Mortgage Terms Explained
Posted by Justin Havre on Thursday, July 22nd, 2010 at 7:05pm.Closed, open, fixed, variable? Do these terms sound Greek to you? Don’t worry you are not alone. There are a lot of options available to you when you are thinking about a mortgage and part of my job as a mortgage planner is educating clients on everything that their mortgage has to offer. Here is a list of basic mortgage terms to help you better understand your current mortgage or the mortgage you will be getting in the future.
1. Term - The number of months or years you will pay a specified rate. Terms generally range from 6 months to 10 years.
2. Amortization - The number of years it will take to pay back the loan based on a set of fixed payments. Each payment consists of both principal and interest.
3. Open Mortgage – This type of mortgage can be paid out at any time without penalty.
4. Closed Mortgage – This type of mortgage cannot be paid out without incurring a payout penalty.
5. Payout Penalty – Charged by the bank when a client pays out their mortgage before the term is up, generally calculated on either and interest rate differential (IRD) or 3 months interest, which ever is greatest.
6. Fixed rate mortgage – This is a mortgage where your interest rate is set for the full term of the mortgage loan.
7. Variable or Adjustable Rate Mortgage – This type of mortgage rate fluctuates with the prime rate and is sometimes offered at a discount off prime i.e. prime -.50
8. Home Equity Line of Credit – This is a mortgage where part or the entire amount is held in a line of credit. These are allowed for financing up to 80%. They are often re-advanceable so as you pay down the mortgage you can then borrow it back.
9. Prime rate – The lowest rate at which the bank lends money.
10. Payment frequency – The frequency at which you pay your mortgage back. These can be monthly (one per month), semi monthly (twice per month), biweekly (every two weeks) or weekly (every week).
11. Conventional mortgage – A mortgage up to 80% of the purchase price or value.
12. High Ratio mortgage – A mortgage that exceeds 80% of the purchase price, or value of the home. This type of mortgage requires mortgage insurance.
13. Mortgage Insurance – Required on mortgages with less than 20% down as they are considered higher risk. This insurance protects the banks and lenders against default.
Those are the basics when it comes to mortgages and should help you better understand your financing options. If you have any questions at all please don’t hesitate to drop me a line. My job is to make the financing portion of your purchase fun and easy and I enjoy helping people better understand the ins and outs of what might be the biggest purchase of their lives.
King Regards,
Jen Mikla, AMP
Mortgage Planner
Mortgage Architects
P: 403.863.9770
F: 403.398.1360
E: jen@mortgagewithjen.com
http://mortgagewithjen.com
http://twitter.com/JenMikla
http://facebook.com/mortgagewithjen
1. Term - The number of months or years you will pay a specified rate. Terms generally range from 6 months to 10 years.
2. Amortization - The number of years it will take to pay back the loan based on a set of fixed payments. Each payment consists of both principal and interest.
3. Open Mortgage – This type of mortgage can be paid out at any time without penalty.
4. Closed Mortgage – This type of mortgage cannot be paid out without incurring a payout penalty.
5. Payout Penalty – Charged by the bank when a client pays out their mortgage before the term is up, generally calculated on either and interest rate differential (IRD) or 3 months interest, which ever is greatest.
6. Fixed rate mortgage – This is a mortgage where your interest rate is set for the full term of the mortgage loan.
7. Variable or Adjustable Rate Mortgage – This type of mortgage rate fluctuates with the prime rate and is sometimes offered at a discount off prime i.e. prime -.50
8. Home Equity Line of Credit – This is a mortgage where part or the entire amount is held in a line of credit. These are allowed for financing up to 80%. They are often re-advanceable so as you pay down the mortgage you can then borrow it back.
9. Prime rate – The lowest rate at which the bank lends money.
10. Payment frequency – The frequency at which you pay your mortgage back. These can be monthly (one per month), semi monthly (twice per month), biweekly (every two weeks) or weekly (every week).
11. Conventional mortgage – A mortgage up to 80% of the purchase price or value.
12. High Ratio mortgage – A mortgage that exceeds 80% of the purchase price, or value of the home. This type of mortgage requires mortgage insurance.
13. Mortgage Insurance – Required on mortgages with less than 20% down as they are considered higher risk. This insurance protects the banks and lenders against default.
Those are the basics when it comes to mortgages and should help you better understand your financing options. If you have any questions at all please don’t hesitate to drop me a line. My job is to make the financing portion of your purchase fun and easy and I enjoy helping people better understand the ins and outs of what might be the biggest purchase of their lives.
King Regards,
Jen Mikla, AMP
Mortgage Planner
Mortgage Architects
P: 403.863.9770
F: 403.398.1360
E: jen@mortgagewithjen.com
http://mortgagewithjen.com
http://twitter.com/JenMikla
http://facebook.com/mortgagewithjen
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