Definition: The number of years or months over which you agree to pay a specified interest rate and the lender commits to not changing it or asking for their money back (except in default of course) ! Also refers to whether it is an open or closed term.
Options: Terms can be any of the follow:
Lengths:
- 6 months, 1 to 10 years
- Up to 25 years for secured lines of credit although fully open
- A term that renews on a specific date the lender sets in the future e.g. could result in a 2 year 6 month term
Open or closed:
- Completely open so even though a length of term is stipulated, you can pay it back in full with no penalty or;
- Completely closed so a penalty is payable by you if you repay early
So how do you select the right one for you?
- Determine which terms you actually qualify for and can select from. You may be limited to a 5 year fixed term based on recent legislation changes – if you want a 1 to 4 year term or a variable; you typically have to qualify at a much higher interest rate known as the benchmark rate…. This might reduce the amount you qualify for. I can let you know your options
- Consider selecting your term based on the current trend for interest rates going up or down e.g.:
- You might select a 5 year fixed term because rates are starting to go up and you want to “lock in” that lower rate
- You might select a shorter term if rates are expected to remain low and aren’t expected to rise
- Consider selecting your term based on any expected changes in your income. Maybe having a 5 year fixed term at the same rate and payment for the next five years makes more sense and better suits your needs now
- Consider how long you intend to stay in this home, a question we asked earlier. You might want to align the term with your future moving plans or even possible job relocation opportunities
- You may be expecting to receive a large sum of money soon and want to pay your mortgage off in full or a large part… paying it in full before the term expires may result in a penalty if the term is closed, e.g. selecting say a 2 year term which is when you plan to pay it off in full will save you money and penalty costs!