There is always a great deal of speculation about the future of mortgage interest rates. Where are they headed? How soon will rates start to rise? How can I protect myself from interest rate hikes that may compromise my ability to continue to own my home?
The 10 year rate buys peace of mind as you know your fixed cost for 10 years which is a very long time. Think back to where you were in life – family, financial, economic – and consider how much things have changed during the past ten years.
One more important benefit is that if you need to discharge your mortgage after 5 years, under Canadian law any mortgage with a term longer than 5 years, financial institutions can only charge you 3 months interest to break your mortgage. This penalty could be much lower than even the interest rate differential on shorter term mortgages which could end up costing many thousands of dollars more.
In addition, if you are coming off a higher rate mortgage and you are comfortable paying that amount, consider continuing to pay at that same rate even after renewal at today’s lower rates. This will have significant impact on the outstanding principle over the 10 year term of the new mortgage. In addition, consider switching your payments to weekly or bi-weekly instead of monthly. It won’t cost any more than you are already paying but there will be a major impact on the amount of mortgage outstanding at the end of the term.