What to consider when getting a mortgage:
- Mortgage principal amount
- Payment Frequency.
What does a term mean?
It is the length of time your mortgage contract is in effect. At the end of each term, you must renew your mortgage if you cannot pay the remaining balance in full. You’ll most likely require multiple terms to repay your mortgage. The length of your mortgage term has an impact on:
- Your interest rate and the type of interest you can get (Fixed or Variable)
- The penalties you have to pay if you break your mortgage contract before the end of your term
- How soon you have to renew your mortgage agreement.
How are your mortgage payments are calculated?
Mortgage lenders use factors to determine the regular monthly payments.
The principal amount, is the amount borrowed, and the interest is the fee you pay the lender for the loan.
If you’re self-employed or have a bad beacon score your lender may require a larger down payment.
What is interest
A fee you pay your lender for the use of their money.
Your lender may offer you different interest rates depending on the length of the mortgage term, their current prime and posted interest, the type of interest you choose (Fixed, Variable or Combination), your credit history and employment background.
Prime interest rates
The lenders use the prime rate to set there posted interest rate. The rate can change regularly, your lender may offer you an interest rate of prime plus a percent. This is often the case with a variable rate mortgage.
Posted interest rates
The posted interest rate is that lenders use in their advertising. These rates can change regularly.
Credit rating and the affect it has on interest
Lenders look at your credit score to decide if they will lend you money, they also use them to determine how much interest they will charge you to borrow money.
Difference between Fixed and Variable Interest
- Keep your payments the same over the term of the mortgage
- Know in advance how much principal you’ll pay by the end of your term
- Keep your interest rate the same because you think market interest rates will go up
- Your interest rates change
- Your mortgage payments potentially change
- The need to follow interest rates closely if your mortgage has a convertibility option.
Why break your mortgage contract
The current conditions of your mortgage contract may no longer meet your needs. If you want to make changes before the end of your term.
Pros and cons of breaking your mortgage contract
When interest rates fall, it may be tempting to break your existing mortgage and renegotiate a new one at a lower interest rate, or to blend-and-extend. Before you do, consider the pros and cons.
- you get a lower interest rate
- you may be able to pay off your mortgage faster if you keep your payments the same
- you can lock in the lower interest rate for the new term of the mortgage
- you could end up paying more in the long run because of fees and a prepayment penalty
- you may no longer qualify for a mortgage under the current economic conditions