MORTGAGES 101

Many factors to consider when choosing your mortgage type for the first time ...

Mortgages 101

There are many factors to consider when choosing your mortgage type for the first time. Rates, features, options, market trends, and long term goals should all be taken into account when choosing your mortgage. Below we have outlined some of these important considerations.

Amortization Period

The amortization period of a mortgage is the total length of time it will take to pay off the overall cost of borrowing. A common amortization period is 25 years. Shortening your amortization period can help to reduce your overall cost of borrowing. Consider the fact that mortgage lenders charge interest on mortgage loans, therefore, the longer it takes to pay off the mortgage, the more interest one pays.

Mortgage Term

Your mortgage term is the length of your mortgage agreement; usually this length ranges from 6 months up to 10 years. Once your mortgage term has expired the balance of your mortgage can be repaid, refinanced or renewed by your lender at current market interest rates.

High Ratio versus Conventional Mortgages

Mortgage default Insurance is mandatory for all borrowers with a down payment of less than 20%. A High Ratio or Collateral Mortgage is one where the down payment is less than 20% of the purchase price or property valuation. In this case, the mortgage must be insured by a mortgage insurer.


On the other hand, a Conventional Mortgage is one where the down payment is equal to, or greater than, 20% of the purchase price or property valuation. This means you are not required to seek additional mortgage default insurance.

Fixed rate mortgage

This mortgage type means that your interest rate is set at the beginning of your term and will not change throughout the duration of your mortgage term. This mortgage type offers a predictable and steady payment structure as your interest rate will always remain the same.

Variable rate mortgage

This mortgage type means that your interest rate may fluctuate intermittently because it is based on the market (prime) rate. A variable rate mortgage can offer significant savings at the beginning of your mortgage term. A variable rate mortgage provides you with flexibility to take maximum advantage when interest rates fall. However, should interest rates rise, a greater portion of your repayment amount will go towards the interest payment versus the principal of the overall mortgage.

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