Homeowners and home buyers face an overwhelming amount of information, contracts, terms and conditions. Understandably it is very easy for one to get confused when applying for a mortgage. There are special terms that are used to describe different types of mortgages. Be sure that you have a solid understanding of what your mortgage means and what it entails for you and your family.
Although a mortgage may seem like a loan, legally speaking it is not. It is an interest in land created by contract as security for a loan made by a lender to the borrower. A mortgage therefore, is evidence of a debt, but not a debt itself. When obtaining a mortgage, the borrower is essentially transferring an interest in the land to the lender based on the condition that the interest will be returned when the terms of the mortgage contract are performed.
There are commonly two time periods associated with your mortgage contract; the term and the amortization period. The term of your contract is typically the length of time during which a mortgagor pays a specific interest rate on the mortgage loan. The entire mortgage principal is usually not paid off at the end of the term because the amortization period is normally longer than the term. Terms are often five years or even less depending on whether the mortgagor opts for a fixed interest rate or variable interest rate. The amortization period is the total amount of time required to reduce a debt to zero when payments are made regularly. The most common amortization periods are 15, 20, 25 or 30 years long.
When the time comes for you to choose a mortgage, be sure to consult your mortgage broker and ask questions so that you fully understand your choices and the effects that they will have on your loan.
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