Amortization. Fixed rate. Variable rate. High-ratio. Principal. If you’re mystified by mortgage-sp...

1. Mortgage Basics By Oksana Holubiez
Amortization. Fixed rate. Variable rate. High-ratio. Principal. If you’re mystified by mortgage-
speak, you’re not alone. Mortgage basics
Amortization. Fixed rate. Variable rate. High-ratio. Principal. If you’re mystified by mortgage-
speak, you’re not alone. Here’s a crash course in mortgage basics to help you make smart
decisions about one of the biggest investments you’ll ever make.
Oksana Holubiez
Sales Representative
Buying or selling a home is a big decision - you need an experienced professional to guide you
through the process. When you work with me, you can count on personal, attentive, patient service,
excellent knowledge of the area, great negotiation skills and expert selling strategies.
Mobile: 416.605.9532
oksana.h@royallepage.caHere’s a crash course in mortgage basics to help you make smart
decisions about one of the biggest investments you’ll ever make.
Choose a term that works for you.
A term is a period of time (from 6 months to 10+ years) during which you pay your mortgage at a
specified interest rate. To figure out what term is right for you, decide how comfortable you are with
Local Realtors the volatility of the market and how important a stable mortgage payment is to your
budget.
Long term:
Right now, interest rates are low. If you’re afraid they’ll go up and you want to lock in at a low
rate, or you want to know exactly how much you’ll be paying every month, go for a longer term
like 5, 7 or 10 years.
Short term:
If interest rates look like they’re falling, this may be a better bet. If you’re comfortable with
payments that may fluctuate somewhat, your best bet is a shorter-term mortgage (i.e. a 6-month
variable rate mortgage) that lets you take advantage of low rates, but also has the flexibility of
allowing you to lock in and convert to a longer-term mortgage whenever you want.
Decide on an amortization period.
The amortization is the number of years (15, 20, 25) it would take to pay back the loan based on a
fixed payment amount. The longer the amortization, the more interest you’ll pay. You can shorten
your amortization by increasing your payments, paying lump sums towards the principal, or
renewing your loan at a lower rate.

2. Decide on a fixed or variable rate.
A fixed-rate mortgage means you pay a set amount every month for the term of your loan. Whether
posted interest rates rise or fall, your payments won’t change.
With a variable-rate mortgage, your interest rate fluctuates with your lender’s prime lending rate.
It offers more flexibility, but also more risk. Typically, you pay a set amount every month, but when
rates fall, more cash goes to principal, which reduces the interest you’ll have to pay in the long
term. If rates go up, however, your set payment may not be enough to cover interest and principal,
so you could end up having to pay more.
Choose a closed vs. open mortgage.
In an open mortgage, you can repay your loan any time without penalty. So if you sell another
property or come into some extra money, you can pay down your principal whenever you want.
Interest rates for open mortgages tend to be higher than for closed, and terms are typically shorter.
A closed mortgage is less flexible. If you decide to pay off a big chunk of your principal, you could
incur a penalty. However, even closed mortgages have pretty generous prepayment options (usually
up to 20% of the principal per year).
Decide how often you’ll make payments.
You can pay monthly, bi-weekly or weekly. Here’s the difference: with monthly payments, you
make 12 a year. With bi-weekly payments, it’s 26. That’s the equivalent of 13 payments a year
instead of 12. You probably won’t notice much of a difference in your cash flow, but you’ll pay
off your mortgage faster, and save yourself thousands in interest.
Will you get a high-ratio or conventional mortgage?
That depends on the size of your down payment. A conventional mortgage is a loan that covers up to
75% of the purchase price, and doesn’t need to be insured against default. A high-ratio mortgage
is anything over 75%, and must be insured by the Mortgage Help Canada Mortgage and Housing
Corporation (CMHC) or GE Capital. You can add your insurance premium (a percentage of your loan
amount) to your mortgage or pay it on closing.
Get pre-approved.
Find out how much you’re eligible to borrow before you start looking. You’ll know exactly how
much you can afford, and you’ll be guaranteed the interest rate that’s available at the time of
your pre-approval for 60-120 days. If rates go up, you won’t have to worry about paying more,
and if they go down, you get the lower rate. It’s win-win, free and there’s never an obligation
to go with that lender.
Shop smart.
Now that you’re armed with some mortgage knowledge, you’ll be able to choose a loan that
best meets your needs. If you need more info, most lenders have helpful information on their
websites, or you can always ask your REALTOR® for help understanding the ins and outs of

3. mortgages.
Happy mortgage hunting!
Callout: “If you’re mystified by mortgage-speak, you’re not alone.”