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Mike Oxlong · 05-31-2012, 10:46 PM

With Interest rates at historic lows it might be a good time to lock in for as long as possible. A couple years ago a 5 year rate was over 5% so locking into a 10 year at 3.99% could certainly pay off down the road.

I'm sure you are happy with whoever you are using but I am fairly certain there are better rates out there than what you are getting now, not by alot but likely by .10%

Anyways one of the lenders I work with just sent out this FAQ about 10 year mortgages, it may answer some of your question and concerns. Particularly about the payout penalties on 10 year terms.
(Not saying ING has the best rates right now but it is an informative piece)

I am very interested in the 10 year term, but I have concerns...

Q. What is the penalty on a 10 year term?
A. According to the Interest Act, once 5 years has passed in the term, the maximum penalty is 3 months interest. For the first 5 years, the penalty is the greater of the interest rate differential and 3 months interest.

Q. I heard a statistic that 80% of mortgages refinance within the first 3 years. My client could get stuck paying a hefty interest rate differential.
A. All of ING DIRECT’s mortgages are transferable. If the client moves, he can transfer his mortgage to the new property and take a blended rate to avoid paying a penalty.

Q. But what if the client does not buy a new property?
A. In this case, the client will have to pay a penalty – the greater of the interest rate differential and 3 months interest. But consider the following: at ING DIRECT, we will calculate the penalty on the balance minus the unused portion of the 25% of initial capital (pre-payment privilege). AND ING DIRECT only has one rate, therefore our penalty will be calculated using the rate of 3.99% and not a much higher ‘posted’ rate like some banks who are at 6.75% posted for 10 years!

Q. I get the impression that there is a lot of risk involved in a 10 year product.
A. Rates are at historic lows. Economists are telling us that the rates could start to increase as early as the end of 2012. There is a strong possibility that in 3 years the 7 and 10 year rates will be higher than 3.99%. For ING DIRECT, our interest rate differential calculation would be negative leaving only a 3 month interest penalty for the client. Coupled with our transferability options, the risks for the client are low.

Q. What are the advantages of a 10 year term.
A. The advantages are a rate of less than 4% for 10 years! Two years ago the 5 year rate was at 5.25%... we have no idea where rates are going. With all that is happening in the global economy, mortgage stability offers a great financial security.

If you have any other questions or want to discuss things privately feel free to PM me.

05-31-2012, 10:46 PM	#7
Mike Oxlong Got Oliver Klozoff Join Date: Feb 2003 Exp:	With Interest rates at historic lows it might be a good time to lock in for as long as possible. A couple years ago a 5 year rate was over 5% so locking into a 10 year at 3.99% could certainly pay off down the road. I'm sure you are happy with whoever you are using but I am fairly certain there are better rates out there than what you are getting now, not by alot but likely by .10% Anyways one of the lenders I work with just sent out this FAQ about 10 year mortgages, it may answer some of your question and concerns. Particularly about the payout penalties on 10 year terms. (Not saying ING has the best rates right now but it is an informative piece) I am very interested in the 10 year term, but I have concerns... Q. What is the penalty on a 10 year term? A. According to the Interest Act, once 5 years has passed in the term, the maximum penalty is 3 months interest. For the first 5 years, the penalty is the greater of the interest rate differential and 3 months interest. Q. I heard a statistic that 80% of mortgages refinance within the first 3 years. My client could get stuck paying a hefty interest rate differential. A. All of ING DIRECT’s mortgages are transferable. If the client moves, he can transfer his mortgage to the new property and take a blended rate to avoid paying a penalty. Q. But what if the client does not buy a new property? A. In this case, the client will have to pay a penalty – the greater of the interest rate differential and 3 months interest. But consider the following: at ING DIRECT, we will calculate the penalty on the balance minus the unused portion of the 25% of initial capital (pre-payment privilege). AND ING DIRECT only has one rate, therefore our penalty will be calculated using the rate of 3.99% and not a much higher ‘posted’ rate like some banks who are at 6.75% posted for 10 years! Q. I get the impression that there is a lot of risk involved in a 10 year product. A. Rates are at historic lows. Economists are telling us that the rates could start to increase as early as the end of 2012. There is a strong possibility that in 3 years the 7 and 10 year rates will be higher than 3.99%. For ING DIRECT, our interest rate differential calculation would be negative leaving only a 3 month interest penalty for the client. Coupled with our transferability options, the risks for the client are low. Q. What are the advantages of a 10 year term. A. The advantages are a rate of less than 4% for 10 years! Two years ago the 5 year rate was at 5.25%... we have no idea where rates are going. With all that is happening in the global economy, mortgage stability offers a great financial security. If you have any other questions or want to discuss things privately feel free to PM me.