Mortgage Basics

N1401P61002CNEWMortgage Basics

It is surprising how often we hear terms that we don’t fully understand. As a specialist in mortgage financing, your mortgage broker can help keep you educated and informed.
A mortgage payment is calculated based on four factors: Rate, Compounding Period, Payment Frequency, and Amortization
Period. Here is a definition of each of these factors, and a few other terms that you may hear as you go through the mortgage process. Rate The amount of interest paid on the remaining
balance of the loan on a per-year basis. Compounding Period The frequency with which the interest is calculated. For example, 3% per year can be calculated as 3% once per year, 1.5% twice per year, or 0.75% four times per year, etc. The more often interest is calculated in a year, the higher the effective interest rate. Most standard mortgages are compounded semi-annually (twice per year). Payment Frequency Mortgages are often calculated based on a monthly payment. However, paying on an accelerated weekly or accelerated biweekly schedule can help you pay down your mortgage faster and save you time and interest. Amortization Period The length of time it will take to repay the loan in full while making the minimum payments. A shorter amortization period means higher mortgage payments but less interest is paid and vice versa. Changing any number of these can affect your affordability, your timeline, and how much interest you pay over the span of your mortgage. Higher
interest rates and more frequent compounding will result in higher mortgage payments and paying more interest. Both shortening your amortization period and/or increasing your payment frequency to an accelerated option also increase your payments, however these increases allow you to pay your mortgage off faster and pay less interest over the life of the loan. Talk to your mortgage broker today to see what strategies are best for you.

Other Important Terms to Remember:
Term – The length of time you commit to a lender. The term you choose can determine your rate and other factors.
Renewal – The beginning of a new term as your previous term expires. This is when you would reevaluate all conditions of your mortgage.
Refinance – Taking equity out of your existing home by registering a new mortgage.
Equity – The value in your home that you can borrow against for a loan.
Down Payment – The money you contribute to your purchase that combines with your mortgage for the full purchase price.
Be sure to include a mortgage broker as part of your home buying process. A broker can make sure that your mortgage is part of your healthy
financial plan!
– Written by Andrea Sammut,
Licensed Mortgage Agent
at Mortgage Architects Brokerage
#10287 located in Orangeville, Ontario