What is the Difference Between Term and Amortization
The “term” of the mortgage should not be confused with the “amortization”. The amortization of the mortgage refers to the entire length of time that it will take for the mortgage to be paid off and the property would be “free and clear” title. The term is the period for which your current payment obligations are valid. In other words, you may choose a five-year term and a 25-year amortization. This would mean that your interest rate, your payments, and your pre-payment options would be the same for the next five years. At the end of these five years, your mortgage is up for renewal and can renegotiate the term without penalty. What is the difference between a closed and an open mortgage? Mortgage terms are either closed or open. Closed Mortgages Closed mortgages are offered in terms ranging from six months to ten years. This type of mortgage is closed for the term chosen. If the closed mortgage is paid out prior to the maturity date, an early payout penalty can be charged for breaking
“Term” refers to the period of time for which the interest rate on a loan is guaranteed. “Amortization” is the length of time it takes to fully pay off a debt with an established repayment plan. For smaller credit options like personal loans, the term and amortization are often the same – for example, a loan with a 5-year term is likely to have a 5-year amortization. In contrast, a mortgage may have a 5-year term and 25-year amortization.
