Choosing The Right Mortgage Term

Rodney Biggar Mortgage Broker

As you embark on your journey of purchasing a new home or renewing your mortgage, an important decision you will have to make is the length of your mortgage term. This decision can affect your monthly payments, interest rates, and pre-payment penalties.


Therefore, to help you make an informed decision, I have put together some tips on choosing the right mortgage term.


Consider your future

When choosing your mortgage term, consider how long you plan to own the property. If you are buying a starter home and plan to sell in 2 years, a 2 year term might be best. Or if you plan to own your home for an extended period, a 5 year term might make more sense. Remember, porting your mortgage is possible, but it only sometimes works out.


Calculate your budget

Figure out how much you can afford to pay each month. Shorter mortgage terms usually have a higher rate, while longer mortgage terms have lower rates. Determine what fits comfortably into your budget.


Look out for market conditions

Interest rates can fluctuate over time. If interest rates are low, take advantage of a longer term. If rates are high and you believe they will be lower in a few years, consider a shorter term so you can renew earlier at a lower rate. If you plan to pay off your mortgage early, there will be a penalty. The penalty will be 3 months of interest or an interest rate differential (IRD) penalty. This comes into effect when your rate is higher than today’s market rates on your remaining term. You will want to avoid an IRD penalty because they come with a big cost.


Consult a mortgage expert

As a mortgage broker, I can help you analyze different options and determine which mortgage term will suit you best. Take advice from me or any other trusted professional to clear all your doubts.


These tips will help you make the right decision when choosing your mortgage term. If you have any more questions, please don’t hesitate to contact me. I’m always here to help you out.


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