Difference between revisions of "Mortgages and Financing a Home Purchase"

The term is the time the mortgage lasts. Because interest rates are always changing, most lenders won’t lend their money at the same interest rate for as long as the usual amortization period. Instead, lenders first calculate the regular payments as if they were lending the money for the full amortization period at the same interest rate. However, then they lend you the money for a shorter time, or term. You can usually choose terms between 6 months and 10 years. Longer terms often have higher interest rates. At the end of the term, you have the pay the remaining amount of the mortgage to the lender. If there are no problems, you can normally do this by just renewing your mortgage for another term, at the current interest rate.

Many mortgages let you do this via a prepayment privilege, and there are many types. You may have the right to prepay any amount any time (an open mortgage), or the right to prepay only up to 10% of the mortgage loan each year (a closed mortgage). However, if a mortgage does not have a prepayment privilege, many lenders charge a prepayment penalty if you want to fully pay it off before the mortgage term ends. Usually the penalty is 3 months’ interest. This is an extra expense if you want to sell your house before your mortgage term ends. If this is your case, you should get a prepayment privilege in the mortgage when you get the mortgage (you can’t add it later).