| Buyers

mortgage ABCs

We are going to go over some mortgage terminology so that when talking to your friends/family, you can throw around some big words and sound like you know what you’re talking about:

  • Amortization: this big, confusing word just means how many years it will take you to pay off your mortgage completely, the longest time the bank will allow you to take is 25 years (new rule), unless you have a down payment of 20% or more
  • Term: is the amount of time your mortgage commitment/contract is in effect before it’s up for renewal, most people take a 5 year term……this is not to be confused with amortization
  • Rates: you have a few options when it comes to mortgage rates, there is no right or wrong answer here, it just depends on your personal preference
  • Variable Rate: main thing to understand here is that the rate can change during the term of the mortgage depending on various factors:
  • Prime: it’s an interest rate set by the Bank of Canada, if prime goes up or down, so will your rate…..Your bank: will take prime and either put a markup or markdown on it…..ie. Prime plus or minus
  • Fixed Rate: main thing to understand here is that this rate will NEVER change during the term of your mortgage, no matter what the prime rate is and what the banks mark up or mark down is
  • Closed Mortgage: according to the banks, a closed mortgage DOES NOT allow you to break your mortgage/pay it off during your mortgage term, without paying a penalty, which is either IRD (Interest Rate Differential) or 3 months interest, whichever is higher
  • Open Mortgage: again, according to the banks, an open mortgage DOES allow you to break your mortgage/pay it off during your mortgage term and not pay a penalty, although your interest rate is usually a bit higher than a closed mortgage

Have any other words you would like to add or know about? Then send them my way!

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