A mortgage term is the length of time a buyer is locked in to a certain mortgage with a specific lender at its rate and conditions. Each type of term has its pros and cons, so it’s important for you to consider your own financial situation when choosing one.
Short-term vs Long-term
Your risk tolerance and plans for the future come into play when choosing between a short-term and long-term mortgage rate. A shorter term locks in your rate for a short period of time and is therefore more vulnerable to rising interest rates in the near future but allows for more flexibility if you were planning a move, for example. A longer term can be a fit if you’re planning to stay in your home for at least as long as your mortgage term, but you’re likely to pay a higher mortgage rate as five-year rates are almost always higher than one-year rates. With any mortgage, you may have to pay a significant penalty fee should you have to break your mortgage term early.