The Basic Components of Mortgage What You Need to Know

Applying for mortgage may be an overwhelming experience. For most of us, securing a mortgage loan conjures images of stability, assuming a more adult role and making it in the world. If you are getting a mortgage loan, it just gives you the feeling of being more responsible, which can of course, mean a lot of incomprehensible things for some people. Mortgages are actually quite easy to understand, and shouldn't be something that scares you.

Understanding the basics can lead you to making better choices and in playing a more responsible and active role in your finances.

The best way to demystify a mortgage loan is by knowing what comprises it. There are basically three components of a mortgage loan: the loan amount, interest rate, and loan term.

Loan amount

The loan amount is basically the amount that you want and will be given for you to borrow. In the loan amount, or principal as it may also be called, other costs may or may not be included. Thus, as a borrower, you would need to be careful with this. Read the fine print and make sure everything is clear, especially the charges and rates. This amount will go down as you begin to repay it. Usually, Canadian banks can give a principal of up to a certain percent of the value of the property you will be buying, which is usually a house.

Interest rate

This is the percentage of interest computed annually which as a borrower, you will have to pay aside from the loan amount. Interest rates may be flexible, fixed or a combination. This should be studied carefully as some situations will benefit from a fixed interest rate, while others will prefer a combination or flexible one.

Loan term

As the name implies, it is the time frame by which you will need to repay the mortgage completely. Mortgages on the average can be paid from 15 to as long as 30 years.

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