Usually mortgage is a flexibility or stability this question arises in the minds of people. Mortgage plays a vital role in investment and when its period comes to an end in Canada people usually get confused about whether Canadian mortgage renewals are worth enough. renewal of mortgage can create long-term planning with years of a period like 5 or more whereas short-term mortgage can be of 1 or 2 years and they have very different and unique offerings.
Short-term renewals are not common but surely they offer some of the benefits that people are not aware of. Mortgage Renewal Options in Canada along with some risks offer advantages for people that can allow them to think twice before option for mortgage renewal option at the time of ending period.
Before understanding the pros and cons of short-term mortgage renewal it is important to understand what short-term mortgage renewal is. So, this article will outline a brief explanation of short-term mortgages and their pros and cons so that you can decide whether choosing these options is worth it and fits your situation or not.
What is Short-Term Mortage Renewal?
Mortgage terms in Canada range from 1 to 5 years. After the initial period ends the person needs to decide about short-term vs long-term mortgages. Whereas a long-term mortgage is quite common if a person chooses to go for a short-term mortgage then they should be prepared to engage themself into a new mortgage plan which can only be for 1 to 2 years. Long-term mortgages can be common but short-term mortgages provide flexibility but often ask for frequent renewals.
Exploring the Pros and Cons of Short-Term Mortgages in Canada
Short-term mortgages in the Canadian market do provide both risk and benefits so it is important for the person to understand both before making the final decision after the end of the initial renewal period. The benefits of short-term mortgage terms can be flexible but still understanding the risks along with it is a necessity too.
Pros of short-term mortgages
Highly Adaptable to Changing Interest Rates: Flexibly adapting to market conditions is one of the biggest advantages of short-term mortgage renewals in Canada. If the interest rates are lowered by the Bank of Canada then surely it allows short-term mortgage terms to adapt to the lower rates soon which automatically saves people money as compared to the longer run.
Provides Great Flexibility Financially: Short-term renewals allow people to asses their financial goals more frequently which is not the possibility in long-term mortgages. Short-term mortgage renewal comes under the flexible mortgage renewal strategies which do not bind a person into long-term financial commitment no matter what external factors change the income.
Prevents Early Break Penalties: If you are planning to move to a new place in upcoming years, want to refinance for property, or to buy some property then choosing short-term mortgage renewals can be very beneficial as it does not put you into hefty penalties of breaking a long-term mortgage which saves you a lot of money.
Cons of Short-Term Mortgage Renewal in Canada
- Risk of Significant Hike in Interest Rates: One should understand that if the short-term mortgage can be efficient when the interest rates are low they also pose the risk of exposing people to higher interest rates. This is one of the risks of short-term mortgage renewals which can make you pay more if interest rates are high rather than what you were paying in locked long-term mortgage terms.
Bit Stressful: Short-term mortgages can be stressful as well as compared to long-term mortgages. Mortgage interest rate trends in Canada can differ from time to time which can make you go for renewals in one year or two this can be stressful as the person has to go through the whole process again. Although this does offer a chance of renegotiating the terms still it can be stressful sometimes.
Higher Rates from Lenders: Lenders usually prefer people to engage in long-term mortgage stability which is why there are not much of competitive rates when it comes to short-term mortgage renewals. So, there is a high chance of having difficulty finding the right lender for the short-term mortgage as compared to the long-term mortgage of 5 years.
Conclusion
Those who believe in mind relaxing investments and plans can choose long-term mortgages. But to those who are ready to explore the new market trends and changing market conditions then mortgage flexibility vs stability can be an option. Prgreal estate usually suggests that if they wish to continue in long-term stability it can be relaxing but if they wish to adopt a new mortgage plan to take risk and enjoy mortgage flexibility then choosing short-term mortgage terms is best.