Should I do a 5 year mortgage term?

Jesse Abrams - February 21, 2018, 1:52 pm

What does "Mortgage Term" mean? 

A mortgage term is the length of the contract that your current mortgage will be in effect with a specific lender. This includes all of the terms of the mortgage under your current lender contract, including your interest rate. This is not to be confused with "Amortization", which is the total length of your mortgage (i.e. 25 or 30 years). At the end of your term, you will need to renew your mortgage with your current lender or refinance/switch with a new lender. (Note, if you are able to pay off your mortgage at the end of your term, you will not need to renew, switch or refinance) 

        

Who is a 2-4 year term best for?

  • Someone who is only planning on living in the home for 2-3 years and does not want to suffer any major breakage penalties (these can be substantial).

  • Someone who believes that interest rates will drop in the future, but wants to stay on a Fixed rate mortgage. In fact, often times a 3-4 year term could have a lower rate than a 5 year term. 

  • Someone who thinks rates could go up, but believes that a variable rate is still a good option in the short term based on the lower rate.  

        

Who is a 5 year term best for?

  • Most home buyers get a 5 year term. 

  • Someone who wants the security of knowing the amount of principal paid off for a 5 year period on a fixed rate mortgage

  • Someone who wants to have the same payment terms for a longer period of time (this may be because they believe that interest rates will go up in the future). 

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