Thursday, January 5, 2012
How I Paid Off My Mortgage........Interest Rates, Terms and Amortizations - Part 3
After you've determined wheather you will qualify for a conventional mortgage, a high ratio, or a HOLC/HELOC, you will need to decide what term is best for you. When I purchased my first home, I put 5% down,(high ratio mortgage) amortized my mortgage over 25 years and took a 5 year fixed rate term.
A mortgage term is the length of time your mortgage contract is in effect. It is also how long you are guaranteed a particular interest rate. At the end of your mortgage term you can renegotiate your interest rate.
This is the life of the mortgage. Amortizations are usually 25 years or 30 years, meaning this is the amount of time it will take to pay off the mortgage.
An open mortgage can be paid off anytime without a penalty. Most times you can also make additional payments on your mortgage throughout the term without a penalty. Open mortgages usually have higher rates than closed mortgages. The rates are higher because there are more flexibilities when it comes to paying off your mortgage early, or leaving one bank for another.
Closed mortgages have lower interests rates than open mortgages, but are not as flexible. You cannot pay off your mortgage early without incurring a penalty with a closed mortgage. You can however, take advantage of any pre-payment options your bank offers in a closed mortgage.
This mortgage is similar to the closed mortgage with the added benefit of changing terms without paying a penalty. (This mortgage varies amoung banks)
Posted by Shondell