Understanding Mortgages and Terminology

Mortgages and Terminology:

Conventional Mortgage  -  A conventional mortgage requires the borrower to  pay 25% ot more of the purchase price of the home and there is no mortgage insurance fee that is attached to the balance of the mortgage..

High Ratio Mortgage - A mortgage that is less than 25% of the purchase price is called High Ratio Mortgage. A one time mortgage insurance fee is attached to these types of mortgages, with a mortgage loan insurance fee from 0.5% to 3.75% of the mortgage amount.

Mortgage loan insurance Is typically required by lenders when homebuyers make a down payment of less than 20% of the purchase price. Mortgage loan insurance helps protects lenders against mortgage default, and enables consumers to purchase homes with a minimum down payment of 5% — with interest rates comparable to those with a 20% down payment.

Second Mortgage - A second mortgage typically refers to a secured loan (or mortgage) that is subordinate to another loan against the same property. Second mortgages are called subordinate because, if the loan goes into default, the first mortgage gets paid off first before the second mortgage. Thus, second mortgages are riskier for lenders and generally come with a higher interest rate than first mortgages.

Prepayment - A privilege given by the lender to allow the borrower to,make payments payments before the schedule due date of the mortgage payment. This is very good option in a mortgage.

Portability - The ability to transfer your mortgage including rate and terms, from your existing property to a new property without penalty.

Interest Rate - Quite simply, interest is the cost of borrowing money. There are two types of rate structures: fixed and variable.

Choosing a fixed or Variable rate -   Based on your short or long term plans you may choose variable rate mortgage which is less than a fixed rate. Market trends is a good indicator if you should go fixed or variable.

Mortgage Rates:

A fixed-rate mortgageThe interest rate remains the same for the term of the mortgage. The fluctuations of interest rate will have no affect within the term of your mortgage.

A variable-rate mortgage-  A loan with an interest rate that hinges on factors such as the rate paid on bank certificates and Treasury bills. A mortgage where the interest rate varies during the term of the moorage. Your monthly payment will remain the same, but the amount allocated to interest and principal will vary.

Types of Mortgages:

Closed Mortgage - A mortgage that has a fixed rate for the duration of the term of the mortgage. If the mortgage is required to be discharge, or a change in the conditions,  a penalty may be required.

Closed Mortgage - Here the interest rate is fixed for the full term of the mortgage, and you may be required 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 - A short term mortgage, usually 6 months or 1 year, that allows a borrower to lock in to a longer term at any time without penalty. 

Mortgage Term - The length of time a mortgage has been committed for. The interest rate usually remains constant during this term unless the commitment states otherwise. 

Amortization - This is the amount of time over which the entire debt will be repaid. The maximum term is 35 years., the longer the amortization, the lower your scheduled mortgage payments, but the more interest you will pay in the long run.

Ways to  pay off your mortgage faster

  1. Use a shorter amortization period.  Off course you will be making higher monthly payments, but more of your payment will be going towards reducing the principal loan.
  2. Increase payments frequency:  Choose a  weekly or biweekly payment schedule. You will be paying less interest and more towards the principal.
  3. Lump sum payments:  Most lenders allow borrowers to put a percentage of the loan against the mortgage once a year.rtage.