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"A Family Tradition for 127 Years" ~~ Confusing and frustrating Know the ins and outs of your mortgage Mortgages can be confusing. Whether you are negotiating your first mortgage or renewing one for the fifth time, the proce- dure can cause confusion and" frustration. With a little effort, however, it is possible to take the mystery out of mortgages. A mortgage is a contract, or a legal document, between you and your credit union. In con- tract you agree to give the lend- er certain rights to the property being purchased. If you default on the payments, the lender has a legal claim on your house. The amount you borrow is called the principal. You have to repay this plus interest. The payments you make, either monthly, bi-weekly or weekly are called blended payments be- cause a portion of the money is put towards paying the interest and a portion towards reducing the principal. When the pay- ments begin, the greater por- tion will be used to pay the in- terest. It is usual to reduce the principal only by a few thou- 'sand dollars during the first years of the mortgage. As pay- ments continue, however, the greater portion of the payment ly be used to reduce the princi- pal. Mortgages are negotiated by term and amortization periods. Term refers to the number of months or years the legal docu- ment covers. When that time has expired, the mortgage must be renegotiated or paid in full. Amortization refers to the num- ber of years (usually 20 to 25) it will take to repay the loan in full if you make only regular pay- ments. Your payment, reflects the interest rate, term of the mortgage and the amortization period. If any of those factors change, your payment will also change. The most common options are conventional mortgages and high-ratio mortgages. A conven- tional mortgage covers up to 76 per cent of the purchase value of the house. A high-ratio mort- gage exceeds the 75 per cent limit of the purchase price, but must be insured at a cost to the borrower, with the Canada Mortgage and Housing Corpo- ration. Mortgages can be either open or closed and carry fixed or vari- able interest rates. An open mortgage can be repaid before the specified term. Extra pay- ments often can be made any time, either at the time of a reg- ular payment or as an extra lump sum. The penalty you pay for this flexibility is a higher in- terest rate -- usually one half of a percentage pont. A glossy ror tgage "generatly cannot repaid before the term is up. Ex- tra payments may be allowed, but th the amounts and the pay periods must be specified in the contract. A fixed-rate, closed mortgage, for example could be reduced by 10 per cent of the principal on the anniver- sary of the mortgage. (A fee may also be charged for these extra payments). A fixed rate mortgage means you pay the same interest for the duration of the mortgage term. A variable interest rate means the rate can fluctuate. Also note that neither fluctua- tion of the interest rate nor ex- tra payments will reduce the regular payments you make. What does change is the propor- tion that is applied towards the principal. > It is in your interest to make extra payments as they can re- duce the amount of time needed to pay off the mortgage and save you thousands of dollars. Even a few hundred dollars extra a year can take years off the amortization period. If the pen- alties are high, then it may be wise to wait until the specified time before making the extra ayments. But, if a penalty of $300 can save you $1,500, it may well be worth paying. Shop around for the best in- terest rate you can find. Even a difference of one quarter of a percentage point. can save you thousands of dollars in the long run. For example, the differ- ence between 10.5 per cent and 11 per cent on a $60,000 mort- age amortized over 20 years is $4632 in interest payments. The period of the amortiza- tion can also make a big differ- ence. A $60,000 mortgage at 11 per cent will cost $27,000 more if amortized over 25 years in- stead of 20. : The options you choose must fit your circumstances. If rates are rising, try to lock in your money at the cheapest rate for the greatest length of time. The reverse applies if rates are fall- ing. But, since you are commit- GUARANTEED INVESTMENT CERTIFICATES es ANNUAL RATES ¢ 4 1 YEAR....ccovcenrerrrerenseneene 5.5% 2 YEAR......ccourereerienienennn 6.25% 3 YEAR.....coceeurerneeeceensanees 6.5%. 4 YEAR........ccvivnuerreaieeneene TA5% 7 ting yourself to a course of ac- tion based on future expecta- tions and market forces over which you have no control, you will never be certain that you have struck the best deal possi- ble. The only line of defense is to educate yourself as much as possible, shop around and get all the facts from your (CREDIT UNION) loan manager. Courtesy, Uxbridge Credit Union, Terry Chapman YEAR. rin 1.376% Rates subject to change without notice SCUGOG FINANCIAL SERVICES ~ADIVISION OF CRESSBROOK FINANCIAL PLANNING LTD. 250 QUEEN STREET - PORT PERRY oo + "Serving Scugog for Over 15 Years? ...' yoy: "> PHONE 985-3832 7 ©. At Laurentian Bank of Canada, we understand that when you're buying a new home, every This Piece of Paper Could he Worth Thousands penny counts. That's why we're offering this special discount on a new, approved 1 to 5 year closed mortgage on any owner occupied residential property. Let us design a loan to meet your needs today. 165 Queen St, Port Perry (416) 985-8435 LAURENTIAN BANK OF CANADA SINCE 1846 Talk to one of our specially-trained staff to find out how Laurentian Bank can help you. ue » : J A ' » ] tL a reall mS gods add ¢l ng dyed nousdanl. +4 -- PAIR NTRS 'E ~! - " ¥ Ride £1 y 4 . € iv § x 1 oy OS NATIT 157 [Shad ¥