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Home / Mortgages / First-time Home Buyer / Mortgage Terms
Mortgage Terms
Get confident with the language so you can make the right decisions.
Whether you’re buying your first home or renewing your mortgage loan, the world of mortgages has a number of definitions you may not be familiar with. Here we’ll help you understand the language so you’re able to make the right decisions.
What is a mortgage?
A mortgage is a loan secured by real estate/property that you pay off over time. You’ll be paying back the money you borrowed plus interest and eventually you'll be mortgage-free.
Down payment
A down payment is the amount of money you put towards the price of a home. Whatever you don’t put down is the amount you are borrowing.
If you’re putting down 20% or more, that’s a conventional mortgage.
If you’re putting down less than 20%, that’s a high ratio mortgage.
Amortization period vs term
Most first-time buyers typically pick the longest amortization period available. If your down payment is less than 20%, your maximum amortization period is 25 years. However, you could choose the amortization period up to 30 years if:
- You are a first time home buyer, or
- You are purchasing a new construction property
How does it work? The longer the amortization period, the lower your principal and interest payments will be, but overall, the amount of interest you’ll pay will be higher. With a shorter amortization period, you’ll make higher principal and interest payments, but you will pay less interest in the end.
A mortgage term is the length of time you’re committed to a mortgage rate, lender, and associated conditions.
TD has mortgage terms that range from 6 months to 10 years, with 5 years being the most common option. Once your term is up, you may be able to renew your mortgage loan with a new term and rate or pay off the remaining principal.
Payment frequencies
Enjoy the flexibility of choosing how often to pay. You get to determine your payment schedule, from Weekly, Rapid Weekly, Bi-Weekly, Rapid Bi-Weekly, Semi-Monthly, Rapid Semi-Monthly, or Monthly.
You could link up your principal and interest payments for your mortgage loan with your pay, or opt to pay monthly or twice a month. Paying every other week might seem the same as paying twice a month, but you’ll actually be making two extra principal and interest payments a year with a biweekly payment schedule.
Mortgage types
Fixed vs variable interest rate
A fixed interest rate means your interest rate will not change throughout the term of your mortgage loan, and neither will the amount of your principal and interest payments. If you're a first-time home buyer and are happiest knowing exactly what to budget for, a fixed rate mortgage is a wise choice.
With a variable rate mortgage , the interest rate can fluctuate along with any changes in our TD Mortgage Prime Rate. Your principal and interest payments will stay the same for the term, but if the TD Mortgage Prime Rate goes down, more of your payment will go towards the principal. If the TD Mortgage Prime Rate goes up, more will go towards interest1.
If you are concerned with interest rates rising, fixed rate mortgages are more popular as you are protected from your rate going up over the term of the mortgage. Variable rate mortgages are more popular when interest rates are falling. If you do choose a variable rate mortgage and rates begin to rise, there is always the option to shift to a fixed rate mortgage at current rates, subject to certain conditions.
Open vs closed mortgages to prepayment
An open mortgage is best suited for those who plan to pay off or prepay their mortgage loan without worrying about prepayment charges. It allows you the freedom to put prepayments toward the mortgage loan anytime until it is completely paid off. An open mortgage may have a higher interest rate because of the added prepayment flexibility, and can be converted to any fixed rate term longer than your remaining term, at any time, without a prepayment charge.
A closed mortgage provides the option to prepay your mortgage loan each year up to 15% of the original principal amount. If you want to pay your mortgage loan off completely before your term ends, or prepay more than 15%, prepayment charges may apply. A closed mortgage typically has a lower rate than an open mortgage for the same term.
TD Mortgage or TD Home Equity FlexLine?
A TD Mortgage has an amortization period and payments that include principal and interest. This option is common for first-time home buyers
A TD Home Equity FlexLine gives you access to ongoing credit, up to your available credit limit, and provides a number of flexible payment options. You may qualify if you are planning to make a down payment on your home of 20% or more of the purchase price.
Other useful information
Legal
1If your interest rate increases so that your regular payment does not cover the interest amount, at a certain point you will be required to increase your payments, make a prepayment, or convert to a fixed rate term. Conditions Apply.