Frequently Asked Mortgage Payment Questions
posted in Mortgage News
If you’re a first-time home buyer, or haven’t sought a loan to buy a property for a good many years, you may have some unanswered questions about the mortgage payment process; below are answers to some of the most common questions:
What is a down payment?
This is the amount you pay upfront to get a mortgage, and the minimum that you can pay depends upon the purchase price of your property. If you’re self-employed or have a poor credit rating, you may be asked to pay a higher down payment. For more details about calculating down payments, contact a qualified mortgage specialist today.
What is amortization?
This refers to the period of time during which you plan to pay off your mortgage, and can vary according to your specific situation. The most common amortization period in Canada is 25 years and works well in the majority of cases.
What is the term of a mortgage?
This is the length of time for which you sign a legal agreement with your chosen lender, and in Canada, the most common length of term is 5 years. Once the term comes to an end, you’ll have the option of renewing or refinancing your mortgage: renewing means that you sign another term with your existing lender (in which rates may change), while refinancing means that you sign a new term agreement that may be with a different rate or lender.
What are interest rates?
The rate of interest defines how much interest is added to the portion of your mortgage loan that remains unpaid. Your monthly or bi-weekly payments will increase with a higher rate of interest, and inflate the term and lifetime cost of your mortgage, while a lower interest rate can save you a lot of money over time.
Fixed rate – this is guaranteed not to change throughout the duration of your mortgage term. Variable rate – this can change throughout the duration of your mortgage term, and is controlled by your chosen lender via their prime rate. Lenders can opt to increase or decrease their own prime rate which goes on to increase or decrease your variable rate of interest. Most lenders will have a rate of interest that reflects changes to the Bank of Canada’s policy interest rate.
Choosing a variable rate may lower the cost of a long-term mortgage, but if interest rates rise in the future, a fixed rate will work best. For more detailed advice about which rate of interest to opt for, talk to a qualified mortgage specialist or broker.
What is payment frequency?
This determines how often you’ll make payments on your mortgage, and can be done on a monthly (12 payments per year) or bi-weekly (26 payments per year) schedule.
If you still have unanswered questions about the mortgage payment process, or would like to begin working to find the best mortgage deal for your circumstances, book a consultation with a local, qualified, mortgage broker today.