8-year fixed rate mortgage

This mortgage term has a constant, or, in banking terms, fixed rate of interest for 8 years. When the term is up, borrowers can renew their mortgage then choose a different mortgage product -- one that accurately matches their current needs

How an 8-year fixed rate mortgage works

Like all fixed rate products, the 8-year term is set in conjunction with Government of Canada bond yields. Essentially, it’s an expression of those yields plus the premium, or in financial terms, the ‘spread’ that the lender adds to the yield. The spread is determined by financial market conditions, lender competition, and, in some circumstances, your risk profile.

The 8-year mortgage is something of an oddity in Canada and few people take it. Many lenders don’t even offer it. PC Financial and Laurentian Bank are among the few institutions that do.

Should you choose an 8-year fixed rate?

There’s little advantage to taking an 8-year term over a 10-year term. Thanks to the relative rarity of the 8-year fixed rate and the 10-year term’s ‘flat’ yield curve, 10-year bonds don’t yield much more than shorter dated bonds. In fact, some 10-year fixed rate mortgages have lower rates than in 8-year mortgages.

But the 8-year fixed term isn’t entirely without merit. If you know that you want to renew or discharge your mortgage in 8 years, then a 8-year fixed term might be the best choice. It also offers a long period of interest rate protection and relatively low rates. So in a rising interest rate environment, you won’t have to worry.

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