When it comes to mortgages, it can be difficult to understand the terms and conditions associated with them. With so many different types of mortgages and terms, it can be hard to know what to look for and which one is right for you. In Canada, there are a few key terms you should be familiar with when it comes to mortgages and understanding them will help you make the best decision when it comes to your home loan.
Amortization period: The amortization period is the length of time it will take to pay off your mortgage. It is typically between 15 and 25 years, with longer amortization periods usually meaning lower monthly payments. The longer the amortization period, the more interest you’ll pay over the life of the loan.
Fixed-rate mortgage: With a fixed-rate mortgage, the interest rate stays the same throughout the entire loan term. This means your payments will remain the same, no matter what interest rates are doing in the market.
Variable-rate mortgage: A variable-rate mortgage comes with an interest rate that changes over time, usually with the prime rate. This means your payments can go up or down depending on what the prime rate is doing.
Closed mortgage: A closed mortgage is one where you are locked into a certain rate for the life of the loan. This means you cannot pay off the loan before the end of the term or change the terms of the loan in any way.
Open Mortgage: An open mortgage allows you to pay off the loan early and change the terms of the loan in any way you want. Typically, there is a penalty for breaking the terms of the loan or paying it off early.
High-ratio mortgage: A high-ratio mortgage is one where you have a down payment of less than 20%. This type of mortgage requires mortgage default insurance, which is typically paid for by the borrower.
It can be hard to understand the various terms associated with mortgages in Canada, but knowing the basics of these terms can help you make an informed decision. Knowing your amortization period, whether you’re getting a fixed-rate or variable-rate mortgage, and whether you’re getting a closed or open mortgage can help you make the right decision when it comes to your home loan.