14 May 2019
Going Long, 5 year + Mortgages
Recently, Stephen Poloz, the governor of the Bank of Canada stated that he felt that lenders and by offshoot, mortgage brokers, were not being creative in promoting mortgages for periods of longer than 5 years. He feels that the longer the term the less risk there is and people will be able to qualify for a renewal better after 10 years than after only 5 years.
Here’s what he does not realize. No one really wants a 10 year mortgage. Why? Because on average, Canadians move every 3 years. It may be within the same city or town but they move. Newly married couples buy starter homes. Three years later they often have one or two children and now they need more room. They move up to a bigger place. A few years down the road and they are making more money and they want an estate home. That’s the way Canadian’s lifestyles work.
I have been a broker since 2005. You know how many 10 year mortgages I have obtained for clients? One. No one is interested in that long a commitment. Back in 2006 when I arranged for my one and only 10 year mortgage, the couple wanted stability. Fair enough. They knew that with their government jobs they would not be moving for a long time. At the time, a 10 year commitment meant that the Interest Rate Differential was the most common form of getting out of these mortgages and they could be very expensive. A few years ago, the government mandated that after 5 years, the 3 month interest penalty would kick in for 10 year mortgages.
The thing is that most people find the Pros don’t out-weight the Cons on 10 year mortgages.
PROS – stability, Knowing that your mortgage payments will not go up for a decade while your income should go up making payments seem smaller over time. This would free up money for other things like vacations, investments and family expenses.
CONS – People move every 3 years on average and don’t want to go through the hassle of porting their mortgage or paying big bucks to break it. Many people also feel that rates are going to go lower and don’t want to lock in for such a long period of time. I checked rates and there are a number of lenders offering 10 year mortgages, the best rate at this time is 4.09%. The problem is that while that’s an amazing rate for a 10 year, most people see 5 year fixed and variable rates below 3% and they feel that over 4% is too much.
My suggestion is that if this interests you , speak to your Dominion Lending Centre mortgage professional and discuss your personal situation to see if this is an option that would benefit you.