year Fixed Rate Mortgage - Peace of Mind for the Long Haul

In our last post we took a look at what the Bank of Canada's recent interest rate announcement means for mortgage rates, both fixed and variable.  Today we're going to take a quick look at the Ten Year Fixed Rate Mortgage.

Longer terms have become far more popular over the last year.  Ten year fixed rates are now available as low as 3.69%.  Although this is a bit of a jump from the Five year rates of 2.99% or the rates on shorter terms, they could turn out to be a good long term investment, or at least provide long term peace of mind.  

It’s helpful to break a ten year mortgage into two halves and look at it this way:  In exchange for taking a fixed rate for the first five years at 3.69% (not far off some of the five year rates we've seen over the last year) the lender is promising to give you another five year fixed rate at 3.69% 5 YEARS FROM NOW.

Consider the mortgage landscape five years ago before the economy was flooded with artificial stimulus.  A five year fixed rate under 5% was unheard of.  If we see rates rise by even 2% over the next five years the best five year fixed rates will rise to about 5%.  Compared to a five year fixed rate your interest on the ten year mortgage would be 0.6% higher during the first five years but would then be 1.3% cheaper for the last five years.  Unless you are on a very aggressive pay down schedule you might come out ahead.

Whether a 10 year mortgage is right for you will depend on your own situation, your long term plans and your ability to pay down your mortgage early.  But if you plan on owning your house (or another house to which you can move the mortgage) for at least the next ten years or so there’s no denying the attraction of getting a rate that was unheard of a couple of years ago and not thinking about it for the next ten years.  

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