Laing Parent LLP

Mortgage Terminology

March 28, 2015 | Comments Off on Mortgage Terminology

Some mortgage terms you should know:

MORTGAGOR:  the Borrower under a mortgage

MORTGAGEE:  the Lender under a mortgage

TERM:  the length of time the Mortgagee has agreed to hold the mortgage.  Generally speaking, mortgages are available for terms from half a year to up to decades.  However, the most common Term is for three (3) years or five (5) years

AMORTIZATION:  the time it will take to pay off your mortgage in full if it were allowed to continue past the Term.  The longer the amortization period, the lower the monthly payments will be.  The shorter the amortization period, the sooner the mortgage will be paid off

AMORTIZATION SCHEDULE: a statement that will enable you to see what the balance outstanding will be at any point during the term.  It is a computer generated document that breaks down each payment throughout the term of your mortgage, showing you what portion of each monthly payment went to interest and what portion went to principal reduction.  It will also show you what the outstanding principal will be after each monthly payment is made.

OPEN MORTGAGE: a mortgage that can be paid off at any time without penalty or additional interest

CLOSED MORTGAGE:  a mortgage that cannot be paid off until after a certain date, thereby assuring the Mortgagee that they will be making a set amount of profit from the loan.  If you want to pay it off before this date, you will probably have to pay penalties that equal the full amount that the Mortgagee is expecting to make, even if that amount of time has not elapsed yet

PRINCIPAL:  the amount of money that is being secured by the mortgage.  It is the amount that is outstanding and payable by the Mortgagor to the Mortgagee at any point in time.  With each monthly payment (unless the mortgage payments are “interest only”), a portion of the monthly serves to reduce the outstanding principal, so the principal will change month to month