Contract Duration (Term)

The contract duration, also called the “term”, is the number of months you and the lender have agreed to with a specific interest rate and loan repayment schedule. At the end of the term, the contract ends or “matures”, and you are allowed to commit for another period of time or “renew”.

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There are open contracts and closed contracts:

  • Open contracts can be repaid at any time without penalties but charge a higher interest rate.

  • Early repayment is limited in closed contracts. Whether you have a fixed or floating rate, you will agree to a contract duration with the lender.

Remember that some contracts are more flexible than others; usually, more flexible contracts carry higher borrowing costs.

Since there are penalties for breaking the contract, if you believe you may need to move in the next 3 to 5 years, negotiate a shorter contract.

Key Facts:

  • You can lock in a fixed interest rate for up to 10 years.

  • If a mortgage is “closed” over the timeframe, paying it off early will trigger a penalty.

  • If you want to extend the contract timeframe before the mortgage comes up for renewal, most lenders will let you extend the contract early and take a blend of the existing contract rate and the current available rate. Some charge a fee for early renewal.

 

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