Choosing the Mortgage Term That’s Right for You
If only there was a one-size-fits-all repayment plan for mortgage holders, the real estate and financial markets would be much easier places to understand. However, choosing the mortgage term that’s right for you can be a perilous affair, with the difference in interest rates equalling thousands of dollars that you will be obligated to pay in some circumstances. The best way to lock in a sound interest rate that you will be capable of repaying over the long term is to seek the advice of a professional who can best advise you as to what to do. There are of course, some helpful hints to also keep in mind when it comes to mortgage terms.
Traditionally, it was recommended by most mortgage professionals to choose terms that were shorter and then just keep renewing those, in order to gain lower overall interest rates. This is not always the case anymore, and with the advent of fixed mortgage rates either open or closed, a homeowner can negotiate a lower interest rate even with a longer mortgage term. This is one of the reasons why choosing the mortgage term that’s right for you is more difficult these days, because the rules of the game have changed a little bit.
At the moment, Canada interest rates are at the lowest they’ve been in decades. This is the time to start carefully planning your financial future, and locking in those low interest rates. Choosing the mortgage term that’s right for you can be easily achieved with this in mind, but it’s important to carefully analyze your current situation first, before si gning any paperwork that carries with it long-term obligations. Think about how much money is in your budget for the mortgage payments, and how much you can afford to keep paying. Is there any extra that can be siphoned from elsewhere?
The problem here is that today’s historic low interest rates may not sustain themselves, so if you decide to go with a short term mortgage plan then when it’s time to renew if the interest rates have raised a drastic amount, you may not be able to keep your home at that rate. This is why considering a longer term may be a good idea, in order to lock in those low interest rates. These are all merely factors to consider when choosing the mortgage term that’s right for you, as there is no pat answer that works for every household.
Another benefit to choosing a longer mortgage term if your finances aren’t as strong as you would like them to be at the moment is that you will have more refinancing options after, for example, a ten year term rather than a one or five-year term. This will give you greater flexibility for lowering interest rates in the future or having your home reassessed, to lower overall monthly payments. After ten years, a great portion of the mortgage will have already been paid off, if not all of it.
As has been stated above, when choosing the mortgage term that’s right for you there are a number of pros and cons for both short and long term plans. Unfortunately, there is not going to be one situation that works for everyone’s financial situation. This is why it can be extremely helpful to sit down with a financial advisor to go over your personal situation, including the household income, how much you have in your savings, and long-term financial goals. Will you need to put children through university in the near future? Will there be other big investments?
These are all things to keep in mind when choosing the mortgage term that’s right for you. Sitting down and working out a budget is a good way to get started, and to start looking at the actual numbers that you have at your disposal. This helps paint the whole situation in a potentially more realistic light, to get you started and ready to go in purchasing the household of your dreams. With interest rates so low at the moment, there is no reason not to tap into this exciting real estate market. More people than ever before have been able to buy homes, at little interest.