What is Mortgage Term?
There are usually many physical and mental stresses associated with home buying. It also doesn’t help that the process comes with its very own foreign language. While your mortgage broker can help de-mystify these terms, it does help to have a primer on what some of these terms mean.
We’ll start with the words “Amortization” and “Term”. Both refer to periods of time in the life of your mortgage, however note that there is a difference. The “amortization” of your mortgage loan is the length of time that would be required to reduce your mortgage loan to zero, based on calculated payments at a determined interest rate. The amortization period is usually 15, 20 or even 25 years, although it can be any number of years or part-years. For example, you can make monthly payments of $950 for your $130,000 mortgage at 5.5%. In this case, your amortization length will be just under 18 years.
If you want to tell your broker that you’d like to be mortgage-free in just 10 years then that would be an amortization length of 10 years. With the same interest rate, your $130K mortgage will cost you about $1,407 per month. That’s a harder monthly payment, but you would save thousands of dollars in . Remember about your amortization duration as you arrange your mortgage. You can stretch it long if you want to be comfortable with the monthly payments, although the shorter you can make it, the less you’ll be paying for your home in the long term.
The “term” is the duration of your mortgage agreement and it will usually be shorter. You will have several choices but this will be a very specific duration of time. For example, a 6-month mortgage is a very short-term mortgage while a 10-year mortgage will be one of the longest terms. Generally the longer the term, the higher the rate of interest will be. This represents the higher level of uncertainty in the economic outlook.
Later on when your mortgage term expires, you will need to either pay off the balance of the mortgage principal, or negotiate for a new Ontario mortgage at whatever rates that are available at that time.
Article source:First home buyer