Buying a new home is probably the most arduous process most Canadians will ever undertake. When choosing a mortgage, you need to consider many factors. If you get the wrong combination, you may have to suffer the consequences for many years or pay a penalty. We meet people seeking to change their mortgage terms all the time. Usually, this is because they have realized they are getting a raw deal. How can you avoid such a scenario before you even sign on the dotted line? Knowing how a mortgage term affects your mortgage is one of the ways.
Why does the Mortgage Term matter?
In Canada, mortgages are available in almost any amortization period-5, 7, 10, 15, 20 and 25 years. In your search escapades, you will most probably come across the 5-year mortgage with an amortization period of 25 years. This is because this is the standard mortgage term here.
Effects of the mortgage term on the mortgage are simply about dynamics such as transaction costs and monthly mortgage payments.
Every time you renew a mortgage, you incur some cost. For a longer-term mortgage, this process is less frequent, meaning you have to pay for fees-courier, title insurance, mortgage registration, land transfer, interest rate adjustment, etc. –less often. Short-term mortgages are obviously costlier in this regard.
Choosing a short-term over a long-term mortgage may mean paying a lower interest rate, but it translates into higher monthly payments. For example, a 30-year mortgage is cleared in double the time of a 15-year mortgage. If you choose it, you have the privilege of coughing less in monthly payments. For many Canadians, this is a better deal than having to strain monthly for a quicker clearance of the home loan.
Take care; rates may hoodwink you
The interest rates in Canada are very pleasant for the homebuyer presently. There is no better time to plan for your financial future than now. Getting the right mortgage term can help you lock the interest rates. However, there is more to just locking a rate. Many lenders will not want you to look beyond interest rates. Have you noted how the internet is full of low interest rates, with mortgage terms given the back-burner? Lenders are sure that borrowers will usually opt for a conservative term because of potential hikes in interest rates. The mention of economic incentives melts the hearts of numerous borrowers. What happens eventually? Borrowers ignore shorter-term mortgages, even in cases where they could make substantial savings.
What is the bottom line?
No matter your preference-long or short-term mortgage-the most suitable product depends on your current situation. It is worthwhile to consider more than just rates when choosing a mortgage in Canada. The mortgage term affects the transaction costs and monthly payments of your mortgage. Let an expert mortgage advisor from IslandMortgage help you choose a mortgage term depending on the financial burden you can handle now and in future.