April 20, 2015
From first breath to death life is marked by a series of choices. Night and day divide the seasons and years, as we question the righteous path of the mundane and significant. To sleep or eat, fight or flee, cry or smile? Some decisions are small, like whether to wear a blue or red tie, and others hard. Choosing between a short and long-term mortgage is assuredly a candidate for the latter category.
In fact selecting the right term – in essence the appropriate length of your mortgage contract – is considered more important than finding a low rate, picking fitting mortgage features or working with the best lender. While a majority of Canadians sign five-year fixed term mortgages, choosing the right term for you is a personal decision that should be tailored to individual finances and the current economic climate.
Long-term mortgages include four, five, seven and ten-year terms. Some of the pros of choosing this brand of contract include fiscal constancy and stability, and protection from rate hikes over an extended period. The characteristics of a long-term mortgage permit you to budget effectively, knowing that your rates will remain the same from month to month and year to year.
The downside of the long-term mortgage, however, is that the longer the mortgage, the higher the interest rate will undoubtedly be. Because of the unpredictability of future interest rates, it is important to be diligent in doing some planning and forecasting. In addition, stiff penalties can be incurred for breaking your mortgage, which is of course more likely over a lengthier time frame.
On the other hand, short-term mortgages of three years or less are defined by flexibility and significant financial savings over the near future. Other advantages of a short-term mortgage include the locking in renewal rates in six months, making payments mostly in principal and knowing the exact amount of your repayments.
Drawbacks of the short-term mortgage include a lack of security of investment over time, less competition for your money and reduced mortgage availability. One of the most important things to note about short-term rates is that valuations and application fees must be rearranged at the end of every term, which can be a hassle to deal with yearly.
Choosing the proper mortgage is as subjective as buying a house to fit the needs if your family. Both short and long-term mortgages have a number of pros and cons, all of which should be considered when making the decision to go with one or the other. Like so many things in life, picking the right mortgage contract for you can only be deemed right or wrong by the eyes of the beholder.
If you still are not sure about which option is best for you, please contact us and one of our Mortgage Specialists will help you pick the right one.