Mortgage Terms and Payments

Just understanding the legalese of mortgages is challenging enough. Here's a guide to mortgage terms and a better understanding of your options for mortgage type and payment plans. Feel free to give us a call or drop by and we'll be happy to spend some time with you and help you find a mortgage that works.

Different types of mortgages

Open mortgage/closed mortgages

The terms "open" and "closed" refer to whether or not your mortgage can be paid off (open) or paid down (closed) without financial penalties or added fees.

If you plan to sell your home and not buy another home, or if you think you may be able to pay down more than 20% of the original or renewed mortgage amount in the near future, the flexibility of an open mortgage is probably the best option for you. With an open mortgage, you can pay off some or the entire mortgage at any time with no interest penalty or service fees.

If you think you're likely to remain a homeowner for the next few years and aren't expecting a financial windfall, a closed mortgage is probably a better option for you. A closed mortgage provides you with the security of a guaranteed interest rate for the term of your mortgage. Plus, the closed rate mortgage is usually available at a lower rate than the open mortgage, making it a great option for saving a bit of money.

Fixed rate mortgage/variable rate mortgage

When choosing between a fixed and variable interest rate, you might be tempted to try to predict what interest rates are going to do in the coming months or years. A difficult enough task for the pros, much harder still for a homeowner, and a potentially expensive gamble if your predictions prove wrong. Rather than guessing where interest rates might go, your ACU financial advisor can help you make a choice based your current financial situation.

Fixed rate mortgages are available for terms of six months to five years, with your interest rate locked-in for the term of your mortgage. With a fixed rate mortgage, you know in advance what portion of your payment will go toward interest and what portion will pay down the principal. Our six-month fixed rate convertible mortgage combines a low six-month rate with the flexibility of converting to a longer, closed fixed term mortgage at any time during the term without penalty or service fees.

With a variable rate mortgage, you can set your own payment amount but your interest rate may vary depending on market conditions. As the interest rate changes, so does the portion of your payment going to interest and the portion being used to pay down your mortgage principal. When interest rates decline, more of your payment goes toward the principal and you save on interest costs. Should interest rates rise, more of your payment will go toward interest and less to principal. It's important to know that if interest rates rise substantially, you could be required to increase your payment amount to keep your amortization in line.

Here are your payment options

Making the right decisions now can save you money over the life of your mortgage. Unsure of what option to choose? We can help.

Amortization and payment frequency

Amortization is the amount of time you choose to pay off your mortgage. With a shorter amortization period, you can save a lot on interest and own your home sooner, although your payments will be larger. You can also select the payment frequency and payment dates that fit your cash flow. Not only does this make budgeting a whole lot easier, but it can also save you money.

Pre-payment

You can prepay up to 20% of your original or renewed mortgage balance each year with no interest penalty or service fees. You can choose from a number of options when thinking about prepaying, including:

  • increasing your payment by a fixed amount
  • making an additional mortgage payment in addition to regular payment amounts
  • making one lump sum prepayment each year on your mortgage anniversary date
  • making a number of smaller prepayments at any time, each year

In addition to the 20% annual prepayment option, ACU also offers you the flexibility choosing one of these options at mortgage renewal time:

  • accelerating your payment frequency
  • selecting a shorter amortization period
  • making a lump-sum prepayment
 

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