Mortgage information
Buying in Montreal
Buying in the West Island
Ginette Beardsell
Real Estate Broker
   

Part 1 - Termilology and Types
Part 2 - Down Payment and Amortization
Part 3 - Deciding on a Term and Options

Part 5- Deciding on a Term

The length of time for which the interest rate is fixed is called the term. Most mortgages have terms of six months to five years. Open versus closed term An open mortgage is one which allows payment of the principal, in part or in full, at any time without penalty. Open mortgages tend to be for a short term - usually six months or one year. Since open mortgages offer greater flexibility than closed mortgages, they usually have a higher interest rate. A closed mortgage requires you to maintain a specific payment schedule. A penalty usually applies if you repay the loan in full before the end of the term. A convertible mortgage allows you to renew your mortgage at any time without penalty for a longer term, closed mortgage. Short versus long term When interest rates are either high or falling, there is a tendency to choose a shorter term mortgage. This strategy pays off if you can renew at a lower rate six months or one year later. You may want to consider a longer term mortgage if interest rates are rising, if you have limited income or if you want to keep your mortgage payments the same for a few years.

Part 6 - Payment Options

PAYMENT OPTIONS

The three most common payment frequencies are monthly, bi-weekly and weekly. Increasing the frequency of your payments can allow you to pay off your mortgage sooner and reduce the total amount of interest paid. You should select a payment frequency based on what is convenient for you. You may want to match your payments to your pay periods. If your goal is to pay off your mortgage quickly, consider accelerated weekly or bi-weekly payment plans. You'll make the equivalent of 13 monthly payments each year, rather than 12, and realize significant interest savings. Other options are to choose a shorter amortization period or take advantage of prepayment privileges.

PREPAYMENT PRIVILEGES

Prepayment privileges are voluntary payments in addition to your regular mortgage payments. The money is applied directly against the principal owing, so you'll pay off your mortgage more quickly. You'll also significantly reduce the total amount of interest you would otherwise have paid. Some examples of possible options available:

  1. You can increase your regular principal and interest mortgage payment by as much as 100%.

  2. You can pay up to 15% of the original principal balance in a lump-sum once annually or on the anniversary date.

 
 

Ginette Beardsell, Real Estate Broker
Royal LePage Élite
Chartered Real Estate Agency
Independently owned and operated franchise of Royal LePage
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