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There’s a lot to learn before you take on your first mortgage!
Beyond choosing your home, making an offer, and moving in, you also need to consider your mortgage term.
A mortgage term is the timeline of your mortgage contract. It ranges from 6 months to 5 years.
At the end of the term, you’ll renew your mortgage with a new interest rate, and repeat the process until your mortgage is paid off completely.
Your mortgage term affects:
“A fixed mortgage term determines how long your interest rate is locked in for,” says Maria Alphonso, Personal Banking Advisor at Cambrian.
“On the other hand, your mortgage amortization is the length of time your payments are spread over. It determines the time it takes to pay your mortgage in full.”
Here’s how your mortgage term and amortization period will affect your mortgage payments:
Part of every mortgage payment goes towards your principal (the outstanding balance of your mortgage), and part of it goes towards interest (the cost of borrowing money).
As long as you choose a fixed mortgage, your interest rate stays the same throughout the entire term. But when the term is up, you’ll renew it with the current posted rate.
Trying to pick between a short-term and a long-term mortgage? One of the biggest considerations is your risk tolerance.
Renewing your mortgage may cause some anxiety if you’re worried that rates may increase by the time your mortgage reaches its maturity date – because that means your mortgage payments will increase, too.
In that case, you may want to stick to a long-term fixed mortgage.
“You should also consider how long you think you’ll be at the house,” says Maria. “If you choose a 5-year closed mortgage, make sure you’re not moving within those 5 years (or before your term ends). Otherwise, you could pay a penalty for breaking the mortgage early.”
If you have an existing mortgage with Cambrian, you can port the mortgage over to your next home to avoid paying a penalty.
We’ll transfer your existing mortgage balance and rate on the new home - the two rates combined make up your blended mortgage rate. Then, we can add any additional mortgage amount at our current mortgage rate.
If you don’t have a Cambrian mortgage, the existing mortgage may need to be paid in full, and you could incur a pre-payment penalty.
Do you plan to renovate your home? You can add the renovations costs on to the existing mortgage rather than taking out a separate loan to save on interest!
An open mortgage allows you to pay off your mortgage before your term is up, without penalty – but you’ll pay a higher interest rate as a result.
With a closed mortgage, you may pay a penalty if you want to make additional mortgage payments or break your mortgage before the term is up.
Every year, Cambrian members with a closed mortgage can prepay up to 20% of their original mortgage balance.
If you think you can afford to pay more than 20% a year, it may make more sense to go with an open mortgage. Talk to a Cambrian Advisor to find out which option is the best fit for your financial situation!
“Four months before your mortgage is up for renewal, call us to book a meeting. We can talk about the options you have for renewing early to get a better rate,” says Maria.
“You could be eligible for a blended rate, where your existing interest rate is blended with the current posted rate. If your existing rate is lower than the posted rate, you can blend them to get a lower rate.”
It determines how long it will take to pay off your mortgage completely (and the interest you’ll pay during that time).
“If you want a lower mortgage payment, you can choose a longer amortization period – but keep in mind that you’ll also pay more in interest,” says Maria.
Trying to choose between a 20-year or 25-year amortization period? Here’s something to consider:
“If your expenses increase, you can’t change the amortization back to 25 years. Consider choosing the longer amortization period so you have some flexibility. If you still have extra funds, you can make lump sum payments on your mortgage to reduce the interest you pay.”
Whether you’d like to get a mortgage for your first home or renew your existing mortgage, a Cambrian Advisor can help. You can meet with us online or in-person! Contact us today to get started.
We would be happy to discuss your unique situation with you.
Our goal is to make complex topics like this one, simple.
It takes less than 5 minutes to make an appointment or to apply online. It is up to you how you want to meet your advisor - you will have the option to meet your advisor:
