Term of Mortgages

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Definition

A term of mortgage is the period of time an individual commits into a mortgage agreement with a lender towards a mortgage rate, and terms and conditions set by the lender. During this period, the legal parameters such as interest rate, prepayments, etc., are in effect. Both the mortgage lender and the mortgage borrower are legally obligated to the details of the term of mortgage. At the end of the term of mortgage, the borrower can may pay off the remaining balance of the mortgage, renew it or switch lenders. A couple of months prior to expiration, the mortgage holder usually send the borrower the necessary papers for renewal.

The term of mortgages in Canada are mostly short-term mortgages, and are renewed by most mortgage borrowers. They vary in length from as short as six months up to ten months; with five years being the most common term length. For example, a 25-years old mortgage may have a term of five years. The term of mortgage chosen by the borrower has a direct effect on the rate of mortgage.

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LAYMEN TERMS

Mortgage is the same as a loan, it is used to buy property or house. Suppose you want to buy an object XYZ but you don't have the money. You borrow the money from someone and buy the object. That someone gives you a time period to return the money with some extra charges. You agree and start paying back some amount every month. If after sometime, due to any reason, you are unable to pay back then that person takes the object XYZ from you even though he had bought it.

HOW DOES THIS TERM APPLY TO YOU

For example, an individual wants to buy a house but doesn’t have the money. Mortgage is the special type of loan taken to buy the house. The individual pays back the money with interest borrowed over a period of time by making a payment each month; say a 25-years old mortgage may have a term of five years - that is the term of mortgage. In case the individual couldn’t pay back the money then the lender takes the possession of house.

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