Having a clear understanding of the difference between a term and the amortization period is an important first step to choosing a mortgage. As an experienced mortgage specialist, clients can rely on myself to answer these questions about the basics of mortgage products. Some basics to start with:
Amortization periods can be 25, 30 or even possibly 35 years and a schedule of payments sets out a consistent amount to be paid over that time period. As the lender you agree to pay off the loan including interest within that period of time. In Canada the amortization period is then broken down into portions of the amortization period known as a “term“
Term is any portion of the amortization period and can be offered month to month or up to 10 years with 5 years being the most common length. There are terms of 1 to 4 years which offer lower rates for the consumer to consider.
Debt Servicing is determined by the lender taking into account your income to qualify you as well as any other debt, think car loans and other credit you have.
Credit Score is a picture of your credit history and lenders can see how a person has managed credit in the past. Your credit score one of the most important aspects of life and the only one you can manage.
Timing is everything in most terms. An estimated 70% are not complete meaning most people sell before their five year term is complete. So the first thing to consider when choosing a term is whether you plan to sell before your term is complete or the penalties you end up paying could cost you a bundle.
Secondly a term of less than 5 years means lower interest and payments in the short term. Although lenders must crunch the numbers to make sure you can afford the mortgage at Canada’s benchmark rate of 4.64%.
If you have any more mortgage related questions, contact me today for more information.
