Getting in for the long haul

Today's newspaper had a great article about a man who locked into a 10 year mortgage. This may seem like an unusual thing to do in this day and age. However, 12% of Canadians are opting to go long and are taking mortgage terms of over 5 years. Why are these people doing this? Well, wouldn't it be nice to know that you will have the exact same payments until 2020? 10 year rates are presently in the 5% range. However, the cost for that security can be steep."The question is, is the insurance policy worthwhile?” says TD’s chief economist, Craig Alexander.

Today’s 10-year fixeds are guaranteed to cost roughly $6,900 more than a 5-year fixed over the first five years.* That’s $6,900 for every $100,000 in mortgage. So if your mortgage is $300,000, you’re paying a whopping $20,700 over 60 months for the “peace of mind” of a 10-year fixed. You can lower these costs by making pre-payments over the lifetme of the mortgage. Let's face it. In 5 years from now you should be making considerably more money than you are now. Increasing your payments or making lump sum payments can help to offset the higher costs of having a 10 year term.

This is why it is important to sit down with your mortgage advisor and discuss your options. If you know that your children will be reaching university in 5 years, having a mortgage rate set 5 years earlier and with your increased income, helping out with tuition costs may be do-able. Take the time to talk to your advisor and you can make an informed decision as to whether this is right for you.

“For many people it just might be (worthwhile)," Alexander says.
Getting in for the long haul