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What is a 7-year fixed closed mortgage rate?

The 7-year is one of Canada’s lesser-known mortgage terms. In fact, you could be forgiven if you didn’t know 7-year terms were even a thing.

Most people don’t get them because, generally speaking, the 7-year term doesn’t offer enough extra interest rate protection to justify its higher rates compared to the more popular 5-year term.

In fact, in any given year, no more than 1% of borrowers opt for a 7-year mortgage.

Below, we look at some of the benefits and drawbacks of this largely overlooked term.

Benefits of a 7-year fixed mortgage

We’re hard-pressed to come up with a list of reasons why a 7-year mortgage term makes sense. Generally speaking, almost any other closed term offers better pricing in relation to the protection it offers against rising rates.

In rare cases, however, mortgage shoppers do choose 7-year terms because they need more rate security than a 5-year fixed, but don’t want to pay the higher rate of a 10-year rate. Seven year mortgages also let you out with just a three month interest charge after five years.

It could also be ideal for someone who is seven years away from paying off their mortgage and who wants to avoid the perceived hassle of an additional term renewal in that time (even though the couple hours of time needed to renew could save that borrower a significant amount in rate savings.)

And lastly, there are times when a lender will put 7-year terms on special. That means rates that are almost the same as 5-year terms. That makes them less bad but not a wise choice due to the risk of a big prepayment penalty

Drawbacks of a 7-year fixed mortgage

We’ve already alluded to some of the potential drawbacks of choosing a 7-year fixed mortgage, but here they are:

  • Higher rates: It’s extremely rare that 7-year rates are offered at such discounts to make them appealing to most mortgage shoppers. Those looking for long-term rate stability are usually better off going with the 5-year fixed (better rate pricing), or the 10-year mortgage, for those wanting extra long-term rate stability (this is even more true when they fall to record-lows, as they did in early 2021.)
  • Higher prepayment penalties: The longer the fixed-rate term, the higher the chance you may need to pay a prepayment penalty should you have to break your mortgage early. Long-term fixed-rate mortgages usually have higher penalties compared to floating (variable) rates, which could make breaking a 7-year fixed expensive, especially in the first five years. This is because fixed rates have what’s known as an interest rate differential (IRD) penalty, which can cost you up to 2-5% of your principal balance. The penalty for breaking most floating-rate mortgages, on the other hand, is just three months’ interest.
  • Less flexibility: Only a minority of people will keep their mortgage for a full seven years. Even those convinced that they’ll be staying put in their home for the long run often find that unforeseen life circumstances get in the way of those plans. The longer the term, the greater the odds you will have to renegotiate your mortgage before maturity. And that can cost you dearly.

Predicting 7-year fixed mortgage rates

If you want to try and predict where 7-year rates are headed in the short term, you can take clues from Canada’s 7-year government bond yield.

While mortgage rates don’t track bond yields precisely over the short term, they do generally follow medium- to longer-term movements.

History of 7-year fixed mortgage rates

Discounted 7-year fixed mortgage rates trended downward steadily throughout the late 2000s from a peak of just over 6%. Over the past three years, they’ve hit a high of around 3.64% in late 2018, and broke below 2% briefly in late 2020. Those rates didn’t last long.

As of April 2021, mortgage shoppers can find nationally available 7-year fixed rates for as low as 2.64% (or lower in certain provinces).

Over the past decade, 7-year fixed rates have generally:

  • moved in tandem with other fixed-term rates
  • been priced between 0.30%-1.00%-points above average 5-year fixed rates
  • been higher than shorter-term rates, including the 5-year
  • been lower than comparable 10-year fixeds.

7-year fixed mortgage tips

The best tip is usually not to get one. Mathematically they’re a flop.

Seven-year mortgages may seem safer because they protect you from rate hikes longer. But they entail painfully high rates and often brutal prepayment penalties.

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