Selecting the right mortgage term

Selecting the mortgage term that is right for you can be a challenging proposition for even the savviest of homebuyers, as terms typically range from six months up to 10 years.

By understanding mortgage terms and what they mean in dollars and sense, you can save the most money and choose the term that is best suited to your specific needs.

The first consideration when comparing various mortgage terms is to understand that a longer term generally means a higher corresponding interest rate. And, a shorter term generally means a lower corresponding interest rate. While this generalization may lead you to believe that a shorter term is always the preferred option, this is not always the case. Sometimes there are other factors – either in the financial markets or in your own life – that you will also have to take into consideration when selecting the length of your mortgage term.

If paying your mortgage each month places you close to the financial edge of your comfort zone, you may want to opt for a longer mortgage term, such as five or 10 years, so that you can ensure that you will be able to afford your mortgage payments should interest rates increase.

By the end of a five- or 10-year mortgage term, most buyers are in a better financial situation, have a lower outstanding principal balance and, should interest rates have risen throughout the course of their term, will be able to afford higher mortgage payments.

If you are shopping for a mortgage for an investment property, you will likely want to consider choosing a longer mortgage term – depending, of course, on your overall plan. This will allow you to know that the mortgage payments on the property will be steady for a long time and enable you to more accurately project your future income from the property.

As well, if you know you will not be staying in the same home for the next five or 10 years, opting for a shorter term can save you significant fees when it comes to early payout penalties.

Choosing the right mortgage term is a unique decision for each individual. By understanding your personal financial situation and your tolerance for risk, I can assist you in choosing the mortgage term that will work best for your situation.

As always, if you have any questions about mortgage terms or your mortgage in general, I’m here to help!

Think your borrowing costs are cast in stone? Maybe it's time to ask

The following article in yesterdays Globe and Mail is a great article on the recent changes to the Manulife All-in-One product which has most of their clients seeing red. This product which is sold through financial advisers (not available through mortgage brokers) was sold by the financial advisers as a "prime rate" product and that the rate would never change. This selling feature written in the content of product details on the Manulife website has since been removed from the Manulife website.

[Source - ROB CARRICK - globeandmail.com 18/11/08]

When you deal with companies in the financial sector, you run the risk that their pain will turn out to be your pain.

This is what's happened recently to clients of Manulife Financial, Canada's biggest insurance company, and Envision Financial, a large credit union in British Columbia. Affected in various ways by the global financial crisis, both have made changes that resulted in higher borrowing costs for some clients.

In the past few years or so, virtually all financial institutions have bumped up the cost of mortgages and lines of credit. But Manulife and Envision differ in that it's not just new clients who will pay more. Existing clients who may have thought they had a particular arrangement in place are now paying more as well.

Before the financial crisis, you could get away with signing up for a mortgage or line of credit without asking about your lender's ability to change the rules determining your interest rate. Now, it's clear that you have to ask, or risk a surprise increase later on.

Read Full Article Here: http://www.theglobeandmail.com/servlet/story/LAC.20081118.RCARRICK18/TPStory/Business

Similar All-in-One products are offered by mortgage brokers through other lenders. Be sure to speak with a professional mortgage agent and get all the details on these types of products before going into them.