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You will need to decide on both your amortization period (time frame to pay off the mortgage) and your mortgage term. Most first-time buyers choose a longer amortization (e.g., 25 or 30 years). Amortization length is usually the easy decision.

The term (or time frame for which you borrow the money at the interest rate you’ve agreed to) can be more difficult to decide upon. The shorter the time, the lower the interest rate and the greater the risk, as upon renewal, rates may have increased and it could cost you more to pay off your mortgage. With a low-interest rate environment, and the concern that rates may rise at some point in the future, many first-time buyers decide to lock in their interest rate for a longer term (often five, seven, or ten years), giving them the comfort and security that their mortgage payments will remain unchanged for a longer time frame. The attractive lower interest rate with shorter term mortgages comes with greater risk. You will need to determine your own risk tolerance and ability to carry and qualify for a higher rate mortgage upon renewal, if interest rates increase.

Regardless of which term you choose, and especially if you want a shorter term, some lenders, especially with respect to high-ratio borrowers (and depending on your credit score) will mandate a pre-approval using a longer term interest rate. Some lenders use an average of the five major Canadian banks’ five-year posted interest rates to qualify a borrower. Other lenders use a five-year discounted variable rate. It depends on whether you are a conventional or high-ratio borrower, and what your credit score is. It varies and is up to the lender to decide. Of course, this plays a part in the underwriting criteria that a lender uses to determine the mortgage amount it will pre-approve. Your mortgage professional will discuss the criteria specific to your situation.