Mortgage Basics
Mortgage basics:
A mortgage is a loan to buy a home. Like any loan, interest is charged on the amount you borrow (the principal). Each mortgage payment consists of repayment of the principal, plus interest.
But there are a few characteristics that differentiate a mortgage from other types of loans.
Principal versus interest - In the early years of a mortgage, a greater percentage of each payment covers interest charges and a smaller percentage covers principal repayment. As the amount you owe decreases, more of each payment goes toward paying down the principal.
Building equity - The more principal you pay down, the more equity you build up in your home. Basically, equity is the amount of your home that you own. If your home is worth $300,000 and your mortgage is for $250,000, you have $50,000 in equity.
Mortgage options:
With a number of options available, you can tailor your mortgage to your lifestyle, your current financial situation, and your risk tolerance. Here are the main choices you can discuss with your Mortgage Representative or Mortgage broker.
Amortization - The amortization period is the length of time it will take you to pay off your entire mortgage. The traditional amortization period is 25 years. You may choose a shorter amortization period or greater (up to 30 years). The longer the amortization, the lower your monthly mortgage payments, but the more you will pay in interest over the life of the mortgage.
Term - The mortgage term is the amount of time your mortgage contract is in effect. At the end of each term, you need to renew your mortgage for another term. This is an opportunity to consider whether you’d like to make any changes to your mortgage. Most mortgage terms are five years, though shorter or longer terms may be offered. The agreed-upon interest rate is in effect for the term. At the end of the term, you can renegotiate the rate and other details of the contract for the next term.
A mortgage is a loan to buy a home. Like any loan, interest is charged on the amount you borrow (the principal). Each mortgage payment consists of repayment of the principal, plus interest.
But there are a few characteristics that differentiate a mortgage from other types of loans.
Principal versus interest - In the early years of a mortgage, a greater percentage of each payment covers interest charges and a smaller percentage covers principal repayment. As the amount you owe decreases, more of each payment goes toward paying down the principal.
Building equity - The more principal you pay down, the more equity you build up in your home. Basically, equity is the amount of your home that you own. If your home is worth $300,000 and your mortgage is for $250,000, you have $50,000 in equity.
Mortgage options:
With a number of options available, you can tailor your mortgage to your lifestyle, your current financial situation, and your risk tolerance. Here are the main choices you can discuss with your Mortgage Representative or Mortgage broker.
Amortization - The amortization period is the length of time it will take you to pay off your entire mortgage. The traditional amortization period is 25 years. You may choose a shorter amortization period or greater (up to 30 years). The longer the amortization, the lower your monthly mortgage payments, but the more you will pay in interest over the life of the mortgage.
Term - The mortgage term is the amount of time your mortgage contract is in effect. At the end of each term, you need to renew your mortgage for another term. This is an opportunity to consider whether you’d like to make any changes to your mortgage. Most mortgage terms are five years, though shorter or longer terms may be offered. The agreed-upon interest rate is in effect for the term. At the end of the term, you can renegotiate the rate and other details of the contract for the next term.