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5+ Year Terms – What To Know

Mortgage Tips Michelle Foster 3 Jul

5-year mortgage terms are by far the most popular option for Canadian homeowners. However, 10-year terms do exist. If you are thinking about signing on for a long-term mortgage, here’s some things to consider.

PROS:

  • Stability. Your mortgage payments will be fixed and not go up for a decade, while theoretically your income and property value should increase over time. Knowing your payment is fixed makes budgeting your finances a lot easier, and if you lock in at a low rate, you get to enjoy that rate for the next 10 years. If you are on a fixed income and know you will be receiving that income for a long time, a 10-year term can provide you with a manageable payment and the peace of mind that you can afford your payments for the foreseeable future.

CONS:

  • Inflexible. The average time a Canadian homeowner spends in their mortgage in 38 months. That means that typically every 3 years or so people are moving, switching their mortgage, getting a divorce, or refinancing. If you are on a fixed mortgage rate, you will be charged an interest differential and pay big bucks to break your mortgage. However, after staying in your mortgage for 5 years, your penalty would convert to a 3-month-interest penalty. But if you think you’ll be breaking your mortgage in the next few years, a 10-year term does not make sense.
  • Expensive. Did you know that 10-year rates are generally higher than 5 year rates? While you may be gambling that rates will be increasing in the next few years and you want to lock that low rate in now, none of us owns that crystal ball to know what rates will do 1 year from now, let alone 10.
  • Lengthy. Do you remember where you were 10 years ago? Chances are your life looks a lot different today than it did back then. If you sign on for a 10-year mortgage today, chances are your financial needs and homeownership needs will change within 10 years, and you’ll end up breaking that mortgage early. 10 years is a long time, and a lot can change.

For some, it can absolutely make sense that they want the stability of a long-term mortgage. But for the majority of Canadians, change is inevitable and your mortgage is likely to change with you. Always talk to your mortgage broker or financial planner about your long-term homeownership goals, and always feel free to reach out to me at any time for more information about mortgage terms.