Looking for the perfect mortgage? The term

Another important consideration in regard to your mortgage is the term. The term is simply a period of time (usually 6 months or 1, 3 or 5 years) in which a specific rate of interest applies to the mortgage. The end of the term also signifies the time when the mortgage must be negotiated.

In actuality, a mortgage with a 25-year amortization could be renewed up to 49 times assuming the borrower opted for 49 consecutive six month terms.

Deciding on the term

There are two essential financial considerations to take into account when deciding on a mortgage term: the interest rate environment and your personal financial situation. The two, as you might have guessed, are closely intertwined.

Generally, lenders advise borrowers with a steady monthly income and minimal savings on deposit to consider longer terms so that an unexpected increase in interest rates at the time the mortgage has to be renegotiated (i.e., at the end of the term), does not cause the borrower (and the lender) undue financial stress when and if mortgage payments are missed.

Alternatively, if you are in a financial position to comfortably cover up to a 25% increase in interest rates upon renegotiation, you could choose a shorter term. Additionally, there are several reasons to consider a shorter mortgage term.

The principle reason most people opt for a shorter term is interest rates. If you feel that interest rates are going to fall in six months, then a six month term may be suitable. If you are absolutely sure that they are going to fall, then you may even choose an open mortgage where the rate of interest is usually tied to the bank or trust company's Prime Rate. Alternatively, if you think rates have bottomed out for the foreseeable future, you may consider locking in to a longer term to take advantage of a relatively lower rate of interest.

Mortgage Loan Rates Variable/6 mts, 1-2 yrs Open

Whatever your situation, it is virtually impossible to forecast the future of interest rates. In the past 25 years, no one has been able to predict interest rates changes with any great degree of accuracy. While conventional economic wisdom maintains that interest rates are primarily a function of the money supply, they are really guided by a fairly injudicious mix of political maneuvering, macro-economic statistics, psychological confidence in the economy, seemingly unrelated economic goals and even acts of war and overseas famine.

Considering that there is not an insurance company in Canada that will write a reasonable premium against any of these eventualities, it seems that the uncertainty of interest rate fluctuations is a reality that will be with us for some time to come.

In our mortgage discussions, we have generally concentrated on terms of five years or less because these are typically the great majority of the market. However, over the past several years, longer-term mortgages varying in length from seven to 10 years have been once again gaining in popularity. It would seem to be sensible, when rates are at a low level, to lock in a fixed rate for as long a term as possible and this is why ten-year terms have been very popular in the past. As long as some repayment flexibility can be retained, it is the mortgage equivalent of "having your cake and eating it, too."

Mortgage Loan Rates Long Term 6,7,10 yrs

Government Help	How are interest rates determined?