Mortgage - 5 or 10 years?

[Kamloops]

Just redoing ours - Thinking of going with a 10 year at 5.75
5 year is 5.50

What should I do. We dont plan to move,

[dolphie]

it just depends on what you think the rates are going to do between years 5 and 10.
Id go with the 10 year myself, but it's just a matter of security and what level of it you prefer.

[gedwards]

I think it depends more on your comfort level with the possibility that rates might be higher in 5 years. It also depends on your financial ability to handle your mortgage if rates are higher in 5 years.

Any short vs long mortgage decision is always based on some guess as to where rates are going to be in 5 years. This is impossible to guess and you will get as many different answers as you will responses. You can spend all day reading numerous experts forecast rates and it will still have no more than an educated guess. So I would not even try and focus on where rates will be in 5 years and focus more on the comfort/cost trade-off.

So I would compare the comfort you have of a guaranteed rate for a full decade (and it is a decent rate compared to decades of history) and compare that to the cost of the higher rate.

Assuming a $150,000 mortgage, amortized over 25 years with monthly payments the different in the 2 loans is approx $22 per month in monthly payments. Also you would end up paying approx $3520 more in interest over a 10 year period for the extra 0.25%.

Is that extra money a good trade off for your comfort (only you can answer that). In the end the $3520 may not really be a cost anyways. If rates are higher when you renew in 5 years then the 10 year option may actually prove to be cheaper. Of course it can go the other way.

I was in a similar boat when I was getting my mortgage last year. It was a similar 0.25% spread. In the end I chose the 10 year locked in as it was only 5.00% and I though that a rate of only 5% locked in for a full decade was to good to passup.

Given that you can often pay off quite a good chunk of your mortgage in a 10 year period (especially with extra payments) then you will have a much lower mortgage at the end of the 10 year term. Therefore even if rates have shot up a fair bit at that point you will be cushioned somewhat by the fact that you have a much smaller mortgage than now. So for me the flat 10 year rate provided a comfort that extended beyond the 10 years.

[Hubster]

Just redoing ours - Thinking of going with a 10 year at 5.75
5 year is 5.50

What should I do. We dont plan to move,

Hi Kamloops,

It truly is a guessing game isn't it. To guess as to where rates will be in 5 or 10 years would truly be that, a guess.

While some economists predict fixed rates continuing to rise, others have a completely different opinion. Rates are still near historically low levels, so now may indeed be the time to think long term lock-in.

More here on why rates change: Interest Rate Factors (http://www.finpipe.com/interest.htm)

I believe it comes down to personal choice - would it make you sleep easier at night knowing exactly what your exact mortgage payments are for the next 10 years? If the answer is yes, then I can see no harm in locking in for that amount of time.

If rates do rise, you have made a very wise move. If rates come down significantly, I would definitely approach your lender (and/or others) for a reduced rate. In addition you will have paid a significant amount of your mortgage off by then, so the effect of any interest hikes will be less dramatic.

I know I have offered you no clear cut answer, but I don't believe there is one. As I said, I believe this is a very personal decision.

Whateve you decide, best of luck :!:

[grant]

0.25% rate increase will cost you $750/yr on a $300,000 mortgage ... or, nearly $4,000 in the first 5 years.

Are you willing to pay that $4,000 for the security of knowing you won't be smacked with higher rates for the following 5 years? That's your choice.