A mortgage is a loan secured by your home. It is financing that the customer is obliged to pay back with a predetermined set of payments. A mortgage helps you buy property without having to pay the entire cost up front.
A mortgage rate is the interest charged by the lender expressed as a percentage of the loan amount. It’s essential to shop around and compare the best mortgage rates in Canada. Having a higher credit score can also help you get a better mortgage, so be sure to check and monitor your credit score with Borrowell.
A down payment is a deposit you make on a large purchase, like a new home. Lenders in Canada require at least 5% down. Anything less than 20% down is called a high-ratio mortgage and requires mortgage default insurance.
Mortgage amortization and term are easily confused, but they are two different things! A mortgage amortization period is the amount of time it will take to pay your mortgage to zero with regular payments. A portion of each regular payment goes to interest costs, and a portion goes to reducing the loan balance (paying off the mortgage principal).
The mortgage term is the period of time the rate is negotiated for. Many Canadians will typically renew or switch providers at the end of their term. Most mortgage terms range from 6 months to 25 years, with 5 years being the most popular. If your mortgage is not paid off by the end of the term, a new mortgage must be arranged.
A mortgage rate that’s fixed stays the same until maturity, no matter the fluctuation in the market. It’s attractive to borrowers who want to ensure their interest costs won’t rise over the term of their loan.
A variable interest rate is a rate that may vary over the term of the mortgage. The rate changes are tied to a benchmark interest rate (often the lender's prime rate), which is primarily influenced by the interest rate set by the Bank of Canada. When you're comparing mortgage rates, you'll see that variable rate mortgages typically offer lower interest rates than fixed rate mortgages.
A closed mortgage is one that can’t be prepaid, negotiated, or refinanced throughout the term of the mortgage without a prepayment penalty. In contrast, an open mortgage can be repaid anytime throughout the mortgage term. These mortgages come at a premium, which usually translates to much higher interest costs.
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