When applying for a mortgage, you will need to decide on the mortgage term and amortization periods, both of which impact your overall cost of borrowing, interest rates, and your payment amount. The mortgage term is the length of time your mortgage contract is in effect. This includes everything your mortgage contract outlines, including the interest rate.
Typically, when mortgage rates are low, it would be advisable to lock in that rate for the longest contract term. Shorter terms may allow you to wait for rates to lower, if they are currently high, but of course there is a chance that rates would continue to rise. At the end of each term, you must renew your mortgage. You’ll likely require multiple terms to repay your mortgage in full.
The amortization period is the length of time it takes to pay off a mortgage in full. The maximum amortization period is 30 years, however, if your down payment is less than 20% of the price of your home, the longest amortization you’re allowed is 25 years. The longer your amortization the smaller your payments but the higher your cost of borrowing as you are paying interest over a longer period.
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