The report from Desjardins highlights the potential benefits of more prevalent and attractive 10-year mortgage terms in Canada. As interest rates have risen, homeowners with short-term contracts are facing renewal at higher rates. This has led to an increase in the debt service ratio in Canada, as homeowners are required to make sacrifices to cover the higher costs. Desjardins suggests that promoting 10-year mortgage terms could help mitigate this “payment shock” and make the mortgage stress test less necessary. By locking in a rate for 10 years, homeowners would not have to worry about interest rate shocks during that period, providing more stability and predictability.
However, mortgage broker Eitan Pinsky believes that with interest rate cuts expected soon, the current rate for a 10-year mortgage may not be as appealing as a five-year rate. Despite Desjardins offering a 10-year fixed rate of 5.84 per cent, most clients are opting for shorter terms due to anticipated lower interest rates in the future. Mortgage strategist Robert McLister also points out that the lack of funding for lenders and legislation obstacles make it more expensive to offer 10-year fixed mortgages. Additionally, the penalties for breaking or refinancing a longer-term mortgage before the end of the term can be significant, which may deter homeowners from considering longer terms.
The potential benefits of longer-term mortgages are clear, as they offer stability and predictability for homeowners in a rising interest rate environment. However, obstacles such as funding limitations for lenders, legislation barriers, and penalties for breaking or refinancing the mortgage early need to be addressed in order to make longer mortgage terms more accessible and attractive to consumers. Balancing the cost of longer terms with the potential savings and stability they offer will be key in convincing homeowners to consider 10-year mortgage options.
Despite the potential benefits of longer-term mortgages, most consumers are still opting for shorter terms due to lower rates and concerns about penalties for breaking or refinancing the mortgage early. While Desjardins suggests promoting 10-year mortgage terms to mitigate payment shocks, mortgage brokers and strategists point out the challenges that need to be overcome in order to make longer-term options more appealing and accessible to homeowners. Updating legislation, addressing funding limitations for lenders, and adjusting penalties for prepayments beyond five years are some of the obstacles that would need to be addressed to increase the popularity of 10-year mortgage terms in Canada.
In conclusion, the debate over the benefits of longer-term mortgages in Canada continues, with experts highlighting the potential stability and predictability they offer in a rising interest rate environment. While Desjardins suggests promoting 10-year mortgage terms to lessen payment shocks, mortgage brokers point out the current challenges that make longer terms less attractive to consumers. Addressing funding limitations, legislation obstacles, and penalty concerns will be essential in making longer-term mortgages a viable option for Canadian homeowners looking for long-term stability in their mortgage payments.
