This might seem like a very easy question for those who have gone though a mortgage process at least once. But for first-time homebuyers and especially newcomers mortgage definitions are far from straightforward. So let's dive in and talk about mortgage amortization and mortgage term.
Let's say you are getting a 600,000 mortgage with 25 years amortization and 5-year fixed rate. What does that mean?
AMORTIZATION is the period of time during which you are estimated to pay off your full mortgage. So 25-year amortization means that your lender assumes you will pay off entire 600,000 in 25 years.
This doesn't mean that during these 25 years your interest rate and other conditions will remain the same. And this is where TERM comes in. Because "term" in mortgages means time period during which your current mortgage conditions are valid. So if you have 5-year term, your interest rate agreement will be valid only for these 5 years.
What happens after your term comes to an end? You can renew with the same lender, you can switch lenders or you can refinance. Your Mortgage Agent will guide you through the process and explain all the steps.
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