Kinds Of Mortgage Terms And Rates Available
The term of a mortgage refers to the duration of time a lender will loan mortgage funds to a borrower. This period is normally 2 to 5 years, although it could be from 6 months to 10 years. Normally, the shorter the mortgage term length, the lower the interest rate is and the less it costs to borrow the funds. As soon as the term ends, you will be able to pay off the due balance or renegotiate the mortgage for a new term until the full mortgage has been fully paid.
The short term mortgage contracts or agreements are those which are generally for 2 years or less. Short term mortgages offer a lower interest rate with their cost of borrowing than a longer term. These terms are common with people who feel that interest rates are currently higher than they would be in the future. Short term contracts are normally chosen by people who anticipate that interest rates would be lower at the time of renewal.
The long term agreements are normally for at least three years. These mortgages generally cost a little bit more compared to short term mortgages and therefore the interest rate would be higher. For those borrowers who value the stability and predictability of fixed expenses over a set length of time, a higher interest rate is appealing. It can be easier to budget a stable mortgage payment and this can bring peace of mind to a lot of individuals.
The average time to fully pay off your mortgage can be quite awhile, from 15 to 25 years on average. Amortization is the process of completely repaying your loan by installments of interest and principal over a definite period of time. Recently, mortgage lenders and insurers have offered home owners longer amortization periods of 30, 35 and even 40 years.
There are different ways of paying back your mortgage. Some customers want the comfort in having a predetermined fixed rate since it allows them to budget and plan for other things in their In order to pay back your mortgage, there are various ways. Some want to have predetermined fixed rates which enable them to fully plan their budget for the foreseeable future. Other customers prefer more flexibility in their repayment. Some of their circumstances might include wanting to make larger payments whenever they are able to put more money down due to changes in their cash flow. There are some different kinds of mortgages which appeal to different types of borrowers. A mortgage professional could clarify the differences and help you choose which kind is best for you.
An interest rate means the amount of interest charged on a monthly loan payment. This amount is expressed as a percentage. It is based either on the rate that the Bank of Canada charges to lend money lenders or on bond yields. Normally, interest rates are less if you borrow money for a short time period and higher if you borrow money for a longer time period.
Fixed Rate Mortgage
A fixed rate mortgage is where your interest rate will not change throughout the term of your mortgage. There are no surprises since you will always be able to count on how much your payments would be and determine how much of your mortgage will be paid off when the term ends.
Variable Rate Mortgage
When the borrower agrees to a fluctuating rate over the term of the mortgage, it is considered a variable rate mortgage. These rates can change from one month to the next because the interest rates change with the bank's prime lending rate. Your payment remains the same when interest rates change, nevertheless, the amount that is applied to the principal will change. If interest rates drop for example, more of your mortgage payment is applied to the owed principal balance. This particular kind of mortgage is a great option for homeowners who think that the interest rates would eventually drop if they are currently high.
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