While it’s common for most homebuyers to first consider mortgage interest rates when shopping for a mortgage, choosing the right length of your mortgage term is extremely vital as well.
Examining Mortgage Terms
Your mortgage term is also known as the term in which you’ll pay your mortgage. At the end of your mortgage term your lender will review your contract with you and re-negotiate your new terms with you. Once you choose the length of your term, it cannot be changed until your mortgage is up for renewal or your break your mortgage agreement. However, breaking your mortgage can come with extra fees and penalties.
It’s quite unfortunate but a number of homeowners often overlook or don’t take short mortgage terms into consideration. As a result money is often lost. Home borrowers typically go for longer term mortgages for a greater peace of mind, but they are also required to pay a premium.
Interest rates can be uncertain, which is why your mortgage term is so important. Essentially, it can help you to determine how much interest you will end up paying. However, if you go with a closed mortgage, the interest rate you get is what you’ll be stuck with until the end of your term. No frills mortgages offer lower rates, but you can’t switch lenders during your term, only if your term ends or you sell your property.
Long vs Short Mortgage Terms
Long term mortgages are those of 10, 20 and even 30 year terms, whereas short term mortgages can be around 5 years.
Longer terms make more sense to some people, especially if you cannot afford to experience any increase in the amount of your monthly payments, or you don’t have at least 6 months of savings to cover your costs. A longer terms allows you to lock in without any worry.
There are circumstances that may call for a short term as well, depending on your needs.
How Your Credit Factors In?
If your credit is not that great, a shorter term may be best. Once you’ve paid on your mortgage for a year or more, it may allow you to increasing your borrowing amount while possibly reducing your interest rate. A short term eliminate the need to locking in at a high rate and offers a bit more flexibility for change in the future. Same goes, if you want to sell your home in a few years.
Choosing the Best Term
Choosing the best term may seem impossible or even confusing at times. Why not hire a professional to help you in your decision-making? A licensed mortgage broker can help you choose a product that meets your needs, and they’ll even factor in the level of risk you’re willing to take.
If you have questions about Canadian mortgage, contact us.