The 10-year fixed mortgage is not a product for which Canadians feel any particular affinity, but there’s a very good chance it will gain popularity.
HSBC just unveiled the lowest 10-year fixed in Canadian history, offering 3.24%. It gets even better for high-ratio mortgages, where rates as low as 2.99% could be had.
“We like to call our 10-year fixed product the ‘sleep well at night’ mortgage,” said Barry Gollom, HSBC’s senior vice president of products and propositions with retail banking and wealth management. “It’s for an individual who won’t have to worry about a change in their interest rate or mortgage payment, who’s not looking at paying out their mortgage early, and who’s going to be in their home for a long period of time. If they sell that home and buy another, however, they have the option of porting that mortgage to the other home.”
There is another type of borrower for whom a 10-year fixed payment makes sense: a real estate investor.
“It depends upon the particular investor’s situation, and what they’re trying to achieve,” said Gollom. “The same rate for a long period of time makes great sense for them, but the 10-year fixed isn’t for everybody. What we’re trying to do is present customers—be it for folks’ principal residence or investment property—with more options to choose from. Historically, Canadians focus on five-year fixed or five-year variable and we’re saying that, depending on your situation and tolerance for risk, you should consider a longer term like seven or 10 years. It’s tailored to the individual customer’s specific needs.”
The penalty for breaking the mortgage in the first five years is either the greater of 90 days interest or the interest rate differential, while breaking during the latter half of the mortgage’s life would be a prepayment charge of 90 days interest.
Consumers are saving north of 30 basis points on this mortgage product and, according to Butler Mortgage, which is offering a 3.22% 10-year-fixed mortgage, the savings cannot be understated for consumers. However, there are more variables at play, should consumers opt to lock their mortgage for a whole decade.
“In the consumer’s mind, 30 basis points is astronomical,” said Ron Butler. “There’s still not much uptake because the vast majority of Canadians don’t feel comfortable with 10 years. The penalties are probably too big and they’ll need to break the mortgage at some point. Somehow you have to know that in the first five years you will absolutely, positively not need to break the mortgage because the penalty will eviscerate you. That’s number one—the penalty will destroy you. How do you know there won’t be a job transfer or marriage breakdown—how can you absolutely, positively know?”
A previous version of this article stated HSBC is offering a 2.94% rate, but this is incorrect. This was caused by an IT glitch on the lender’s end.