Term

Canadian mortgages are issued for terms of anywhere from six months to 10 years. A borrower may have many terms or only a few during the time the mortgage is amortized.

During the term, the interest type, fixed or variable, remains constant. When the term expires, you have two options. Pay off the balance or renew. The terms and conditions are negotiable at the time of renewal.

The length of the term impacts interest rates. Longer terms tend to involve higher interest rates, while short terms tend to get the lowest available rates. If rates are falling, it’s a good strategy to keep terms short. If they are rising, lock in a longer term to save on interest.

Choosing the Length of the Term

Most financial advisors recommend that you choose the longest term your lifestyle allows you to take when interest rates are low. When interest rates are high, choose the shortest term available. Many lenders offer terms as short as six months, though the rate for a 1-year term is often lower.

In addition to this, consider the spread between the interest rates being offered on short-term and long-term mortgage rates. When the spread is close, then go ahead and choose the longer term. If the spread is wide, then take the shortest term possible.

One of the best ways to choose the length of term is to use a mortgage calculator to compare the different terms to see which saves you the most money. The money you don’t pay to interest can be used to pay down your principle or to meet the other needs of life.