The length of mortgage terms varies widely – from six months right up to ten years. As a rule of thumb, the shorter the term, the lower the interest rate, the longer the term, the higher the rate. While four or five-year mortgages are what most home buyers typically choose, you may consider a short-term mortgage if you have a higher tolerance for risk, if you have time to watch rates or if you are not prepared to make a long-term commitment right now. Before selecting your mortgage term, we suggest you answer the following questions:
- Do you plan to sell your house in the short-term without buying another? If so, a short mortgage term may be the best option.
- Do you believe that interest rates have bottomed out and are not likely to drop more? If that’s the case, a long mortgage term may be the right choice for you. Similarly, if you think rates are currently high, you may want to opt for a short to medium-length mortgage term hoping that rates drop by the time your term expires.
- Are you looking for security as a first-time home buyer? Then you may prefer a longer mortgage term, so that you can budget for, and manage, your monthly expenses.
- Are you willing to follow interest rates closely and risk their being increased mortgage payments following a renewal? If that’s the case, a short mortgage term may best suit your needs.