BUSINESS

A quick glimpse at common lingo used for mortgages

04/18/2013 02:08 EDT | Updated 06/18/2013 05:12 EDT
Experts say learning common mortgage terms will help you choose which type is best for your goals.

Here is a quick look at some key mortgage lingo:

AMORTIZATION AND TERM

Amortization is the life of your mortgage while the chunks of time in between is the term.

The maximum amortization is 30 years for those putting in more than 20 per cent downpayment while it's 25 years for those who put down less than 20 per cent. Remember that the longer you take to pay off the loan, the smaller the payment but the higher you'll pay in accumulated interest.

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FIXED AND VARIABLE INTEREST RATE

Lenders offer fixed and variable interest rates. A variable rate can change during the term, depending on prime rate, while a fixed rate is set for the entire term.

If you want the flexibility of putting in a lump sum payment, you may want to opt for an open mortgage. It has a higher interest rate and availability is limited compared to a closed mortgage, but it's perfect for someone who's expecting an inheritance or a big bonus.

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FREQUENCY OF PAYMENT

Apart from the choice of term and amortization, the biggest impact you'll have on your mortgage is deciding on the frequency of payment which varies from accelerated weekly to monthly.

Accelerated weekly or biweekly payments allows you to make an equivalent of one extra payment per year, which helps you save on interest rate charges and pay off your mortgage faster.