April 15th, 2010 | 
Category: Mortgage rates are on the rise! There is a frenzy of home owners switching over from variable to fixed rates. A question many ask is “how long should you take your mortgage term for?” I have noticed over the years that most people tend to pick higher mortgage terms when the rates are relatively low. Financially speaking, it may not be to your advantage. You should run the numbers before picking a longer term. The banks pray on customer’s insecurities to sell them products and a long term mortgage is one of them in my book.
I have had a mortgage for nearly 7 years now. I have never had a fixed term longer than 3 years and I have also never finished it. Here are the mortgages I have had and I have always beaten the 5 year rates in the end.
- First mortgage: 3 year term @ 3.75%.
- After 2 years: blend and extend with a 3 year term for an average of 3.89%.
- After 2 years: blend and extend with a 4 year term for an average of 4.11%.
- After 1 year: broke my fixed term (for low cost) and took variable for 5 year term (only term for variable).
- Currently on variable and not locking in to a fixed term yet. Too much savings still to have over the coming year.
To calculate the differences between the terms, use a good amortization calculator. You should be able to find one at your bank (otherwise Citizens Bank has a good one). Look at the remaining balance after 5 year. Can you see the difference?
3 Year Term Comparison Chart
| Year | Interest % | Principal Paid | Interest Paid | Principal Balance |
| 0 | - | - | - | $280,000.00 |
| 1 | 2.85 | $15,198.19 | $7,722.11 | $264,801.81 |
| 2 | 2.85 | $15,634.42 | $7,285.88 | $249,167.39 |
| 3 | 2.85 | $16,083.14 | $6,837.16 | $233,084.25 |
| 4 | 4.25 | $15,251.52 | $9,503.86 | $217,832.73 |
| 5 | 4.25 | $15,906.59 | $8,848.79 | $201,926.14 |
5 Year Term Comparison Chart
| Year | Interest % | Principal Paid | Interest Paid | Principal Balance |
| 0 | - | - | - | $280,000.00 |
| 1 | 3.85 | $14,101.33 | $10,428.371 | $265,898.671 |
| 2 | 3.85 | $14,649.45 | $9,880.25 | $251,249.22 |
| 3 | 3.85 | $15,218.89 | $9,310.81 | $236,030.33 |
| 4 | 3.85 | $15,810.43 | $8,719.27 | $220,219.90 |
| 5 | 3.85 | $16,425.02 | $8,104.68 | $203,794.88 |
Some mortgage resources I use regularly are:
- List of all mortgage rates from all lenders at CanadaMortgage.com
- Historical rate trends at CanEquity.com. Very useful to see the differences between 1, 3 and 5 year term as well as comparison between variable and fixed rate.
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