Is a 10 year mortgage term a good idea?

With 10 year mortgage terms now available for as low as 3.89%, they are now starting to catch the attention of many mortgage seekers.  But is taking out a mortgage for 10 years a good idea?   The answer is yes and no.  I really depends on the person borrowing the money.  For some, it will make sense, but for most it won't. 

One thing is for certain....mortgage rates won't always be this low.  We know they are going to go up as the economy improves.  In a healthy economy, 5 year fixed mortgage rates commonly fall between 5-6%.  Will someone save more money over a 10 year period if they take out a 10 year mortgage?  While anything can happen, it is a reasonably safe expectation that 5 year fixed mortgage rates will be higher in 5 years than they are today.  IF you stick with the 10 year mortgage for the entire 10 years, than the answer is yes, you will most likely save more money over that period in a typical situation.  But that is a very big 'IF', as 10 years is a long time, and we really don't know what our situation is going to be like down the road. 

Many people refinance their mortgage about 3 - 4 years into it, breaking their 5 year term early.  Why do they do this?  It could be to get a lower mortgage rate (unlikely in the future, as we are already rock bottom on rates).  It could be to withdraw money from the equity in their home for whatever reason, which is probably the most common reason for refinancing.  Maybe you choose to move and refinance at that time (although, MOST mortgages are portable and you can move your mortgage to your new home). 

My point is that the future is not set, and we cannot predict it.  Maybe 4 years from now you decide to start a new business and need to borrow money against your home? Or you decide to go back to school?  Or you need money for medical purposes not covered by insurance?   Maybe your employment gets transfered to another province or country and your mortgage can't be ported?  My point is, there are numerous curves life can throw at you that are unexpected.   After all, if homeowners thought they would need to refinance in 3-4 years, then they wouldn't have taken a 5 year mortgage to begin with.  

Life has unexpected changes.  I am not 'against' 10 year mortgages, but just make sure your mortgage broker or mortgage banker takes the time to explain the pitfalls, and doesn't just drop you into the mortgage term that makes them the most money (10 years).