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Mike Oxlong · 05-31-2012, 10:49 PM

Someone in the off topic forum asked a good question about getting into a 10 year mortgage. With interest rate at historic lows it could be a good long term strategy.

10 year rates are between 3.89% and 3.99% right now.

Here is an intersting FAQ article from one of the lenders answering some questions on 10 year mortgages:
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.

05-31-2012, 10:49 PM	#212
Mike Oxlong Got Oliver Klozoff Join Date: Feb 2003 Exp:	Someone in the off topic forum asked a good question about getting into a 10 year mortgage. With interest rate at historic lows it could be a good long term strategy. 10 year rates are between 3.89% and 3.99% right now. Here is an intersting FAQ article from one of the lenders answering some questions on 10 year mortgages: 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.