With long term mortgage rates at an all time low there has been a lot of buzz with consumers who would tend to lean towards a 5 year term to lock into either a 7 year fixed rate or a 10 year fixed rate mortgage. There is a lot to consider apart from rate when it comes to locking into a longer term and you have to ask the following questions:
- Does it give you comfort to know exactly what your payment will be for the next 7 or 10 years?
- Can you foresee the chance that you will need to break your mortgage in the future for a refinance?
- Are you willing to take a slightly higher rate (other than the 5 year fixed rate or less) to in effect, pay insurance on the longer term (7 or 10 years)?
- What is your risk tolerance?
- Do you intend to own your property for the long term?
The good news is that as per the Interest Act of Canada, even if you have a term of greater than 5 years, the IRD penalty cannot extend beyond 5 years. A 3 month interest penalty applies to any penalty after 5 years. Here is an excerpt from The Act:
(1) Whenever any principal money or interest secured by mortgage on real property is not, under the terms of the mortgage, payable until a time more than five years after the date of the mortgage, then, if at any time after the expiration of the five years, any person liable to pay or entitled to redeem the mortgage tenders or pays, to the person enti- tled to receive the money, the amount due for principal money and interest to the time of payment, as calculated under Sections 6 to 9, together with three months further interest in lieu of notice, no further interest shall be chargeable, payable or recoverable at any time thereafter on the principal money or interest due under the mortgage.
There is no doubt that the 7 and 10 year fixed mortgage rates are highly attractive. Please feel free to give us a call and see if this is the most suitable option for your particular situation.
Kim Gibbons, ” Your Mortgage Superhero ®”
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