A mortgage that can’t be paid in full before it’s maturity date unless a penalty is paid to the lender.
A mortgage that can be paid in full at any time without penalty. Open mortgages will typically have a higher interest rate.
The length of time a mortgage contract will be in place. This typically ranges from 1 to 10 years.
The length of time it will take before the mortgage is fully paid off. Many people confuse the term of the mortgage with the amortization of the mortgage. These are typically two very different time periods.
A mortgage that is insured by a default mortgage insurance provider. Typically these are mortgages with less than 20 percent equity in the property.
A mortgage that isn’t covered by default mortgage insurance. These are mortgages with more than 20 percent equity in the property.
Most, but not all, mortgages allow you to make extra payments or to increase the regular payment. This can shave years off the time it takes to repay the mortgage.
The last day of a mortgage term. A mortgage must either be renewed or repaid in full when it reaches its maturity date.
Contract Interest Rate
The interest rate the lender will charge for borrowing the money.
Actual Interest Rate
The actual interest rate once compounding and fees like default mortgage insurance are included in the cost of borrowing.
Most mortgages compound semi-annually although a couple of lenders will compound variable rate mortgages monthly. Compounding increases the effective interest rate slightly.
The difference between the value of the property and the amount of the mortgage. The equity increases as the mortgage is paid down and the property increases in value.
Default Mortgage Insurance
Insurance that is paid by home owners when they buy a home with a down payment less than 20 percent of the house price. This insurance protects the lender from losses if the property goes into foreclosure and must be sold for less than the outstanding mortgage balance.
Mortgage Life Insurance
Life insurance sold by lenders that pay the outstanding balance upon death of the home owner. There is also disability and critical illness mortgage insurance.
Lenders insist that home owners acquire fire insurance for the replacement cost of the property.