What Mortgage Term Should You Choose?
posted in Mortgage News
The mortgage term that you choose is wholly dependent upon your financial, and personal circumstances, not to mention what your short and long-term goals are, coupled with the risks that you are or aren’t willing to take. Choosing a mortgage with a longer term can help you to secure a good rate of interest for a longer duration, while choosing one with a shorter term can give you a lot more flexibility; however, this typically gives you less protection if rates rise in the future.
If you’re confused about what mortgage term to choose, think carefully about your current situation, before reaching out to a mortgage broker for help. A qualified and licensed broker will help you to cut through the jargon and understand what types of mortgages might be available to you, while giving you their advice and guidance from a non-biased perspective. After all, you are their customer and they work independently with your best interests in mind, and not for any specific lender.
Choosing a mortgage term that fits your personal circumstances:
There are many factors that can play a role in determining which mortgage term you eventually plump for, but one important thing to consider is whether you think you may have to sell your home within the next few years. If so, then you might be wise to select a mortgage with a shorter term, to help you avoid incurring a prepayment penalty fee. Research has shown that around 70% of repeat homebuyers in Canada, moved sooner than they thought they would, meaning that the chances of having to break your mortgage term early, might be higher than you think.
Your mortgage term directly affects your interest rate:
It’s important to keep this in mind when thinking about your mortgage options, and if you’re working with a broker, they will do this thinking for you. History has shown that the shorter the term, the lower the rate of interest, compared to a longer term, which gives you more protection from fluctuating rates but comes at a cost.
5-year terms have always proved the most popular among Canadian homebuyers, with 2 and 4 years coming a close second.
What happens if you break your mortgage term?
Your personal circumstances can change, and sometimes without warning, leaving you in the unfortunate but necessary position of having to break your mortgage term early. Doing so means that you will inevitably incur a prepayment penalty fee (unless you are able to port your mortgage to your next home), and these can be significant, but your mortgage broker can help you evaluate the risks when you’re shopping for your mortgage.
Choosing the right mortgage term can be tricky, but it becomes much easier when you have the facts and figures laid out in front of you. A mortgage broker will always do their best to get you the right mortgage term for your situation, and will help you to understand the financial impact of the choices you make.