Why do mortgage rates go up when the term goes up?

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Question by Mike T: Why do mortgage rates go up when the term goes up?
I’m looking at mortgage rates for closed term, discount ranging from 6 months to 10 years, see and I’ve noticed that the rates actually increase as the length of the term gets higher. Why is this the case?

Best answer:

Answer by Ben
The general “rule” in banking and in finance is that the longer the loan, the higher the interest rate.

The reason is that the lender takes on more risk with longer term loans. For example, if the lender commits to a fixed rate 10 year loan to you, but rates rise sharply within 3 years, they lose out on getting that higher interest rate. (conversely, if rates fall, then the bank wins on that fixed 10-year loan to you).

(BTW this sounds like a type of mortgage offered in Canada. Also, interest rates are relatively low now, even if rates are up slightly from a month ago. And, the general fear is that interest rates in Canada will go higher in the years ahead. So locking in something fixed now is a good deal for us the consumers, in my opinion).

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