Mortgages can be complicated and intimidating, especially for first-time homebuyers. Understanding mortgage terms used in Canada is essential for making informed decisions about your home financing. In this article, we’ll explain some of the most important mortgage terms used in Canada and how they could affect your home purchase.
Amortization: Amortization is the length of time it takes to pay off a mortgage loan. In Canada, amortization periods typically range from 5 to 30 years. The longer the amortization period, the lower the monthly payments, but the more interest you will pay overall.
Principal: Principal is the amount of money you borrow to purchase your home. It does not include the interest you pay on the loan.
Interest Rate: Interest rates are the percentage of the principal that you pay to your lender. Mortgage rates can vary depending on the type of loan you take out and the lender you choose.
Closing Costs: Closing costs are the fees associated with processing, setting up, and closing your mortgage. They typically include an appraisal fee, legal fees, title insurance, and tax and registration fees.
Mortgage Insurance: Mortgage insurance is an insurance policy that protects your lender in the event that you default on your loan. It is typically required when you make a down payment of less than 20% of the purchase price of your home.
Prepayment Penalty: A prepayment penalty occurs when you pay off your mortgage loan before the end of the amortization period. Most mortgages in Canada have a 3-month penalty, meaning that if you pay off your loan within 3 months of taking it out, you will be required to pay a penalty.
These are just some of the terms used in mortgages in Canada. To ensure that you make an informed decision about your home financing, it’s important to understand the mortgage terms and how they could affect your purchase. If you have any questions or need help understanding any of the terms, don’t hesitate to speak to a professional mortgage broker or lender.
