Debt Pay Off Part 3 – Interest Rates, Terms, and Amortizations

This is part 3 of a series of how I paid off $95,778.5 in less than 3 years.

When it comes to interest rates and terms it’s important to know that you can negotiate interest rates. When you see a rate on a banks website, that is called their posted rate. This rate is often set high, so they have room to negotiate. Shop around with different banks, credit unions and other companies that offer mortgages to see what’s best for you. Never get pressured into buying a home or obtaining a mortgage. This is one of the largest purchases you will ever make, so take your time and do your homework.

After you’ve determined whether you will qualify for a conventional mortgage, a high ratio, or a HOLC/HELOC, you will need to decide what term is best for you. When I purchased my first home, I put 5% down,(high ratio mortgage) amortized my mortgage over 25 years and took a 5 year fixed rate term.

Mortgage Term

A mortgage term is the length of time your mortgage contract is in effect. It is also how long you are guaranteed a particular interest rate. At the end of your mortgage term you can renegotiate your interest rate.

Amortization

This is the life of the mortgage. Amortizations are usually 25 years or 30 years, meaning this is the amount of time it will take to pay off the mortgage.

Open Mortgages

An open mortgage can be paid off anytime without a penalty. Most times you can also make additional payments on your mortgage throughout the term without a penalty. Open mortgages usually have higher rates than closed mortgages. The rates are higher because there are more flexibilities when it comes to paying off your mortgage early, or leaving one bank for another.

Closed Mortgages

Closed mortgages have lower interests rates than open mortgages, but are not as flexible. You cannot pay off your mortgage early without incurring a penalty with a closed mortgage. You can however, take advantage of any pre-payment options your bank offers in a closed mortgage.

Convertible Mortgages

This mortgage is similar to the closed mortgage with the added benefit of changing terms without paying a penalty. (This mortgage varies among banks)

Click here for part 4

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