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A guide to 10-year fixed mortgage rates
Jamie David, Sr. Director of Marketing and Mortgages
A 10-year fixed mortgage will have a constant rate of interest over a term of 10 years. The term is not the same as the amortization period, the amount of time it takes to pay off your mortgage – but, rather, is the period you are committed to the contractual provisions and mortgage rate with your lender. Your monthly mortgage payments will be fixed, and you are protected against interest rate fluctuations.
10-year fixed mortgage rates: Quick facts
- 7% of Canadians have a mortgage term between 6-10 years (Source: CAAMP)
- 74% of Canadians have fixed mortgage rates (Source: Statistics Canada)
- 10-year fixed mortgage rates follow 10-year government bond yields
Comparing 10-year fixed mortgage rates
A 10-year fixed mortgage is the most risk-averse mortgage selection. If you need to budget long-term or believe interest rates will rise dramatically over the coming years, it may make sense. For instance, if you feel certain in five years mortgage rates will be higher than the current quoted 10-year rate, locking in for the long-term is a sound strategy. Your monthly mortgage payments will remain constant over a period of 10 years, and you are protected against interest rate fluctuations.
10-Year Fixed vs. Longer Term Mortgage Rates
10-year fixed rates are typically higher rates than shorter terms (like 3 or 5 years). This is because longer fixed-rate terms lock in a lower rate for a longer period of time. That might be great for you, but it puts the risk of a rate rise onto your lender. The higher rate is therefore a premium for locking in a lower rate for longer.
These relationships aren't always constant however, especially in very low or high rate environments. You should always decide which term is best for you based on the current market and your present circumstances.
It's important to remember that it's very difficult to forecast the direction interest rates will take over such a long period of time, and there are a number of drawbacks to locking into a mortgage rate for 10 years. The foremost argument against a 10-year term is the premium you will pay for passing on the risk of interest rate fluctuations for 10 years.
Another thing to keep in mind is that, after 5 years, the Interest Act states the penalty to break your mortgage cannot exceed 3 months' interest, so you wouldn't need to worry about a potentially much higher Interest Rate Differential (IRD) penalty. However, if the mortgage is broken before 5 years, such a penalty could apply.
Historical 10-year fixed mortgage rates
Looking over historical mortgage rates is the best way to understand which mortgage terms attract lower rates. They also make it easier to understand whether rates are currently higher or lower than they have been in the past.
Popularity of 10-year fixed mortgage rates
With only 7% of Canadians having mortgage terms between six and 10 years, long terms are not a popular choice in Canada. They are even less popular amongst younger age groups at only 3% uptake in ages 18-34.
Fixed mortgage rates, however, are most common, at 74% of all mortgages in Canada with little variation amongst age groups.
What drives changes in 10-year fixed mortgage rates?
Fixed mortgage rates follow government bond yields, with 10-year fixed rates following 10-year government bond yields. Bond yields are driven by economic conditions, and the spread between bond yields and lender-posted mortgage rates vary by a lender's marketing strategy and general credit market conditions.
10-year fixed rates: Frequently asked questions
Here are some of the most common question we're asked about 10-year fixed mortgage rates. If your questions aren't answered here, your next best bet is to book a free consultation with a mortgage broker near you.
What are 10-year fixed mortgage rates?
The '10' in a 10-year mortgage rate represents the term of the mortgage, not to be confused with the amortization period. The term is the length of time you lock in the current mortgage rate, while the amortization period is the amount of time it will take you to pay off your mortgage. The term acts like a reset button on your mortgage, at which point you must renew the mortgage at a rate available at the end of the term. A mortgage might, for example, have a 10-year term and a 25-year amortization period.
When the mortgage rate is 'fixed' it means that the rate (%) is set for the duration of the term, whereas with a variable mortgage rate, the rate fluctuates with the market interest rate, known as the 'prime rate'. So, for example, if the 10-year fixed mortgage rate is 4%, then you will pay 4% interest throughout the term of the mortgage.
It's worth noting that all borrowers, even those applying for a 10-year term, will need to meet the standards of approval for the 5-year mortgage rate as well as the term they apply for. This is a standarized benchmark applied to reduce risk for the lender, and to give the borrower some breathing room.
How much can I save comparing 10-year fixed rates?
Your mortgage is likely to be the largest financial commitment you’ll ever make, and getting a better rate can save you thousands over a 10-year term. Even a slightly lower mortgage rate can result in big savings, especially early on in your mortgage.
For example, on a $500,000 mortgage with a 25 year amortization period, a rate of 3.00% would see you pay $127,033 interest over 10 years. With a 2.75% rate you’d pay $115,980 interest over the term. So, a difference of just 0.25% can save you $11,053 over your 10-year term.
Why compare 10-year fixed rates with Ratehub.ca?
We make it simple to see current mortgage rates from all of Canada’s leading mortgage providers in one place. We have rates from the big banks, smaller lenders, as well as mortgage brokers across the country. This makes it easy to see who offers the best rates in Canada in real time, at no cost to you.
Why are fixed rates different to variable rates?
You can think of the difference, or spread, between variable mortgage rates and fixed rates as the price of insurance that mortgage costs will not increase in the next five years, more or less. The advantage of fixed rate mortgages is that you know exactly how much your mortgage payments will be regardless of whether rates rise or fall. You can, essentially, set it and forget it. This eases the budgeting anxiety that may follow a variable rate mortgage.
When interest rates are low, and the spread between shorter-term rates and the 5-year fixed mortgage rates is less significant, it is typically recommended that you lock in the 5-year rate. The longer term offers stability and, because rates are historically low, the chances of rates decreasing further with a variable rate are greatly reduced.
On the other hand, as is the case with all fixed mortgage rates, there is the potential to pay higher interest when variable rates are low, and, examined historically, variable rates have proven to be less expensive over time.
Are 10-year mortgages better than other mortgage terms?
10-year mortgage terms aren’t necessarily better than other terms. You should pick a term length based on your financial needs and current situation, as well as what rates are on offer. 5-year terms are the most popular in Canada, as they offer a compromise between stability and flexibility. However, if stability is important to you, a 10-year term could be worth considering.
Jamie David, Director of Marketing and Head of Mortgages
Jamie has 15+ years of business and marketing experience. She contributes her mortgage expertise to The Globe and Mail and authors Ratehub’s mortgage and homebuying guides. read more