Your Step by Step Mortgage Guide
What is a mortgage?
A mortgage is a loan that uses the home you buy as security. This loan is registered as a legal document against the title of your property. Here’s a quick overview of some of the most common aspects of a mortgage that you need to understand.
The principal is the amount of the loan, or cash actually borrowed.
The interest is the amount the lender charges for the use of funds, or principal. Interest rates vary according to the many factors, including terms and conditions of the mortgage as well as a borrowers credit history. Mortgage payments are usually applied towards booth principal and interest.
The amortization period is the actual number of years that it will take to repay the entire mortgage loan in full. This normally ranges from 15-25 years but can be extended in certain circumstances. A longer amortization period will result in lower payments but it will take that much longer to pay off the mortgage which in turn means you pay more interest.
The term is the length of time for which a mortgage agreement exists between you and your lender. Typically, terms range between six months and ten years. A longer term means you will keep he interest rate agreed upon for that longer length of time. Rates vary with the term and the difference in payments and interest costs can be calculated by your mortgage professional. Once your term is up you are able to re evaluate your financial situation and consider new term and amortization periods.
The maturity date marks the end of the term, when you can either repay the balance of the principal or renegotiate the mortgage at interest rates in effect at that time. If you should choose to repay the balance or renegotiate the mortgage before this date, penalties may be charged.
Payment Schedule is the frequency at which you will make your mortgage payments. These can occur monthly, semi-monthly (twice a month), biweekly (every other week) or weekly. Generally, more frequent payments can result in lower interest costs over the life of your mortgage.