There are a ton of mortgage terms out there that can be confusing for anyone not familiar with the lingo. Fortunately, they’re fairly straightforward to understand if explained properly. That’s why we at GTA Mortgage Pros have put together a list of common mortgage terms explained that you can use during the mortgage process so you know exactly what is going on when speaking with lenders and mortgage professionals!
Amortization Period – this is the entire length of your mortgage. The most common amortization periods are 25 or 30 years. This is different from the term, which is the length of time between when you can renegotiate your rate and terms on your mortgage (see below). The shorter the amortization period, the faster you pay off your home and receive more equity in your home. Longer periods typically allow for smaller payment amounts though.
Term – this is the length of time that the legal agreement with the lender takes place. The most common term is 5 years, but lenders will do other terms, longer or shorter (such as 6 month, 2 years, 10 years, etc.). After the term expires, the remaining balance of the mortgage will need to be renewed, refinanced, or paid out entirely.
Variable or Fixed Rate – the choice to go with a variable or fixed rate mortgage is entirely up to you – and there are benefits for either choice. A fixed mortgage will give you the security of knowing what your rate is locked into for the term with a lender. There are no surprises with the rate depending on what the prime rate is doing at that time. With a variable rate, however, you will typically see lower rates than with a fixed rate, and you will also generally see higher penalties on a fixed rate. Variable rates can also typically be locked into a fixed rate at any time – whether or not there is a fee to do this depends on the lender.
Blended Payments – payments consist of both the principal (the amount left on the mortgage) and interest, paid as specified in your term agreement (weekly, biweekly, monthly, etc.). As you continue to pay off your mortgage, the amount of principal increases until you have paid out the mortgage entirely.
Stay tuned for more mortgage tips and knowledge to help you while you go through the mortgage process!