Best Edmonton Mortgages

Terminology

Here are some of the terms you may want to become familiar with when searching for the right mortgage.

Closed Term

A closed term means that a borrower has restrictions if they wish to pay out the mortgage before the term is due. Penalties will be calculated and charged should they pay the mortgage off in full or even partially. This would include selling the home. Most lenders charge 3 months of interest or IRD (Interest Rate Differential). These will be explained later in greater detail. A lot of mortgages however do allow a specific amount to which the mortgage can be paid each year without penalty. On average lenders allow between 10% - 20% of the original mortgage amount to be paid to the lender each year, without penalty.

 Fixed Rate Mortgage

The rate is set for the period of time the borrower selects (term), most lenders offer terms anywhere from 6 to 10 months. One of the most common terms is 5 years. The client can select an open or closed fixed term. A fixed rate mortgage is beneficial for a borrower who is looking for stability with their payment. It will be set for the term selected and will not change. A longer term fixed mortgage rate offers less risk to the borrower.

Variable Rate Mortgage

Another name often used for this type of mortgage is "floating" or "adjustable" rate mortgage. It is the opposite of the fixed rate mortgage. This mortgage usually has a term of 3 or 5 years, but the interest rate could vary or change during the term. The rate the client receives is usually tied with the prime lending rate. the borrower will guaranteed the discount or premium that is originally negotiated with the lender for the term of the mortgage, however, should the prime rate fluctuate, it will change the rate the mortgage is calculated at. As an example, a borrower may receive a variable rate of prime less .50% for a 5 year term, so if today's prime is 6%, the client would receive 5.5%, however, during the term, if the prime rate drops to 5.75% the client's rate would be 5.25%. This could also work to the disadvantage to the borrower, if using the same discount but the prime rate increases, the borrowers rate will increase. This increase will affect the payment and the rate at which the principal is paid down. A very attractive feature of these types of mortgages though is that the borrower will have the ability to convert the variable rate mortgage to a fixed rate of 3 years or more, anytime they like without paying a penalty as long as they stay with the same lender. This type of mortgage is generally higher risk than a fixed rate but it has advantages by allowing the client to take advantage of prime while it is low. It is often suggested that this type of mortgage is recommended for a more sophisticated borrower.

Payment Frequency

Pretty much all of the major lenders offer a choice to the borrower for the frequency of their payment. Various types are monthly, semi-monthly, bi-weekly, or weekly, and even interest only. When a client selects a frequency other than monthly, the mortgage can pay out quicker than if they chose payments on a monthly basis, or they may choose a frequency of a payment based on the same frequency that they receive their income. Both of these are excellent benefits to the borrower.
 

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