New to mortgages? We break down the basics to help you understand how mortgages work and what choices you’ll need to make. For personalized advice on choosing the best mortgage for you, meet with a mortgage specialist or find one in our directory.
There are three key components to every mortgage:
A mortgage term is the length of time covered by your mortgage agreement, which can be anywhere from 6 months to 10 years. Terms can be fixed, closed or open.
Rates can be fixed or variable. A fixed rate stays the same over your mortgage term, while a variable rate may fluctuate. Your rate will determine your mortgage payment.
Amortization is the length of time you can take to pay your mortgage in full, usually 25 to 30 years. Depending on the duration you choose, your amortization may consist of multiple terms.
Mortgage terms refer to the length of time covered by your mortgage agreement. With a shorter term, your monthly payments will be higher.
Best if you’d like the peace of mind that comes with a fixed rate in a fluctuating market.
Purchase price: No maximum
Term: 6 months to 5 years, 7 years, or 10 years
Best if you’re looking for competitive rates and don’t need to use your home equity.
Purchase price: Less than $1 million
Term: 5 years
Best if you think you’ll be paying off your mortgage in full quickly.
Purchase price: No maximum
Term: 6 months to 3 years, or 5 years
For example
If you expect to receive some cash soon — through an inheritance, a bonus, the sale of your home or other means — an open-term mortgage may be the right fit. But if you prefer to make regular payments over the long term, you’ll probably save more money with a fixed-term mortgage because you’ll pay a lower interest rate.
Your mortgage rate will determine your payment.
Best if you’d like a set payment for your entire term.
Interest: Stays the same for the entire term of your mortage, even as the prime rate goes up or down.
Term: Open, fixed or closed. Term lengths vary depending on type.
Best if you’re comfortable with an interest rate that fluctuates over your term.
Interest: Can go up or down over the course of the term. With our variable interest rate (called Homeprime), your payment stays the same, but the amount paid towards your principle could change. We recommend updating your payment to reflect rate changes to keep amortization on track.
Term: Open or fixed for 5 years
The amortization period is the length of time you can take to pay your mortgage in full.
Higher monthly payments, but less interest paid over the life of the mortgage.
Maximum amortization for high-ratio mortgages (where your down payment is less than 20% of your property value)
Lower monthly payments, but more interest paid over the life of the mortgage.
Maximum amortization for conventional mortgages (where your down payment is at least 20% of your property value)
For example
Let’s say you have a mortgage of $350,000 with an interest rate of 4.00%. To keep this example simple, we’ll assume the rate stays the same for the length of your mortgage, but keep in mind that this isn’t likely in a real scenario. With a 25-year amortization, you’d pay only $1,841.07 per month, but your total interest paid over that time would be $202,321.32. With a 20-year amortization, you’d pay $211.86 more per month, but your total interest paid would be just $157,567.44.
Explore our product offering based on the term and rate combination that is best for your homebuying needs.
Great if you’d like the option of securing a fixed rate in a fluctuating market.
Purchase price: No maximum
Term: 6 months to 5 years, 7 years, or 10 years
Rate: Fixed or variable
Amortization: Up to 30 years
Other features:
Great if you’re looking for competitive rates and don’t need to use your home equity.
Purchase price: Less than $1 million
Term: 5 years
Rate: Fixed
Amortization: Up to 25 years
Other features:
Great if you think you’ll be paying off your mortgage in full quickly.
Purchase price: No maximum
Term: 6 months to 3 years, or 5 years
Rate: Fixed or variable
Amortization: Up to 30 years
Other features:
Interested in a new mortgage or refinancing? Browse our mortgage specialists to connect with someone in your area.
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