Terms And Rates Of A Mortgage - Know What Package Meets Your Requirements
The term of a mortgage refers to the length of time a lender would loan mortgage funds to a borrower. This duration is most commonly 2 to 5 years, though it could be from 6 months to 10 years. Typically, the shorter the mortgage term period, the lower the interest rate is and the less it costs to borrow the funds. As soon as the term ends, you can pay off the owing balance or renegotiate the mortgage for one more term until the full mortgage has been completely paid.
Contracts who's period is 2 years or less is considered a short term mortgage contracts or agreements. These kinds of mortgages offer a much lower interest rate than the borrowing expenses for a longer term. These terms are popular with individuals who feel that interest rates are presently higher than they would eventually be. Short term contracts are usually chosen by people who anticipate that interest rates would be lower at the time of renewal.
The long term agreements are usually for 3 years or more. These mortgages generally cost a bit more than short term mortgages and hence the interest rate will 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 could be easier to budget a stable mortgage payment and this can bring peace of mind to numerous people.
To completely pay back your mortgage can take on average 15 to 25 years. The process of amortization is the paying off of principal loan installments and interest over a particular period of time. Recently, insurers and mortgage lenders have provided home owners longer amortization periods of 30, 35 and even 40 years.
There are several methods of paying back your mortgage. Some clients want the comfort in having a predetermined fixed rate since it allows them to plan and budget for other things in their life. repay your mortgage, there are various ways. Some like to have predetermined fixed rates which enable them to completely plan their budget for the foreseeable future. Other consumers prefer more flexibility in their repayment. Some of their situation can include wanting to make bigger payments at any time they are able to put more money down due to fluctuations in their cash flow. There are some different kinds of mortgages that appeal to various types of borrowers. A mortgage professional can explain the differences and even help you choose which kind is right for you.
The amount of interest which is charged against the monthly loan payment is referred to as the interest rate. Rates are expressed as percentages. It is based either on bond yields or on the rate which the Bank of Canada charges to lend money lenders. Generally, interest rates are less if you borrow money for a short period of time and higher when you borrow money for a longer duration of time.
Fixed Rate Mortgage
Fixed rates mean that mortgage interest rates will not change over the terms of the agreement. There are no surprises since you would always be able to count on how much your payments will be and know how much of your mortgage will be paid off when the term ends.
Variable Rate Mortgage
A variable rate mortgage is when you agree to a changing interest rate for the length of the term. Because interest rates fluctuate with the bank's prime lending rate and can vary from each month to the next. Your payment remains the same if interest rates change, nevertheless, the amount that is applied to the principal would change. If interest rates go down for example, more of your mortgage payment is applied to the principal balance owing. This particular type of mortgage is a better option for homeowners who believe that the interest rates would drop eventually if they are currently high.
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