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What you need
frequently asked questions
The mortgage amortization period is the amount of time it would take to pay off a mortgage, including interest. It may be between 5 and 30 years, for a new mortgage, the amortization period is typically 25 years.
The mortgage term is the amount of time that you commit to your mortgage rate, details and conditions with a lender according to your contract. Once the term ends, you either pay off the mortgage or renew it for a new term if your lender agrees. Terms range from 1 to 10 years, but the average terms are between 4- to 5-years.
When calculating interest on for a variable-rate mortgage, you need the outstanding principal balance, current mortgage rate and payment frequency.
Multiply the outstanding principal amount by the mortgage rate in effect at the time. Divide that result by 365. Multiply by the number of days in the payment period in which that mortgage rate was in effect.
For a fixed-rate mortgage, interest is compounded semi-annually, not in advance.
Fixed-Rate mortgage, the interest rate is locked in and the monthly payments stay the same for the entire mortgage term. If interest rates go up during the term, you’re protected because your rate stays the same.
Variable-Rate mortgage, the interest rate follows the market and can fluctuate up and down. This allows you to save if current interest rates are high and are trending downwards but there is the risk that if interest rates are low and are trending upwards you will pay more as interest rates go down, more of your payment goes towards the principal. If rates go up, more of your payment goes towards the interest. Your regular payments may stay the same.
Open Mortgages – you can contribute more to your mortgage payments without any penalties. Open mortgages usually have higher interest rates than closed mortgages. But open mortgages are also flexible. If rates start to increase, you can easily switch to a closed mortgage.
Closed Mortgages – before the mortgage term ends, you’ll pay a prepayment charge. For example, for a fixed-rate closed mortgage, the charge is usually the greater of 3 months’ interest or the interest rate differential (IRD). For a variable-rate closed mortgage, the charge is usually 3 months’ interest. Closed mortgages usually have better interest rates than open mortgages.
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