Most mortgages work in the same basic way: borrow money to buy a property over a set term and pay interest on what you owe.
There are different types of re-payment mortgages, where the amount you pay back each month is determined by how much you have borrowed, the interest being paid and the term of the loan.
Re-payment versus Interest Only mortgages
- Repayment mortgage
- Monthly payment is based on repayment of a portion of the original amount borrowed and interest
- By end of the original loan term, the amount repaid will total the original amount borrowed along with interest (assuming all scheduled payments have been made). No debt will exist on the property.
- Interest Only mortgage
- Monthly payment is based on interest owed each month, not any of the original amount borrowed
- By the end of the original loan term, the original amount borrower will still be owing. Debt will still be owing on the property.
Fixed rate versus variable rate mortgages
- Fixed Rate
- Monthly payments are fixed due to the rate of interest being fixed for a set term
- Variable Rate
- Monthly payments can go up or down over time due to the rate of interest varying over the term of the loan
Stay tuned for our next installment on fixed repayment mortgages. We will share more information on options available to optimize your financial situation.
Single Family Lending Manager