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Mortgage Terms

 

List of Mortgage Terms

 

Mortgage terms don’t have to be confusing. The list below offer some explanation of the terminology, additional information can be reviewed in the Glossary page of Resources section.

 

 Amortization: The time it takes to pay a mortgage in full. If your down payment is less than 20% of the purchase price,the longest amortization period is 25 years. The shorter the amortization, the faster you will pay off your mortgage and ultimately the more money you will save in interest cost.

 

Fixed-term mortgages: When the interest rate is secured for the fixed term of the mortgage. Monthly payments towards the principal and interest remain the same. Fixed mortgage terms protect buyers when interest rates rise.

 

Closed variable-rate mortgages:The interest rate fluctuates with the Canadian prime rate. That is to say your mortgage rate changes when prime does. The Bank of Canada uses prime to control inflation or stimulate economic growth. Closed variable-rate mortgage terms can be converted to a fixed rate at any time without penalty from most lenders.

 

Open variable: Allows you to pay up to 100% of your mortgage without penalty at a higher rate than a closed variable-rate. Open variables can be converted to a fixed rate at any time with no associated cost.

 

Home Equity Line of Credit (HELOC): A line of credit secured by property which allows you to borrow back the amount paid against your principal. The interest rate is usually equivalent  to prime  plus and is thus subject to change. HELOC can be pre-paid without penalty,or monthly payments can be made on the interest alone. Your borrowed balance can be locked,in part or full,into a variable or fixed interest rate. HELOC offers flexibility because you can pre-pay without penalty.

 

Double-up payment: When any extra payments go directly to the principal amount. If your lender allows it, double-up  payments are great for someone who wishes to pay down their mortgage quickly. You can increase your payments by a minimum of $100 or a maximum monthly payment set by your lender. The usually is applied to the fixed mortgage terms.

 

Skip a payment: You can choose to miss a monthly payment. Some lenders allow skipped payments,however this is best used only in extreme circumstances when no alternative is available as the skipped portion is added to principle.

 

Pre-payment privilege: Pre-payment of more than your monthly amount is sanctioned without penalty. The additional funds are applied to your principal amount. Some lenders will allow payments of 20% of the original mortgage term,plus  20% of your monthly  payments,in addition to double-up  options.

 

Example:

 

Mortgage $100 000 x 20% anniversary payment = $20 000 once per year

Monthly payment amount: $1000 x 20% = $200 adjunct towards principal


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