Buying your first home: Three steps to successful mortgage shopping

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Step 1: Know what you need and want in a mortgage

Mortgage term

The mortgage term is the length of time your mortgage agreement, including the interest rate, will be in effect. Terms can range from just a few months to five years or longer.

Most borrowers require multiple terms to complete the amortization period and repay their mortgage loan in full.

At the end of each term, you will need to renew or renegotiate your mortgage, unless you are able to pay it off fully at that time.

If you pay off your mortgage or break your mortgage contract before the end of your term, you may have to pay a prepayment charge depending on the type of mortgage you have.

Short-term mortgages

  • Short-term mortgages may be a good choice if:
    • you plan to change your mortgage within the next couple of years—for example, if you expect to move to another city
    • you expect interest rates to go down soon.
  • Short-term mortgages can help you avoid prepayment charges—a shorter term means you will not have to wait as long until your term’s maturity date, when you can negotiate your mortgage or go to a different lender without triggering any prepayment charges.

Long-term mortgages

  • Long-term mortgages help with budgeting, since you will know for certain what your housing costs will be for a longer period.
  • Long-term mortgages may be a good choice if:
    • you want to “lock in” a current low interest rate for a longer period
    • you do not plan to make any changes to your mortgage for several years.

Convertible terms

  • Some lenders also offer short-term “convertible” mortgages that can be extended to a longer term.
  • When converted, the interest rate will also change to the rate offered by the lender for the longer term.
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