Getting a mortgage can be a daunting task. There is so much to know and understand including some pretty confusing language. Borrowers are often confused by mortgage terminology, so in an effort to keep you educated welcome to the monthly addition of Mortgage LINGO defined.
AMORTIZATION VS TERM
A term used to describe the period of time over which the entire mortgage is to be paid assuming regular payments. Usually 25 or 30 years. First-time buyers typically pick the longest amortization period available. If your down payment is less than 20%, your maximum amortization period is 25 years. If your down payment is greater than 20%, you could have an amortization period of up to 30 years.
How does it work? The longer the amortization period, the lower your principal and interest payments will be, but overall, the amount of interest you’ll pay will be higher. With a shorter amortization period, you’ll make higher principal and interest payments, but you will pay less interest in the end.
A mortgage term is the length of time you’re committed to a mortgage rate, lender, and associated conditions.
A mortgage terms can range from 6 months to 10 years, with 5 years being the most common option. Once your term is up, you may be able to renew your mortgage loan with a new term and rate or pay off the remaining principal.