Real Estate

10 year mortgage vs 5

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  • Jan 15th, 2021 1:54 pm
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[OP]
Deal Addict
Feb 4, 2010
4289 posts
3077 upvotes

10 year mortgage vs 5

My mortgage renewal is coming up this summer and I know I'll be able to secure a rate that's quite low for a 5 year fixed, but I can only imagine how high rates are going to be in 5+ years given the current situation and wondering if it's better to get a 10 year mortgage even if it's at slightly higher rate than a 5 year? Just looking for people's opinion on this.

Also, are there are credible sources that forecast what interests rates would like like in the 5+ years from now based current economic trends?

Also, I'm thinking of getting a HELOC (first time) for emergency situation - is it better to get it at the same when I'm renewing and with the same lender as the mortgage?
24 replies
Deal Expert
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Jan 27, 2004
45127 posts
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T.O. Lotto Captain
Thats something you have to evaluate.
Risk.

Will it make or break you if your payments go up?
If it would break you... then yah, i guess you can accept the slightly higher rate of 10 year terms to lock in the rate.

Can you comfortably survive if the payments go up?
If you can stomach that risk... you can take the lower 5 year term. Then hope for the best when that 5 year term is up for renewal.

No body can predict. Only make decisions based on probability and an educated outlook.
I can see interest rates staying low. Covid19 has devastated world economies. The current economic paradigm is to lower rates to stimulate spending/investments and thus stimulating the economy.
Member
Oct 30, 2017
445 posts
298 upvotes
Toronto
UrbanPoet wrote: Thats something you have to evaluate.
Risk.

Will it make or break you if your payments go up?
If it would break you... then yah, i guess you can accept the slightly higher rate of 10 year terms to lock in the rate.

Can you comfortably survive if the payments go up?
If you can stomach that risk... you can take the lower 5 year term. Then hope for the best when that 5 year term is up for renewal.

No body can predict. Only make decisions based on probability and an educated outlook.
I can see interest rates staying low. Covid19 has devastated world economies. The current economic paradigm is to lower rates to stimulate spending/investments and thus stimulating the economy.
Or stimulate the asset bubbles.
[OP]
Deal Addict
Feb 4, 2010
4289 posts
3077 upvotes
UrbanPoet wrote: I can see interest rates staying low. Covid19 has devastated world economies. The current economic paradigm is to lower rates to stimulate spending/investments and thus stimulating the economy.
Yeah that's what I was wondering about - I can see it staying low for the next 5 years but after, I could see it skyrocketing, which is what I'm talking about....and not a 1-3% hike.
Sr. Member
Nov 28, 2019
516 posts
241 upvotes
hierophant wrote: Yeah that's what I was wondering about - I can see it staying low for the next 5 years but after, I could see it skyrocketing, which is what I'm talking about....and not a 1-3% hike.
I can see after 5 years the rate to start go up slowly but for them to skyrocket I cannot see that happening (honestly right now I having hard time seeing it going over 3%). With these crazy low interest rates and the fear of missing out or whatever is happening is causing people to go more insane (at least in Metro Vancouver).

I need a bigger place as my family is growing so I am looking to sell but before that I been watching the market and recently a decent townhouse came up for sale. It just sold in a matter of days for 53K over asking. In September in August 2020 there were better units in the complex that sold 40K to 65K lower than this unit that just sold. I also see tons of people putting their places up for sale at 100K more than they bought it 10 months ago (and these are townhouses not houses, which have enough shot up even more).

People right now just don't care if they got to put 50K, 100K, 200K over asking price as they just want a place and can do this with such low interest rates. If in 5 years they got to renew at even 3%, I think alot of people in Metro Vancouver would go under and I would imagine that would go for other cities like Toronto as well.

Governments let housing become too much of an investment and not a home and now I think we are at a point were it can't be fixed anymore without letting everything collapse and as we seen with COVID governments are not prepared to do that, which also has made people to believe even more that the government will bail them out so "lets leverage ourselves evermore"
Sr. Member
Jan 1, 2009
811 posts
420 upvotes
hierophant wrote: Yeah that's what I was wondering about - I can see it staying low for the next 5 years but after, I could see it skyrocketing, which is what I'm talking about....and not a 1-3% hike.
Why not go 5 year variable, and when the BOC talks about increasing interest rates, just go fix before the fix rate goes up for 5 years? You'll pay 3 months interest but it's cheaper than going fixed for 10 years.
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Oct 31, 2019
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Nauth wrote: Why not go 5 year variable, and when the BOC talks about increasing interest rates, just go fix before the fix rate goes up for 5 years? You'll pay 3 months interest but it's cheaper than going fixed for 10 years.
Total gambling. Rates usually run up before these announcements because traders try to guess what central banks will do.
Newbie
Jan 31, 2020
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If you picked 10 years , then had to sell for whatever reason , the penalty to break a 10 year mortgage could be huge !! .....
[OP]
Deal Addict
Feb 4, 2010
4289 posts
3077 upvotes
jimbob12341 wrote:
I can see after 5 years the rate to start go up slowly but for them to skyrocket I cannot see that happening (honestly right now I having hard time seeing it going over 3%). With these crazy low interest rates and the fear of missing out or whatever is happening is causing people to go more insane (at least in Metro Vancouver).

I need a bigger place as my family is growing so I am looking to sell but before that I been watching the market and recently a decent townhouse came up for sale. It just sold in a matter of days for 53K over asking. In September in August 2020 there were better units in the complex that sold 40K to 65K lower than this unit that just sold. I also see tons of people putting their places up for sale at 100K more than they bought it 10 months ago (and these are townhouses not houses, which have enough shot up even more).

People right now just don't care if they got to put 50K, 100K, 200K over asking price as they just want a place and can do this with such low interest rates. If in 5 years they got to renew at even 3%, I think alot of people in Metro Vancouver would go under and I would imagine that would go for other cities like Toronto as well.

Governments let housing become too much of an investment and not a home and now I think we are at a point were it can't be fixed anymore without letting everything collapse and as we seen with COVID governments are not prepared to do that, which also has made people to believe even more that the government will bail them out so "lets leverage ourselves evermore"
Yes the part in bold is the only reason why I think interest rates may not be that high. I just can't believe what's happening with the housing market...you would think things would be less insane with the pandemic but it's actually the opposite. I just thank my lucky stars I bought when I did but I feel those who are trying to enter the market.
Nauth wrote: Why not go 5 year variable, and when the BOC talks about increasing interest rates, just go fix before the fix rate goes up for 5 years? You'll pay 3 months interest but it's cheaper than going fixed for 10 years.
I'm not sure I see the logic in getting a variable rate when the whole point of getting a 10 year is knowing what my interest rate (mortgage payments) are going to be, getting a variable would have the exact opposite effect so doesn't make sense in this scenario or maybe I'm missing something? I would only go for a 10 year mortgage if the rates are only marginally higher than a 5 year...I did see 3% for a 10 year otherwise I would just get a 5 year.
9Hangovers wrote: If you picked 10 years , then had to sell for whatever reason , the penalty to break a 10 year mortgage could be huge !! .....
Depends what kind of mortgage you get. I would only get one with a 3month penalty.
Sr. Member
Jan 22, 2012
575 posts
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Bradford
hierophant wrote: Yes the part in bold is the only reason why I think interest rates may not be that high. I just can't believe what's happening with the housing market...you would think things would be less insane with the pandemic but it's actually the opposite. I just thank my lucky stars I bought when I did but I feel those who are trying to enter the market.

I'm not sure I see the logic in getting a variable rate when the whole point of getting a 10 year is knowing what my interest rate (mortgage payments) are going to be, getting a variable would have the exact opposite effect so doesn't make sense in this scenario or maybe I'm missing something? I would only go for a 10 year mortgage if the rates are only marginally higher than a 5 year...I did see 3% for a 10 year otherwise I would just get a 5 year.



Depends what kind of mortgage you get. I would only get one with a 3month penalty.
3 month penalties are usually just on a variable rate mortgage. No way you would find a 10 year mortgage with a 3 month interest penalty.
[OP]
Deal Addict
Feb 4, 2010
4289 posts
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Topher86 wrote: 3 month penalties are usually just on a variable rate mortgage. No way you would find a 10 year mortgage with a 3 month interest penalty.
Nope on fixed as well - I don't know about 10 year but 5 year, yes because that's what I have.
Sr. Member
Jan 22, 2012
575 posts
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Bradford
hierophant wrote: Nope on fixed as well - I don't know about 10 year but 5 year, yes because that's what I have.
How old is the your 5 year mortgage?
Penalties have changed quite a bit in the last year with lots of people trying to get out of their mortgage early in favour of a better interest rate.
My 5 year mortgage had a 3 month interest penalty but only if broken early in the last 18 months.
[OP]
Deal Addict
Feb 4, 2010
4289 posts
3077 upvotes
Topher86 wrote: How old is the your 5 year mortgage?
Penalties have changed quite a bit in the last year with lots of people trying to get out of their mortgage early in favour of a better interest rate.
My 5 year mortgage had a 3 month interest penalty but only if broken early in the last 18 months.
The 5 year term will be finished in July. I don't believe there is any stipulation on when I can break it - I was very diligent about this part being a first time homeowner in case I did have to break it, but it's good to know about this potential clause when it comes time to renew.
Deal Guru
Feb 29, 2008
14170 posts
10490 upvotes
9Hangovers wrote: If you picked 10 years , then had to sell for whatever reason , the penalty to break a 10 year mortgage could be huge !! .....
Better be porting.
Newbie
Jan 31, 2020
12 posts
20 upvotes
JayLove06 wrote: Better be porting.
Still usually a fee involved ....but yes it would be a cheaper penalty for sure
Deal Addict
Mar 10, 2010
1420 posts
390 upvotes
9Hangovers wrote: If you picked 10 years , then had to sell for whatever reason , the penalty to break a 10 year mortgage could be huge !! .....
The Interest Rate Act in Canada limits any penalty after year 5 to be 3 months interest, there is no IRD after you pass the 5th year.
Newbie
Jan 31, 2020
12 posts
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Clacker wrote: The Interest Rate Act in Canada limits any penalty after year 5 to be 3 months interest, there is no IRD after you pass the 5th year.
Who said he's making it past the 5th year .... What if he had to sell 1 year in ?

Or you're saying 5 Years I'd the max penalty ? If so , that's the first I've ever heard of that .
Deal Addict
Mar 10, 2010
1420 posts
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9Hangovers wrote: Who said he's making it past the 5th year .... What if he had to sell 1 year in ?

Or you're saying 5 Years I'd the max penalty ? If so , that's the first I've ever heard of that .
Your second point/question is correct. It's no more expensive than the IRD on a 5-year (assuming both are fixed and have same IRD calcs). After the 5 years though, it's essentially the variable rate break fee, but on a fixed product.
Sr. Member
Jan 22, 2012
575 posts
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Bradford
Yea, so looks like the first 5 years of a 10 year term the penalty is ridiculous. The second 5 years it’s just 3 months interest.

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