Many of us want to be untied to our mortgage. It is likely the most expensive bill you pay every month. Although the interest you pay on your mortgage is tax deductible, all that interest would be better off put away in an investment account. Even at a low interest rate, you could still end up paying hundreds of thousands of dollars over the term of your loan.
So how can one go about paying off a mortgage faster? It's all about the term, which is how long the mortgage contract lasts. The term you choose – 1, 3, 5 or 7 years or some other period – dictates the amount of interest you'll pay. Whether you choose a fixed rate or a variable rate will also affect your interest payments.
The most common term is the five-year fixed, chosen by more than 50 percent of borrowers. Even though this term is the most popular, it's not necessarily the right choice for every home buyer. The right term for you may not be the one with the lowest rate. Some terms may lock you in at a higher rate for many years, while others may subject you to fluctuating rates. Discover the other options available, as well as their benefits and disadvantages.
Four-Year Fixed Term
The difference between the rate of a five-year fixed term and a four-year fixed term will save you one-third of a percent. This may not seem like a significant amount, but when multiplied over a four-year period, you could potentially save a few hundred thousand dollars in interest – not a small amount of cash.
One-Year Fixed Term
This term results in very little financial incentive for a lender, so it's not pushed as much as over terms. However, it can be the right term for a well-qualified borrower. With rates as low as 2.39 percent, it's ideal for a homeowner with less than 15 years left on their mortgage.
Terms to Avoid
A three-year fixed term versus a four-year term save you 0.10 percent, but when you renew, the savings could be increased by higher rates. Avoid a seven-year fixed term as well. Although it offers a few extra years of security, the higher rates don't justify it. Another term to avoid is the five-year variable term. Although there is a savings of 0.40 percent, but with no rate protection, these savings can be offset by rising rates.
Pick the Ideal Mortgage for Your Situation
The ideal mortgage for one person may not be so perfect for another home buyer. That's why there are many options available to you. Safebridge Financial Group offers a variety of mortgage options to help virtually any home buyer – even first-time buyers – purchase their dream home. Learn more about what options we offer.