Different Mortgage Terms in Canada

Choosing a mortgage term is something your Edmonton mortgage broker can assist you with. The term of a mortgage is the time frame that you are committed to a certain lender, mortgage rate, and any conditions set out by the lender. There are a number of mortgage term options that you can choose from when securing a home mortgage. It can be a bit confusing, however, to know which terms will be most beneficial to you.

Speaking with an Edmonton mortgage broker, we found that mortgage lengths can run from 6 months up to 10 years, with many customers going for a 5-year mortgage. In Canada, when a mortgage term expires, you need to renew the mortgage on the principle that remains unpaid. Many customers will choose to renew their mortgage terms several times through the whole of the amortization period.

Choosing a Mortgage Term

Depending on your financial situation, tolerance risk, and your long and short-term goals, choosing the right mortgage term is important. For example, choosing a mortgage term that is longer will ensure that you are locked into an interest rate that will be good for a longer time frame. With a short term option, you get a bit more flexibility, however, there is less protection if interest rates rise.

Personal Circumstances

You should consider your personal circumstances when choosing a mortgage term. For example, should you feel there is a good chance that you will be selling your home in the next few years, choosing a short mortgage term would be beneficial. It will help you avoid paying prepayment penalty fees that you would be hit with if you had to break a longer mortgage term.

Interest Rates

Something to bear in mind is that whichever mortgage term you go with will have a direct effect on your rate of interest. To date, its shorter-term mortgages that have lower rates of interest. The longer the term you choose, the more protection you have against fluctuations in interest rates. However, you will have to pay your lender a premium for this.

Qualifying

Mortgages in Canada are subject to what is known as a stress test. This means that a home buyer needs to qualify at a higher interest rate than what is given by their mortgage lender. This is usually 2 percentage points added to the rate your lender offers you.

Breaking a Mortgage Term

There are times when your personal situation changes, such as having to relocate, refinancing, or another major life event. This may mean that you have to break the term of your mortgage early, which can result in having to pay a significant penalty fee for prepayment.

There are some alternative though to breaking your mortgage term, such as porting your mortgage to your next home. Another option is having the buyer of your home assume the current mortgage. Speaking to your Edmonton mortgage broker about which terms are best for you and how to avoid these prepayment penalties will save you thousands in the long run.