What is the difference and benefits in short and long term mortgages?
Mortgages are available in terms of different lengths – a 1 to 5 year, 7 year, and 10 year terms are the most common. Interest rates on shorter-term mortgages are typically lower than those of longer-term mortgages due to several factors. One of the main factors is interest rates the lenders pay on client deposits which are then lent out via mortgages, lines of credit, etc., along with administrative costs and general economic factors which are more predictable in the shorter term.
Short and long-term mortgages each have their own benefits depending on your individual situation, personal preferences and comfort level. If you think rates may drop in the near future, you may choose a short-term mortgage in the hopes of taking advantage of lower rates when your term ends. If you think interest rates are going to rise, you may choose a fixed-rate, longer-term mortgage to secure a lower rate that you can count on for payments that suit your comfort level. It’s also possible that over the longer term, the fixed rate may end up being lower than the effective interest rate of shorter terms renewing over that time period.