5 Year vs 10 Year Mortgage Terms

 Decisions, decisions.            

Choosing the 5 Year term at 2.89% is very tempting but I am telling my clients to take a good look at the 10 year term available at 3.69%.
My concern is what the rates will be in 5 years. A quick survey of my peers and lenders comes up with 4.75% to 5% as a probable rate.
A 5 year 2.89% 25 year am. mortgage carries for $1286. per month.
A 10 year 3.69% mortgage carries for $1401. per month. $115. more per month.

If you take the 5 year and come up for renewal with a balance of $234.557 and renew for another 5 years at our estimated rate of 5%,  you will pay $1541 a month. Choosing this scenario you will pay $90,205 in interest vs $86,859. in interest taking a 10 year term. Even the balance at the end of a 10 year term is $1796. less taking the 10 year term. These results will be even more amplified if you take accelerated Biweekly payments.
With the 10 year term you get rate security and savings.

Federal Government Wants Mortgage Rates to Rise

Today's Star says the Federal Budget announced in March contains a suggestion that CMHC may be limited in the future when it comes to insuring conventional mortgages. This will effect some Lenders fundings and they will have a difficult time doing their normal mortgage backed securities routine. As a result, their cost of funds will likely increase forcing up mortgage rates..
A few weeks ago, Jim Flaherty was accused of influencing lenders mortgage pricing by calling Manulife and Bank of Montreal suggesting they  cancel their special on the 5 year Mortgage.

All this because he thinks 2.89% is influencing buyers and mortgage seekers. Of course it is. So what?
In my Mortgage Broker Practice we see intelligent well qualified clients using these rates to buy a first home or a move up home. Its the best way to build wealth and avoid wasted rent payments.

The government should leave Canada's well run Banks and Mortgage Companies alone when it comes to pricing their products. The banks are highly profitable and don't mind helping consumers at these low rates.