Why so much fuss over the 5 year term mortgage ?

According to a recent Canada Mortgage and Housing Corporation (CMHC ) consumer survey, a whopping 71% of Canadian homeowners refinance their mortgage before the maturity date.

So this begs the question ... why all the fuss over taking out a mortgage for 5 years if 7 out of 10 times you won't see the maturity date and end up paying a penalty or settling for a blended rate instead ?

Another statistic to consider is from a real estate salesperson we know ... the vast majority of homeowners either consider selling or making a renovation after 3 years. If you think about it, it seems pretty reasonable. You scrape and save to move into a home and start making a list of projects ... some big and some small. When your budget is back under control from those moving costs maybe you'll start into a project and prioritize the others. Or maybe you'll start them all and finance them via lines of credit, "don't pay a cent event" or credit cards. When your cash-flow becomes a problem, you consider refinancing.

If you decide to sell and buy up/down into the right home for you either because of a job opportunity in another location, retirement, change in family size or simply because you hate the thought of a renovation project then why make it difficult and more expensive for yourself by shackling yourself to that 5 year term everyone is so in love with (but doesn't really know why) ?

So there you have it ... consider a 3 or 4 year term on your next mortgage. Odds are that you'll be thinking of if not actually doing a refinance around that time anyways. You may obtain a lower interest rate while retaining the option of early renewal but saving yourself from having to settle for a blended rate to avoid penalty or save the penalty altogether if the timing is right.

For more common sense tips on your mortgage financing options, contact a licensed mortgage broker who will work with you in an unbiased way to get you the best deal by asking about your priorities and shopping the market on your behalf.