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Mortgage Term Length

The mortgage term is the length of time of your mortgage commitment. Typical terms are 1, 2, 3, 5 and 10 years. "The most common mortgage in Canada has a fixed interest rate for a 5-year term" (Crawford, Meh, & Zhou, December 2013).

1, 2 & 3 Years

A shorter term will typically come with a lower interest rate. Therefore if someone is chasing the lowest interest rate possible then they will likely end up in a shorter term closed mortgage. Having shorter mortgage terms may cause you to pay closing costs more frequently. Basically, if you select a 1 year term to get the best interest rate at the end of that term you may be taking on closing costs to renew or refinance. Paying closing costs each year instead of every 3 to 5 years is going to add up and may cost you more than what you are saving in interest.

5 Years

This is by far the most popular mortgage term, especially for high ratio purchases due to regulation changes in Canada. The down side is if you lock in to a 5 year term and then need to break that mortgage you may be looking at some hefty prepayment penalties from your lender.

10 years

A very lengthy term may be favourable for those who are very risk-averse and believe that interest rates will be increasing drastically in the future. Typically a 10 year term is only a good option for someone who knows they will not be able to re-qualify for their mortgage for several years either due to a financial change on their part or government regulations.

The different term lengths have pros & cons for each one. It is best to discuss your exact situation with your mortgage professional to find out which option will be the best fit for you.

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