The 10-year fixed mortgage offered by HSBC—which goes as low as 2.99%—could prove to be just what investors need in markets, like Toronto, that provide diminishing returns.
“As an investor, I would strongly consider this,” said Tom Storey, who’s also a Royal LePage Signature Realty team leader. “The penalties aren’t so bad, either. If this catches on, every lender will have a 10-year fixed mortgage product because I believe this is the lowest one ever.”
It is, indeed, the lowest rate on a decade-long fixed rate mortgage that a lender has ever offered in Canada, and the penalty for breaking the it in the first half is whichever of 90 days interest or the rate differential is greater. If it is broken during the latter half, a prepayment charge of 90 days interest will be attached.
Barry Gollom, HSBC’s senior vice president of products and propositions with retail banking and wealth management, is confident offering this product to a real estate investor because the yield curve between five- and 10-year fixed mortgage money is short, but he does note that everyone has different appetites for risk.
“It depends on upon the particular investor’s situation and what they’re trying to achieve,” he said. “The same rate for a long period of time makes great sense for them, but the 10-year mortgage isn’t for everybody. What we’re trying to do is present customers—be it for folks’ principal residence or investment property—with more options to choose from. Historically, Canadians focus on five-year fixed or five-year variable and we’re saying that, depending on your situation and tolerance for risk, you should consider a longer term like seven or 10 years. It’s tailored to the individual customer’s specific needs.”
Ten years might be longer than investors typically hold properties, but should they retain ownership for that long, and given that rental income will increase over the years, a low mortgage payment is a great way to bank as much profit as possible. However, Storey says that isn’t necessarily the only way.
“More than anything, it’s being able to sleep at night and not have to worry about what your mortgage payment is going to be for the next 10 years,” he said. “But if they’re willing to lend you money at this 10-year fixed rate, they must be confident in knowing that mortgages won’t rise past a certain percentage for the next decade. It’s hard to believe they’d put this out there without knowing future rates, especially if they’re doing it at such a low percentage.”
A previous version of this article stated HSBC is offering a 2.94% rate, but this is incorrect. This was caused by an IT glitch on the lender’s end.
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