Short term or long-term…the question bankers and mortgage specialists seem to have a lot to say about, but what is better really?
A study done looking at rollover rates since the 1980s found that 85-90% of the time short-term rate rollover was less expensive. That might seem like that’s all there is to say…why the heck would anyone lock in long-term? But, as usual, it’s a bit more complicated than that.
That study just shows that on average your payments will be lower. The reason to lock-in long-term is that the variability of your payments will be much lower. That means that if you live on a tight budget, short-term might not be the best option because your payments could increase suddenly after your 2-year term is up. On the other hand, if you have a fairly comfortable budget, the overall savings will be worth the risk to you.
If you’re in a position to take the financial risks associated with mortgage payments that may change every six months or year, you have a better chance of saving money with a shorter-term mortgage. The Globe and Mail
The bottom line is if increases in your mortgage rate would not cripple you financially, go for the short-term! You’ll save more overall! But, if it would be difficult for you to grapple with these unexpected increases, then stick with the definite route: long-term lock-in.