Finance Articles

Choosing the Right Mortgage - Basic Mortgage Terms and Features

Choosing the Right Mortgage ? Mortgage Basics

There is an astounding range of commercially available mortgage products, which makes choosing the right mortgage increasingly difficult without a firm grasp of mortgage basics. Here we try to give the consumer struggling to understand the basics of what a mortgage is, how it operates, and what features are right for him or her, the basic terms and distinctions that will allow the consumer facing an all-important mortgage decision ? perhaps for the first time ? to begin to choose the right mortgage from the thousands of mortgage products available on the market. But a word of caution ? there is an incredible range of mortgage products commercially available. Before making a final decision on which mortgage is right for you, it would only be prudent to consult with an experienced and knowledgeable mortgage broker.

What Is a Mortgage?

A mortgage is a loan ? but a loan that is secured, in this instance, against a home and/or piece of land. The person who borrows the money to buy a house is the mortgagor and the person, company or bank etc. who lends the money is the mortgagee. In most instances, the person buying the house will be required to pay some amount, perhaps as little as 5 per cent, as a down payment on the house or property. A mortgage from a commercial or private lender is secured to pay the balance of the purchase price. The mortgagee/lender provides the balance of the money to buy the house on the ?closing date? (i.e., the day the deal for the house is completed and the property ownership changes) and the mortgagor/purchaser pays back the money borrowed to purchase the house over time, usually over a number of years.

Key Mortgage Terms & Concepts

Amortization Period ? A mortgage is written based on an understanding that the mortgagor/borrower will pay back the money borrowed over a number of years, rather than months. When purchasing a home that is typically worth several times what the purchaser earns in a year, it is understood that a the number of years will be needed to fully pay off the mortgage. The ?amortization period? is the number of years that it will take to pay off the mortgage in full under the terms of the mortgage that is agreed to. The usual amortization period is 25 years, although shorter and longer amortization periods are available.

The amortization period sets out how long it will take to pay off the mortgage in monthly payments. Monthly payments consist of two parts ? one part goes towards paying the ?principal? (the amount of money borrowed) and other part goes towards paying the ?interest? (the fee charged for borrowing the money.) The longer it takes to pay back the principal ? i.e., the longer the amortization period ? the greater the amount of interest that will be paid over the life of the mortgage.

Term ? A mortgage agreement will not typically be for the full length of the amortization period. It is too difficult for either party ? mortgagor and mortgagee ? to foresee all the changes in financial circumstances over such an extended period. Accordingly, the parties ? mortgagor/borrower and mortgagee/lender ? will agree to a mortgage covering a specific number of years of the mortgage ? e.g., 5 years. When the term of the mortgage expires the mortgagee is paid in full for the money that was borrowed to purchase the home. Typically, since it is anticipated that the mortgage will be paid off over the length of the amortization period, at the end of the term the mortgagor will have to negotiate a new mortgage ? either with the initial mortgagee/lender or a new mortgagee. This process of ?refinancing? is normal, yet is an excellent way for prudent borrowers to re-examine their financial circumstances ? for example, to see if their circumstances have changed so that they can shorten the amortization period and pay their mortgage off more quickly, thereby cutting down on the total interest they will pay in purchasing their home.

Fixed-Rate vs. Variable-Rate Mortgages ? In a fixed-rate mortgage, the same interest rate is charged throughout the entire mortgage term. In a variable-rate mortgage the interest rate will change based on changes in interest rates that are being charged in the market.

Since interest rates do change based on the financial markets, risk is being assigned and the mortgage rates for both fixed-rate and variable-rate mortgages will reflect who is taking the risks ? the mortgagor/borrower or the mortgagee/lender. When mortgage rates are relatively high it is the borrower who takes the risk that interest rates will not fall lower than the rate he or she agrees to for a fixed-rate mortgage. So when mortgage rates are relatively high, mortgagee/lenders will usually be willing to offer fixed-rate mortgages for a lower interest rate than the current interest rate for a variable-rate mortgage. The opposite is, of course, true. When mortgage rates are relatively low ? as they are now ? the mortgage/lender assumes the risk that interest rates will not go up. Since there is always the risk that rates will go up, a fixed-rate mortgage will have a slightly higher interest rate than a variable-rate mortgage when interest rates are relatively low. (The advantage of a fixed-rate mortgage is, of course, that the mortgagee will always know the cost of his or her mortgage payments over the term of the mortgage.)

Open Mortgages vs. Closed Mortgage ? With an open mortgage some or all of the balance of the mortgage can be repaid during the term of the mortgage without a financial penalty. This is particularly advantageous, if the home purchaser has to move for employment or other reasons and if one?s financial circumstances change. Under a closed mortgage, no extra payments or changes in the mortgage can be made before the end of the mortgage term without a penalty being charged. Such penalties can be onerous for the homeowner who is forced by circumstances, such as a change of job, to relocate before the term of the mortgage expires.

Open mortgages can also prove to be very advantageous for the prudent homeowner who is able to make periodic payments directly to the principal owing under the mortgage. Each mortgage payment is split between interest costs and money that goes towards paying off the principal of the loan. If the borrower makes periodic payments over and above the regular mortgage payments that are required (the amounts and timing of which are usually set out in the mortgage itself), these payments directly reduce the amount owing under the mortgage. Doing so effectively reduces the amortization period of the mortgage, since in every subsequent mortgage payment more money will be going to pay off the principal of the mortgage and less money will be going towards the interest costs.

The Importance of Mortgage Advice

While this covers some of the mortgage basics that the consumer will need to choose the right mortgage product, it is important to note that there are quite literally thousands of mortgage products to choose from ? each with its own intricacies and detailed terms. Accordingly, the prudent mortgage shopper should consult with someone with advanced expertise in the products and range of choices that are available on the market, given the borrower?s circumstances. An accredited mortgage broker will have the expertise and knowledge to assist the borrower in choosing the right mortgage for his or her situation. Moreover, since an accredited mortgage broker typically receives his or her fee from the lender, a mortgage broker with expertise and knowledge of the thousands of mortgages that are commercially available can assist the borrower in understanding and choosing the right mortgage from the thousands that are available at no cost to the borrower.

For help in choosing the right mortgage or to consult with one of Canada's most experienced and trusted mortgage brokers, visit www.CandianMortgagesInc.ca or call 1-888-465-1432 to speak with an experienced and knowledgeable broker agent.

Other Article Sites

findabook.com  moneycd.info  a-mortgage.info   about-lemon-laws.info  aboutstudentloans.info
all-about-publishing.info  auctions-articles.info  bestcollege-university.com  bestispconnection.com
biblefolder.com  blogger-website.com  books-used.info  brokers-guide.info  buywindows.info  cable-dsl.info
career-miner.com  carpel-tunnel.info  cashinaflash.info  cashloanreviews.info  casinobell.com  chat-house.info
clearmycredit.info  collegeloantips.info  crones.info  depression-articles.info   dirnic.net  dishguides.info
divers-below.com  expodog.info   financewizz.com  fire-insurance.info  getgood.info  handleit.net   it-idea.info
health-supplies.info  hosting-right.com  insidealert.com  insurance-facts.info  jobs-employment.info
justgood.info  lookgold.net   lowcost-travel.info  money-source.info  myhostzone.info  numisblog.com
peoplesearchfinder.info  pr-articles.info  realeas.com   refinancing-guides.info  spyware-remove.info
telelot.info  the-law.info   toppaid.info  travel-deals.info  travelcorrect.com  wedding-guide-site.com
your-blog.info  your-credit.info

Mercato Partners Announces First Investment in Skullcandy
Mercato Partners, a growth equity investment fund, invests $2M in Skullcandy, Inc, a lifestyle-driven consumer electronics company. Skullcandy's progressive brand image and high quality headphones have fueled the company's tremendous national and international growth.

Mortgage Marketing Company Alerio Again Contracts With THAT Agency to Manage Their Online Business
For the third year in a row, mortgage marketing company Alerio, LLC has renewed its contract with THAT Agency to manage their online business. THAT Agency has increased mortgage leads for Alerio by more than 150 percent per year, causing Alerio to extend their business relationship with the design agency. THAT Agency accomplished this feat in part from their creation of a lead generation website that has been fine-tuned for search engine marketing and optimization for Alerio.

Management and Investment Group Acquire Supply Chain Business of ChemConnect
Business will continue with existing management, products and services with expanded offerings in a wider spectrum of industries.

Casinos Often Measure the Wrong Thing As They Calculate Return On Investment from Internal Improvements, Says Robinson & Associates, Inc.
Casinos typically measure the wrong thing when they try to determine the return on investment they make in internal improvements designed to boost revenues, but there is a solution to the ROI problem.

Is a Small Business Web Site a Wise Investment?
One of the greatest pitfalls in e-commerce is Field of Dreams thinking, the notion that all one has to do is "build it (a web site) and they will come.""I can't think of anything further from the truth," Ron Scott, a Riverside, California web designer, says.

Tips on How to Borrow Money Wisely
Borrowing money from a bank or lending institution can help one achieve personal and financial opportunities that may not otherwise be feasible However, without proper knowledge and discipline, borrowing can get a person into trouble

David A. Noyes & Company Celebrates 100th Anniversary in Investment Services
David A. Noyes & Company, a Chicago-based investment firm, announced that it will commemorate its 100 years in investment services with a bell ringing ceremony at the New York Stock Exchange on August 5, 2008.

Who Else Wants Access To Real Private Banking Solutions?
As a middle aged, middle class, married, business owner, father of 3 (one in college&.argh) freedom seeker, I have sought for many years to establish the knowledge, the relationships, and the resources needed to make a lifestyle of financial privacy and freedom available to me and my family. One of the most frustrating and problematic areas to resolve successfully has been that of how to establish a private banking relationship, for someone of moderate means, in todays world of intrusive financial surveillance. Many have found that without doing something shady or under the table or downright illegal, and having to constantly be looking over your shoulder to see who is looking, having a workable private banking solution is, in real lif...

Top Rated Investment Bonds
Your typical independent investor will never be able to understand every aspect of bond investing. Research on bonds fills volumes. It is for this reason, therefore, that you do as much research as you can prior to investing, and if you can, take advantage of professional investors that can manage a portfolio for you.

Six Tips To Help Companies Mitigate Mortgage Fraud Risk
Mortgage fraud is one of the fasting growing financial crimes in US history Techniques to commit mortgage fraud have grown more sophisticated, resulting in more advanced counter techniques to combat mortgage fraud

Process And Eligibility To Secure A Home Mortgage Loan
Securing a home mortgage loan can be tough unless you know the basics. This article adequately expounds everything from tips to documentation. Read up for more information.

Corporate Banking ? Essential requirement of large corporations
The success of large corporations depends on a variety of factors. Generally proper planning, foresight, human resources and research are amongst the top most factors contributing to the sustained growth of a company. But in the current scenario with cut throat competition, changing or evolving technology, changes in requirements and needs of people or changes in business practices means for corporations to survive and maintain their position, they need much more than just planning and execution.

Your Home Mortgage Loan And Your FICO Score
One of the essential requirements for your FICO score is a home mortgage loan Learn its integral role to your mortgage and how it can make or break you

International Investment Banking
An International Investment bank is a bank that does not accept deposits but rather provides services to investors and to those who offer securities to investors on a worldwide scale. International investments can provide growth and even poverty reduction which is why the OECD Global Forums on International Investment (GFII) support the services of international investment banks and work to enhance the benefits of investment in developing countries in particular. International investment banks offer similar services to the average local investment bank except that is expanded into the international market. This can be beneficial for investors who wish to expand their portfolios and create a well balanced set of investments. The benefits...