All legal transactions come with terms are often unique to the industry. In this respect, real estate purchases are no different. You may already be familiar with the meanings of some mortgage terms. Here’s a basic list of common words you’ll hear when buying a home and what they mean.
- Down Payment
The down payment is the sum of money you pay upfront when signing a mortgage agreement with the lender. In Canada, you must have a down payment of at least 5%. And, if the amount you put down is less than 20%, you’ll need to pay to insure your mortgage loan.
- Amortization
This refers to the number of years it will take to pay off your mortgage in full. Your monthly payments are calculated based on the amortization length. With a down payment less than 20% of the home’s purchase price, the maximum amortization period you’ll be offered is 25 years.
- Mortgage Term
This is the length of a mortgage contract. Typically, contracts are signed for one-year to five-year terms. When the agreement ends, expect to sign a mortgage contract for another length of time, again usually from one to five years.
- Fixed Interest Rate
A fixed interest rate means the interest charged on your mortgage will remain the same for the length of the mortgage term. Therefore, your monthly payments won’t change.
- Variable Interest rate
When you sign a mortgage agreement with a variable interest rate, the rate will move up or down during your mortgage term. This may or may not affect your monthly payments, depending on what you’ve negotiated with the lender.
- Hybrid Interest Rate
This is sometimes called a combination mortgage. Basically, part of your mortgage has a fixed interest rate while the other portion has a variable interest rate.
- Open Mortgage
An open mortgage is one that essentially allows you the flexibility to pay off your mortgage early, or just put more funds towards the principal of the loan when you’re able to.
- Closed Mortgage
With closed mortgages you also have the choice to pay more money on the mortgage, but this is somewhat limited. The options here vary based on the mortgage lender.
- Portable Mortgage
A portable mortgage is one that you can transfer to another property. This may be an advantage if you’re thinking you might sell your home during the term of the mortgage.
- Match Payments
Match payments are something not all banks or mortgage lenders offer. Put simply, this permits you to double up on your mortgage payments. Since match payments go directly towards the principal, it helps you pay off your mortgage faster.
You can find more information about mortgages from the Canadian government website. That said, there’s a lot to consider when buying a property so you’ll want to rely on the expertise of your realtor. When you’re ready, reach out to me and I’ll be very pleased to assist you!
