Understanding Mortgages

Here is a brief explanation of common mortgage terms.

ottawa10Preapproved mortgage
Prequalifies you for a mortgage so you know the maximum house price you can afford before you start looking at homes. You can also make a firm offer without financing conditions because your mortgage has been arranged. The interest rate is guaranteed for 90 days or until closing, whichever comes first.

Amortization Period
The number of years it will take to repay the loan in full-usually no longer than 25 years. Longer amortization periods result in lower payments, but increase the total amount of interest paid.

Term
The length of time the interest rate is fixed. At the end of the term, the mortgage can be either paid off or renewed for another term.

Open mortgage
Allows payment of the principal in part or in full at any time without penalty. Open mortgages tend to be for a short term-usually six months or a year.

Closed mortgage
Locks you into a specific payment schedule. A penalty usually applies if you repay the loan in full before the end of the term.

Assumable mortgage
When you sell your home, the purchaser may be able to assume your mortgage, subject to property and financial considerations. This may help make your home more marketable, especially if your mortgage has a low interest rate.

Conventional mortgage
A loan for up to 80 percent of the appraised value or purchase price of the property, whichever is less. You provide at least 20% of the financing as a down payment.

High-ratio mortgage
A loan for up to 95 percent of the appraised value or purchase price of the property, whichever is less. Canada Mortgage and Housing Corporation or The Mortgage Insurance Company of Canada insures this type of mortgage against nonpayment. The borrower pays the application fee and an insurance premium. Limits apply.

Portable
If you buy another home you may be able, subject to property and financial considerations, to take your mortgage with you to help finance the new property.

Protection against interest-rate increase
Depending on the mortgage company, your interest rate could be the lesser of the rate on application, or on the day before closing. The rate could be guaranteed for 90 days or until closing, whichever comes first. If rates increase, you could be protected. If rates decrease, you could receive the lower rate.

Accelerated weekly or biweekly payments
Calculated so you make the equivalent of 13 rather than 12 monthly payments annually. This results in substantial interest savings over the amortization period of your mortgage, and you’ll be mortgage-free sooner.

Mortgage life insurance
Inexpensive insurance coverage on your life that will pay off the outstanding mortgage balance in the event of your death-to a maximum of $350,000.

Prepayment privileges
Save interest over the remaining period of the mortgage and significantly reduce the time required to pay off the loan by:

  • increasing regular payments by as much as 100 percent monthly-payments to be applied directly to your principal;
  • paying up to 15 percent of the original principal in lump sum payments once annually.

More Information
We can give you a more complete explanation, or if you wish we can arrange an appointment with a mortgage specialist who can help you design a mortgage that best suits your needs.