What is a mortgage term?

A mortgage term is the length of time a lender will lend mortgage funds to a borrower. Most mortgage terms run from six months to five years. Certain lenders may offer longer terms, e.g., 6, 7 or 10 years. After this period, the borrower can either repay the balance — the remaining principal plus interest — of the mortgage or renew the mortgage for another term. The total length of a mortgage is usually made up of several terms.

Shorter term: Typically two years or less

• Maybe a good choice if: You believe that mortgage rates will drop before renewal time. You want to be able to take advantage of these future lower rates. You expect to sell your home in the short term and don’t want to be tied to a longer mortgage term.
• Benefits: Typically shorter mortgage terms have lower interest rates. If you need to pay out your mortgage early, you’ll pay less of a prepayment charge if you have a shorter mortgage term.
• Drawbacks: Rates can be tough to predict. They may rise by the time your mortgage term ends. In this case, you’d have to renew at a higher rate.

Longer term: Typically three years or more

• Maybe a good choice if: You believe that the current rates are reasonable and could possibly rise, so it feels like a good time to commit.
• Benefits: You’ll know what your rate will be further into the future, so you can make longer term financial plans.
• Drawbacks: There’s a risk for unexpected payout charges due to situations like changes in your financial circumstances or having to move unexpectedly.