When you’re looking around for a mortgage it’s best to understand the industry jargon and know exactly what you’re getting into. Discuss with your mortgage agent the variety of interest rates, payment scheduling and the deal with closed and open mortgages.
Explaining Different Kinds of Mortgage Interest Rates
Fixed Mortgage Interest Rate
- A fixed mortgage interest rate is a locked-in rate that will not increase for the term of the mortgage.
Variable Mortgage Interest Rate
- A variable rate fluctuates based on market factors; however, the mortgage payment remains the same.
Adjustable Mortgage Interest Rate
- With an adjustable rate, both the interest rate and the mortgage payment can change based on market fluctuations.
Difference Between Open and Closed Mortgages
Having an open mortgage means you can pay it off at any time, which is ideal for people not planning a long stay in the new home. This option is flexible and allows the owner to make large payments in order to pay off the mortgage loan at a quicker rate.
A closed mortgage is not as flexible in terms of payments but works for owners on a fixed monthly income. With this type of mortgage you must pay a set amount each month and not a penny more. If you are looking to live in your new house for a long period of time this option is more efficiently for monthly budgeting.
What is Amortization?
Amortization is the time period the mortgage loan is paid off. It’s common for mortgages to last for up to 25 years but that time frame varies with each home owner. Longer amortization periods mean you make lower payments on your mortgage; however interest may build up resulting in paying more.
Mortgage Payment Scheduling
This is the structure for which you pay back the mortgage loan, it can be monthly, biweekly or weekly. It’s important to note that the more payments placed on your mortgage will reduce interest incurred. Talk to your mortgage agent about what kind of payment schedule makes the most sense for your specific situation.