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A look at locking in on super-long mortgages

VANCOUVER (NEWS1130) – When you’re making a decision on whether to lock in your mortgage, it’s about balancing the risks and the security.

But with some of the extreme long-term mortgages now being offered, that security comes at a very large cost.

Most homeowners choose a five-year term fixed-rate mortgage and there are some attractive 10-year fixed rate products now available, but RBC is taking it to the extreme, offering the option of locking in at 8.75 per cent on a 25-year term. That is nearly triple a good five-year fixed rate right now.

“It’s not the first time a 25-year term has been offered in Canada. In the late 90s, a couple of lenders were offering it, but there was a very limited demand,” says Jared Dreyer, president of Dreyer Group Mortgages-Verico and head of the Mortgage Brokers Association of BC.

“I think we’ll see the same thing with the RBC offering, just because of the way they’ve priced the interest rate on it at 8.75 per cent. It’s extremely high, relatively speaking, compared to what the current interest rates are on a 10-year term or a five-year term,” he tells News1130.

Current fixed rates rates are as low as 2.89 per cent on five-year terms and as low as 3.79 per cent on 10-year terms.

“The biggest thing is, on a normal $350,000 mortgage on a 25-year term at 8.75 per cent rate, you have a payment of $2,700. Roughly $2,300 of that is going to directly toward interest costs,” explains Dreyer.

“If you took a five-year term, you’re actually almost at a 50/50 split right off the start, so almost 50 per cent of every payment is going toward principal.”