Choosing A Term You
Can Live With
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When you're looking at term and interest
rates, look also at what you can live with in terms of payment
amounts, because trying to predict where interest rates are
going is a tough job. |
Fixed vs. Variable Rate
Mortgages
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With a fixed-rate mortgage, the interest
rate is set for the term of the mortgage so that the monthly
payment of principal and interest remains the same throughout
the term. Regardless of whether rates move up or down, you
know exactly how much your payments will be and this simplifies
your personal budgeting.
A variable-rate mortgage (also called adjustable-rate)
provides a lot of flexibility, especially when interest rates
are on their way down. The rate is based on prime and can
be adjusted monthly to reflect current rates. Typically, the
mortgage payment remains constant, but the ratio between principal
and interest fluctuates. |
Closed and Open Mortgages
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An open mortgage allows you the flexibility
to repay the mortgage at any time without penalty. Open mortgages
are available in shorter terms, 6 months or 1 year only, and
the interest rate is higher than closed mortgages by as much
as 1%, or more.
A closed mortgage offers the security of
fixed payment for terms from 6 months to 10 years. The interest
rates are considerably lower than open |
Amortization
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The Amortization Period is the number of years it would take
to repay the entire mortgage amount based on a set of fixed
payments. The longer the amortization, the more interest is
paid over the life of the mortgage. Therefore, when choosing
the amortization period, careful planning should be done to
meet your cash flows. Remember, the amortization can be easily
shortened after the closing, by simply making arrangements to
increase your payments. |
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