Before deciding on a mortgage, you should know and understand the different types of mortgages available to borrowers in Canada.
Amortization Length vs. Terms
The amortization period is the length of time, usually in years, for you to pay off your mortgage balance completely. Typically, longer amortization period means lower interest rate and lower monthly payment amount. However, you will be paying more on interest over the entire duration of your amortization period.
A mortgage term is the length of time that you are locked into a mortgage contract with a lender. For example, if you obtain a 30-year fixed rate mortgage with the Royal Bank of Canada on a 5-year term with an interest rate of 2.19%, you are obligated to make mortgage payments to RBC with 2.19% interest rate for 5 years. After 5 years, you can either renew your mortgage contract with RBC (at a different rate based on the rate at the time of renewal), or switch to a different lender without incurring any pre-payment penalties. So obtaining a 30-year mortgage with a lender does not mean that you are stuck with the same lender for 30 years. Your mortgage contract will expire after the amount of years specified as the mortgage term.
Types of Mortgage
Regardless the type of mortgage you choose, you should also pay attention to the details of your contract, especially on your pre-payment privileges. Mortgage products often allow borrowers to make additional payments towards the principal of the loan, and the most common ones are:
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