While the vast majority of homeowners opt for the familiar 5-year fixed term, a tiny percentage of Canadians prefer the stability that comes with locking in a 10-year rate.
In an unpredictable world where interest rates fluctuate, a 10-year fixed mortgage can offer peace of mind with long-term, stable payments. However, this product comes with trade-offs, like slightly higher interest rates and potentially large prepayment penalties. That said, in certain situations, it can be the perfect solution for homeowners who prioritize predictability over short-term savings.
In this article, we’ll explore real-life stories from Canadian mortgage brokers and their clients who opted for 10-year fixed mortgages—some with great success, and others who faced unexpected challenges.
We’ll also examine why this option remains niche and the factors you should consider before locking in for a decade.
The appeal of the 10-year fixed mortgage
Most Canadian homeowners go with the 5-year fixed term because it strikes a good balance between interest rate security and flexibility. With a 5-year term, you have the option to renegotiate your mortgage every few years without committing to a long-term deal.
Only about 1-3% of Canadian borrowers choose the 10-year fixed term. But for those who are tired of the uncertainty that comes with rate fluctuations, the 10-year fixed term can lock in a predictable rate for the next decade.
The downside? A higher interest rate. While locking in for 10 years may sound appealing, the extra cost can be significant. Typically, these rates run 0.5% to 1% higher than a 5-year rate.
Mortgage maven Ron Butler puts it bluntly: “On average, the 10-year fixed mortgage makes up only 2% of all mortgages. There’s little demand for it, and it’s rarely a winning move.” Even when 5-year fixed rates were as low as 1.49%, 10-year rates were at least 0.5% to 0.9% higher, usually around 2.09% or more. This premium, Butler explains, is hard for many homeowners to justify, especially in today’s high-rate environment.
In short, the additional cost upfront is what deters most borrowers from choosing a 10-year term. But for some, it’s a trade-off they’re willing to make for long-term peace of mind. For those who value certainty over flexibility and expect rates to rise further, locking in for 10 years can be a smart move.
The risks and penalties of breaking a 10-year mortgage
While some homeowners benefit from locking in long-term rates, others learn the hard way about the penalties associated with breaking a 10-year mortgage early. In Canada, prepayment penalties can be particularly steep during the first five years of a mortgage term. After that, the penalty drops to three months’ interest, as mandated by Canadian law.
Susan Thomas, Vice President of Haventree Bank, shared a story about a client who took out a 10-year fixed mortgage because it matched their remaining amortization schedule. For this client, the long-term security was worth the initial cost, but the potential for early penalties is something every homeowner should consider.
K.C. Scherpenberg, an Orillia broker who has handled several 10-year fixed mortgages, agrees the first five years are key.
“Most clients need to be absolutely certain they won’t need to make any big changes during that time,” he notes. Once you pass the five-year mark, the penalties become less of an issue, but before then, they can be quite daunting.
10-year mortgage stories from mortgage brokers across Canada
Let’s take a look at a few real-life examples to see how this all plays out.
Angela Epp from Cochrane, Alberta, shared the story of a client who locked in a 10-year fixed mortgage at 2.50% in 2020/2021 with a chartered bank.
“They were thrilled to secure such a low rate, especially since rates were starting to rise,” Epp recalls. Today, with rates hovering much higher, this client feels they made a smart decision, knowing their payments will remain steady for the next several years.
In this case, the slight premium they paid for the 10-year term is now seen as a bargain. “They have no concerns about rising payments, and the stability has provided them peace of mind,” Epp adds. For homeowners like this, long-term predictability can be priceless—particularly when rates soar.
But not every experience with a 10-year mortgage is smooth sailing. Vancouver-based Jonathan Barlow shares a cautionary tale of clients who took out a 10-year fixed mortgage in 2016 at 3.25%. “They were in their late 30s with solid incomes, but life changed unexpectedly after two years when they needed to up-size their home,” Barlow says.
Unfortunately, they couldn’t port their mortgage to the new property and ended up paying over $40,000 in penalties to break the mortgage early. This case highlights the risks of committing to such a long-term product when future life changes aren’t accounted for.
Meanwhile, Christine Buemann from Prince George had a unique case in 2021. Her client insisted on a 7-year fixed mortgage, motivated by personal beliefs tied to numerology.
Ottawa-based Jerry Schindelheim told us of a client who took out a 10-year fixed mortgage during the COVID-19 pandemic.
Most brokers would have tried to steer the client away from such an unconventional choice, but Buemann supported her decision. The client locked in a rate of 2.74%, and now, with today’s higher rates, that choice looks wise. “She’s likely very grateful for that decision now,” Buemann says. Sometimes, even unconventional decisions can pay off.
“They were close to retirement and wanted to ensure their mortgage payments were low and predictable,” he explains. They sold their home, bought a new one with a large down payment, and locked in the 10-year term. Today, their payments are so low they barely notice them. For retirees or those nearing retirement, the certainty of not having to worry about rising rates can be invaluable.
Jason Small from Greater Sudbury had new immigrant clients who came from a country with 25% interest rates; this client insisted on a 10-year term at 5.24%, prioritizing stability over potential savings.
Mark Mitchell from London recalls a client who took out a 10-year fixed mortgage in March 2022 for a rental property. The rate was around 3.5%, and the client is thrilled with the decision.
“Locking in before rates started climbing was a smart move for him,” Mitchell says. “As a property investor, knowing his carrying costs wouldn’t change for a decade was crucial. Now, with rental income stable, he has no worries about future rate hikes.”
Investors and fixed-rate mortgages
For investors with stable rental income, the predictability of mortgage payments is a huge advantage, even in today’s uncertain market. In fact, I am often surprised by how many investors chose variable rates a few years ago.
Yes, today in late 2024 this may be a shrewd move, but in general, wouldn’t you want a fixed mortgage payment (for example, a five-year term) when the rental income you receive is also fixed?
10-year mortgages are relatively rare
It’s interesting when you dive into the idea of 10-year mortgages. They aren’t that common, and for good reason. Mississauga’s Mary McCreath told me she’s only done two over her 20-year career, and even those had mixed results.
Her first clients had a vision of one day starting a business on their property, and once that happened, they’d no longer qualify for a residential mortgage. By locking in a 10-year rate, they avoided a potentially costly outcome and were rewarded for their foresight.
But then there’s the flip side. Mary also had actuary clients who did all the right things—detailed rate analysis, economic projections, the whole nine yards—and they still ended up missing the mark when rates dropped significantly. So much so, they became too embarrassed to return Mary’s calls! It’s a bit of a reminder that no matter how much number-crunching you do, predicting the future, especially with interest rates, is tough.
In my own experience, I’ve placed just two 10-year mortgages, both back in the spring of 2013 at a 3.89% rate. The outcomes were neutral, which shows these long-term rates are more about stability than beating the market.
In both cases, the clients were motivated by memories of the painfully high rates from the 1980s. One was a first-time buyer whose parents had lived through those double-digit rates, and the other had personally experienced a whopping 19.625% mortgage back in the day. For both, locking in a 10-year term was about avoiding a repeat of those nightmare scenarios and ensuring peace of mind for the long haul.
When does a 10-year fixed mortgage make sense?
So, when does a 10-year fixed mortgage make sense? As Ron Butler pointed out, these products are rarely the best option for most homeowners, but there are exceptions.
For those nearing retirement, property investors, or anyone who values long-term stability over flexibility, a 10-year fixed mortgage can provide peace of mind. And, of course, anytime a 10-year mortgage is available with a rate beginning with a 2, you might give it serious thought!
It’s a long commitment, and unless you have a very specific reason—like starting a business or seeking certainty in retirement—it’s often a tough sell, especially with today’s rate landscape. But if you’re seeking stability and are comfortable locking yourself in, from time to time, you can make a case for it.
The bottom line about 10-year fixed mortgages
The 10-year fixed mortgage isn’t for everyone. In fact, it’s not for most people.
While it offers stability and predictability, it comes at the cost of higher initial rates and the risk of significant penalties if you need to break it early. However, for those with specific long-term plans and a clear vision for the future, it can be a solid choice.
As always, it’s important to consult with a mortgage professional who can help you weigh the potential benefits and risks before making a decision. Whether you’re looking for security or flexibility, the right mortgage product is out there—you just need to find the one that best aligns with your needs.
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Last modified: November 10, 2024
