The term of your mortgage is an important factor to consider when choosing your financing program. A few quick strokes on a mortgage calculator will show that long term mortgages do, in fact, reduce your monthly payments, but do these short term savings really add up over time? The professional mortgage brokers at FamilyLending.ca take a look at various mortgage terms to help you decide which financing option is right for you.
Extra Long Term Mortgages Can Hurt Your Ability to Build Equity
Purchasing a home helps you build equity. Equity is the current market value of your home, minus your outstanding mortgage balance. Homeowners can increase the equity of their home by performing renovations, adding landscaping, and freshening up the decor. However, the biggest way to boost your equity is to reduce the amount of money that is outstanding on your mortgage. Signing on for an extra long mortgage term can really hurt your ability to build equity and pay down your loan. Signing a 30 or even 40 year mortgage doesn’t make any sense because it ties your money up at a high interest rate for a very long time.
Long term mortgages are risky for lenders, so don’t be surprised if the interest rates seem abnormally high. Extending your mortgage by even five short years could cause you to pay much of your potential home equity to the bank in the form of interest. A long term mortgage agreement will help you save a few dollars each month by dropping your mortgage payment, but over time you could end up spending tens of thousands of dollars more in interest.
Short Term Mortgages Require Discipline
Short term mortgages can span anywhere from two months to 15 years. When compared to a 30 year mortgage, a 10 or 15 year mortgage term offers a much lower interest rate. These rates can often save you tens of thousands of dollars in interest charges, allowing you to build equity quickly and own your home sooner. For a full comparison, check out our mortgage calculators. For many, this decrease in interest payments is enough to make up for the main downfall of short term mortgages – larger monthly payments.
Short term mortgages require a lot of self discipline. Higher monthly or biweekly payments may mean that you’ll have to sacrifice more in order to meet your required contributions. When money is tight, will you be able to make ends meet without falling behind on your mortgage?
What’s Your Mortgage Timeline?
Regardless of your age, you probably have some idea of how quickly you’d like to have your mortgage paid off. What’s your incentive to get rid of your mortgage sooner or later? If you’re worried about the implications of a short term mortgage, now’s the time to talk to a Canadian mortgage broker about your options. Finding the mortgage term that meets your financial needs could help you cut your interest costs and help you own your home quicker than you ever imagined. Call FamilyLending.ca toll free at 1-866-941-6678 to speak with a knowledgeable mortgage broker today.