7-year fixed rate mortgage

Based largely on Government of Canada 7-year bond yields, the 7-year fixed rate mortgage gives borrowers two extra years of security over the 5-year mortgage. It also often offers lower interest rates than the 10-year fixed rate does. Think of it this way: you get 7 years of interest rate protection while enjoying lower rates than your neighbors with 10-year terms do.

Of course, neither you nor your neighbors should confuse a mortgage term with an amortization period: the first refers to the amount of time you agree to pay a certain interest rate and be bound by a mortgage contract; the second is the total amount of time it takes to pay off your mortgage. Amortization periods in Canada usually last 25 years from the first to last payment.

While the 7-year fixed rate mortgage isn’t without its fans, the term is less advantageous than you might think. It can be viewed as a ‘jack of all trades, master of none’ type of mortgage. In other words, the term offers good features, but doesn’t provide any one standout benefit: it’s not the longest term and it doesn’t have the lowest interest rates.

Take a closer look. You’ll see that rates on 7-year terms are often a full percent higher than their 5-year counterparts, but they’re only slightly lower than 10-year fixed mortgages. If you’re risk averse or maxed out on payments, taking a 10-year term might be the smarter choice. You gain 3 more years of security, but don’t have to pay much more in interest. Maybe your neighbors were right!

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