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What Is the Normal Term of a Mortgage in the Toronto Area?

With the way Toronto home prices are today, it's more important than ever to carefully consider the term of your mortgage before purchasing a house. If you're not sure what mortgage terms are or why they matter, don't worry! We'll go over the way they work and how they impact your purchasing decisions. We'll also look at why amortization periods matter and offer some basic advice on how to decide on a term based on your circumstances.

What Are Normal Mortgage Terms in the Toronto Area?

The time frame of a mortgage can be anywhere from 6 months to 10 years. However, most mortgages in the GTA consist of a 5-year term with a 25-30 year amortization period.

What's the Difference Between Terms and Amortizations?

Although commonly confused, terms and amortizations are two different things. Here's a breakdown of what each term means.

Term

The term of your mortgage is the extent of time you commit to the mortgage rate, lender, and associated conditions. You can pick from a variety of different lengths ranging from short to long-term mortgages.

Your bank will set out a repayment schedule, which is usually billed on a monthly basis. The total amount you borrow, the total interest you pay, and your monthly payments remain constant throughout the term.

Amortizations

The amortization period is the total life of your mortgage. It is the number of years it will take to repay the entire loan and any outstanding interest at normal scheduled payments.

The amortization period will impact how much principal and interest you repay over the term of your mortgage. This means that while some people choose the term of their mortgage based on the monthly payment, choosing a shorter amortization period can save thousands in interest when you consider all of your payments over the life of the mortgage.

What Is the Right Term Length for Me Based on Toronto Home Prices?

If you're wondering what the right term length is, the answer is: it depends. The best way to figure out what term length works for you is by getting pre-approved and talking to lenders. Here are some other factors to keep in mind when choosing a term:
 

Your Employment Status

If you're planning on switching jobs or know that your income may fluctuate (e.g., freelance work), then a short-term mortgage can work better for you. That way, you won't be locked into a term for too long when you don't know what kind of income you'll be making in the future.

The Stability of Your Job: 

If you expect to be at your job for the next few years, you may want to go with a long-term mortgage. This way, you can lock in a predictable rate for the foreseeable future.

Your Financial Commitments: 

Do you have other types of debt? For example, are you planning on making any other large purchases soon, like a vehicle? If so, then a long-term mortgage might work out better so you can balance lower monthly payments with your other bills.
 
The difference you pay between short-term and long-term mortgages can be significant, so it's important to choose the best term for your circumstances. If you have any further questions about terms and amortizations, we're here to help! Call Nancy at 416-985-1486 or Dave at 416-894-4079 at GTASelling.com and we can help determine the option for you!
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