Amortization and Term of Mortgage
What is the difference between Mortgage Amortization and Mortgage Term
Mortgage loans are a very common type of loan.
Many people who couldn't purchase a home with their own funds can qualify for
one with mortgage lending. A mortgage is
a loan secured by real estate. It is used to purchase, refinance, or borrow
against a home or other real estate. Isn't it great to buy a house you can call
your own? But how to get a mortgage? You can go the traditional route and talk
to a bank. But is that your best option?
Or, an even better question is – Do you know you have options? Well, we want
you to know that you have a lot of options.
When you enlist Best Rate Mortgage Brokers in Red Deer, we will show you all of the options available. Many you may not
have been aware of. Our team will guide
you to your new home with the perfect mortgage.
Mortgages are typically long-term loans,
lasting anywhere from five to twenty five years and beyond. The entire length
of the mortgage for repayment is known as the “Mortgage Amortization.” Whereas
the period in which the rate has been secured is called the “Mortgage Term”.
Let’s discuss these two in more detail.
What Is Mortgage Amortization?
Before moving forward to the differences,
let's learn more about them individually. Let’s understand what is referenced
by mortgage amortization. The amortization
is the length of the commitment that a borrower agrees to pay off a home loan.
It is typically expressed in years and can range from five to twenty five
years. Now the main component of the mortgage agreement will cover off many
different terms and conditions. All of
these conditions and terms will apply throughout the entire life of the mortgage. Often the mortgage amortization will disclose
the full cost of the loan to the borrower, in how much interest can be
projected to be paid in accordance with the terms. It will disclose how much of the payments
will be applied to principle and how much will be paid towards interest.
Generally, the longer the term, the lower the
monthly payment, but the higher the total interest paid over the life of the
loan. It is important to understand the implications of the mortgage amortization
when shopping for a home loan to optimize financial savings. This is when you
need some expert help, with mortgage experience and knowledge. And the Best Rate Mortgage Brokers in Red
Deer are here to provide that assistance to you. We can help you to fully
understand the ins and outs of mortgage amortizations and terms that will
apply.
What Is the Mortgage Term?
There are several things to note about the
Mortgage Term. To start with, the Mortgage Term is the set period terms of
payment arrangements contained within the full amortization. For instance, if
the mortgage amortization is 25 years, there may be 5 terms of 5 years each,
where the interest rate is locked in and the monthly payment amount is
determined. It is rare that the interest
rate of a mortgage loan is locked in for the full life of the mortgage. It is typically up for renewal at the end of
each mortgage term. And the remaining
balance of the full mortgage loan will once again be amortized over the
remaining life of the mortgage and new rate and payment amounts will be agreed
upon. Often at the end of the mortgage
term, the entire mortgage can be paid out in full without penalty or
transferred/refinanced elsewhere without penalty.
Each payment in the mortgage term is composed of both principal and interest. The principal portion reduces the loan balance, while the interest portion is the fee charged for borrowing the money. What to keep in mind is that as the loan balance is paid down, the interest portion of each payment also decreases. It stands to reason then, that the length of the mortgage amortization will impact the amount paid in interest to the lender.
Throughout the mortgage, the amount of principal and interest included in each payment will shift until the mortgage is paid off. The length of the mortgage amortization and the term interest rate will determine the size of the payment and the total amount of interest paid over the life of the loan.
Difference Between Mortgage Term and Mortgage Amortization
The above information may be confusing. We get that.
Another reason having a trusted Mortgage Broker in Red Deer makes a lot
of sense and provides valuable assistance when applying and negotiating a
mortgage loan contract. But there are 2
significant differences between these two terms.
●
Amortization will always look towards the end
of the mortgage, where the loan is completely paid off and settled. It does not lock in any rate but is used to
determine the required payment amounts to meet the payout requirements in the
distant future. It will also reflect any
specific terms and conditions that will be in effect over the full life of the
mortgage.
●
Mortgage term will always look at the current
interest rate that has been locked in and determine what the current payment
will need to be to complete the payoff of the mortgage. It is the period of time within the
amortization where the rate is locked in and will not be renegotiated until the
end of the current term.
In Conclusion
To conclude, mortgage term and mortgage
amortization are two different components of a mortgage loan. It is important
to understand the implications of both when shopping for a home loan to ensure you
find the right mortgage that suits your financial needs. If you need help
navigating the world of mortgage lending, enlist the assistance of the Best
Mortgage Brokers in Red Deer. Call us
Today or start your online application now!
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