Canadian Mortgage Calculator: The Basics
The decision making process in the Canadian mortgage and housing sector is helped by the Canadian mortgage calculators. These calculators are provided by mortgage lenders and banks to assist the potential home buyers in making a well-informed decision.
A mortgage calculator allows the home buyers to calculate the mortgage payments based on their income levels. These calculators help them in calculating the interest payments that need to be made along with the amortization schedules. The comparison between the rates offered by different lenders is also possible.
The biggest advantage of the Canadian mortgage calculator is that the home buyers can research and analyze the options available to them. These are tools available to them that can help them gain the proper information required in the decision making process. These tools also allow them to gauge the Canadian mortgage trends for the different types of mortgages available.
Understanding the basics of the mortgage calculator will help the customers in evaluating all the options. The complaints by the buyers that they do not have the proper tools available to make the right decision have been answered through these calculators. The mortgage calculators also allow the buyers to calculate the penalty that will be charged on default payments.
However, according to the new mortgage rules in Canada, the potential home buyers looking for mortgages have to still qualify for them first. The calculators are therefore, just one tool that will help in the decision. The actual decision can only be taken after all aspects have been taken into consideration.
There are many terminologies that are used in the Canadian mortgage and housing market. These terminologies are used by the lenders and the banks in the mortgage calculations. Most people have little knowledge about these words and phrases but they are extremely important to understand. This is because they have a role to play in the actual mortgage payments and will help shape the end decision.
The Mortgage Amount
This is the original or the expected balance amount for the mortgage. This mortgage amount is linked with some of the Canadian mortgage rules and regulations. The Canadian Mortgage and Housing Corporation often have to insure certain mortgage amounts depending on the down payments and other aspects. Therefore, mortgage amounts are of critical importance in qualifying for a mortgage in the first place.
The Interest Rate
This is the percentage amount that has to be paid as interest on the mortgage amount. Even with the strictness in qualification standards according to the new mortgage rules in Canada, interest rates have been kept low. The annual interest rate to be paid on the mortgage receives a lot of attention on part of the home buyers. This is one key factor which determines the affordability of the mortgage. The interest rates also depend on what type of mortgage is taken by the customer or borrower. In case of variable mortgages, interest rates are variable according to the market scenario. Also the interest rates for the first five years are lower for variable mortgages. The fixed mortgages have fixed interest rates and they are usually higher for the first few periods as compared to the variable mortgages.
The amortization period is the total number of years over which the loan is spread out. The amortization period also determines the periods of payment and the payment schedule. Typically the amortization period is 20 and 25 years. According to the Canadian mortgage rules the policies regarding the amortization period have also been changed. The government considers the periods that exceed the 20 and 25 year period as risky. The policies regarding mortgages of amortization periods more than these have been made stricter and more discouraging for buyers.
This is the payment that needs to be made per period. The mortgage payment is a combination of the principal and the interest payments (PI). Mortgage payments are an important factor in the decision making process. These payments receive special consideration by the potential home buyers. This is the basic affordability criteria. The mortgage payments also depend on what type of mortgage is taken up. For variable mortgages the mortgage payments end up being variable due to the variable nature of interest rates. For fixed mortgages the mortgage payments stay fixed over the periods. Most buyers take advantage of the variable mortgage as it is beneficial over the short term in case they need to buy and sell quickly.
These are the total monthly payments made over the entire term of the mortgage. There is an assumption regarding the total payments that there have been no prepayments made by the customer. The total mortgage payment combines all the interest payments, principal payments and other costs incurred over the mortgage period to calculate the total amount that has been paid.
This is the total interest that is paid over the entire mortgage term. This too assumes that there have been no prepayments of the principal amount. Total interest helps identify the total amount paid as interest beyond the actual principal amount.
This is basically the frequency of prepayments made. The options available in this case are either no prepayment or spread over monthly or yearly basis. There is also an option of onetime payment available.
This is the amount that will be prepaid on the mortgage. The prepayment amount is adjusted to the mortgage principal balance. This also depends on the prepayment type when adjusted.
The savings represent the total amount saved by making the prepayments on the mortgage amount.There are several other key terms that need to be understood. However, these are the very basic from among them that need not be ignored. The new mortgage rules in Canada have changed and tweaked these elements of the mortgage calculator as well. But these are the essentials to be considered at all times in the Canadian mortgage and housing market while searching for the best mortgage options.