Mortgage Terms and Fees
 

Mortgage Term

Over the course of your amortization period, you may have many different mortgages. The term is simply the length of time that interest rates, payment schedules and obligations to the lender exist. When the term comes to a close, you will have the option to renew your mortgage at your current or new lending institution. You can also put a lump sum toward the principal without restriction, or pay off your entire mortgage without penalty. If you wish to change the structure of your agreement during the term you may have to pay a substantial fee to the lender.

 

Choosing Security or Flexibility

Mortgages are available with closed, open and convertible options, with fixed or variable rates. The options you choose will reflect your beliefs about the market and your short-term goals and desire for long-term security.

 

Amortization

This refers to the length of time over which the entire debt will be repaid. Most mortgages are amortized over 15, 20, or 25 years. The longer the amortization, the lower your scheduled mortgage payments, but the more interest you pay over the life of the mortgage.

 

Open Mortgage

This type of mortgage offers a great deal of flexibility, as it can be repaid in part or full at any time without penalty. This mortgage may be for you if you believe interest rates are moving down or if you plan to move in the near future. The term may be limited to six months or one year.

 

Closed Mortgage

With closed mortgages, the interest rate is fixed for the full term of the mortgage, and you will have to pay a penalty to change the agreement conditions. This type of mortgage is ideal for buyers who suspect that interest rates will rise and who are not planning to move in the near future. This type of mortgage is usually available in a wide variety of terms.

 

Convertible Mortgage

With a convertable mortgage, you'll enjoy the same peace of mind as a closed mortgage, plus have the added flexibility to convert to a longer closed mortgage at any time without penalty. If you think rates will drop, this will allow you to wait until you feel they have hit bottom, or if rates rise, you can lock in.
 

Additional Costs

It is always prudent to have a slush fund set aside for incidentals.  Before calculating the amount of your down payment and determining what you can afford, it's a good idea to set aside a few thousand dollars to cover the extra costs that have a way of coming up when we least expect them. Some examples of these extra costs are;