DECIDING ON A MORTGAGE TERM

The length of time for which the interest rate is fixed is called the term. Most mortgages have terms of six months to five years however there are some longer terms available. The most common term is 5 years. The interest rate usually gets lower with the increase in the term you take. For example a 1 year term would have a higher rate than a 5 year term usually. There are exceptions because the rates are always changing

Open versus closed term
An open mortgage is one which allows payment of the principal, in part or in full, at any time without penalty. Open mortgages tend to be for a short term - usually six months or one year. Since open mortgages offer greater flexibility than closed mortgages, they usually have a higher interest rate.This might be to your advantage if you were expecting a large amount of money in the near future that you were intending on paying down your mortgage with such as a bonus or inheritance.

Variable rate mortgages
Variable rate mortgages have become extremely popular. Most lenders say that is what they personally have. The way these mortgages work is that the interest rate is usually locked into the prime lending rate. The mortgage interest rate you pay is often .5% or .75% less than the prime lending rate.This varies constantly and between lenders as well. This usually results in the mortgage rate being significantly lower than Fixed Rate mortgages. The downside to these mortgages is the prime rate goes up and down and so does your mortgage payments. Most lenders agree over the life of the mortgage this can be a great way to go but it's a gamble. You have to be prepared for the ups and downs of rate changes. Talk to your lender about this option to see if it is right for you.

Short versus long term
When interest rates are either high or falling, there is a tendency to choose a shorter term mortgage. This strategy pays off if you can renew at a lower rate six months or one year later.
You may want to consider a longer term mortgage if interest rates are rising, could not afford higher payments if rates were to increase or if you want to keep your mortgage payments the same for a longer period.

Locking in your interest rate while you are looking for a property
When you apply for a certain mortgage, you'll receive an interest rate that is usually guaranteed for up to 90 days or longer. The interest rate on your mortgage will be the lesser of the rate at application or on the day before closing. If rates increase, you are protected. If rates decrease, you should receive the lower rate. So it is a good idea to get your mortgage pre approved as soon as possible. You can only benefit from doing this.