MORTGAGE DEFINITIONS Principal-the amount being borrowed. Interest rate-a percentage charge on outstanding debt to compensate the lender. Blended payments-payments amounts on a mortgage is calculated using an antortization period to calculate a set payment amount that includes a payment on interest and principal. At the beginning of repayment, mote of the antount goes to interest than to principal, As time goes on, the amount of the payment applied to interest decteases while the mount to principal increases. ‘The payrnent amount stays constant throughout. ‘Mortgage term-the length of time for which the mortgagor and mortgageo have agreed for the mortgage. ‘The interest rate is set for this period of time. Payments are made on the outstanding debt during this length of time, At the end of the agreed term, the mortgagor must repay the entire outstanding amount left to'the mortgagee. In most eases, the mortgagor may need to refinance (take out a new mortgage loan) in order to repay the outstanding amount atthe end of the term, Amortization-a method of caloulating payments using a longer period of time. For ‘example, a person borrowing $200,000 for a five-year term would be inable to make payments to pay off the entire $200,000 plus interest in the five years. For that person to do $0, the payments would be extremely large and most likely out of his or het ability, Instead, payments are broken down as if the loan will be paid back over 25 yeats. (A 25-year amortization period.) After five years the person will still owe ‘money on the loan and would refinance using a 20-year amortization period. Then a 15-year amortization period, and so on. In theory, the mortgage will be paid off after 25 years, Breakage costs / prepaynient penalty-an amount paid (usually equal to three-month interest) as a penalty for ending a close mortgage early. Closed mortgage-a mottgage loan that is locked in for a set period of time, For the mortgagot to pay the loan off early, he or she must usually pay a prepayment penalty. Open mortgage-a mortgage loan that can be paid off at any time without penalty Prepayment option-the tight fo pay exlca amounts on the mortgage loan prior to the expiration of the mortgage term. For example, the mortgagor may have the right to propay 10% each year on the anniversary of the loan without incurring breakage costs.(@) Principal Amo (b) Interest Rate — the amount of interest being charged (©) Interest Adjustment Date — this is the dato used to calculate the start of the amortization and term periods in order fo determine interest charges ~ the amount being borrowed (@) Interest Calculation Period —how often the mortgagee calculates interest (i.e, Annually, semi-annnally, monthly etc.) (©) Payment ~ the day or days of the month payment is due () First Payment Date~ the date the fist payment is due (@ Amount of each periodie payment — payment amount (h) Interest Act (Canada) Statement — under the Jnferest Act, all lenders must indicate a trae semi-annual interest rate 60 that consumers are able to make a fait comparison. A $100 loan at 10% calculated dally gives a different total interest charge than a $100 Joan at 10% calcutated monthly. By having all ‘Joans convert fo a semi-annual standard (meaning they have to give the semi- ‘annual interest rate that ends up costing the same as their chosen calculation), the consumer knows what he or she is being charged. (i) Last Payment Date ~ the date the last payment is due (end of term) @) Assignments of Rent —an Assignment of Rents gives the mortgagee the right to collect rent from tenants on the property (Place of payment — where payments are fo be sent (often a formality as the ‘mortgagors will have payments withdraw ftom their accounts nowadays) ()) Balance Due Date ~ the date any remajning unpaid loan arnount is due in fall (end of term)