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Mortgages 101

What the heck does "mortgage" mean anyway?

Strangely enough, the word "mortgage" comes from the French word "mort," which means "dead," and "gage," from Old English which means "pledge".

According to Sir Edward Coke (who lived from 1552 to 1634), the term came from the doubtfulness of whether or not the mortgagor would pay the debt! In those days, if the mortgagor did not, then the land pledged as security for the debt was taken away. The land was considered 'dead' to the mortgagor. (In other words, as if the person never had it.)
Nowadays, the term mortgage is commonly used to refer to a loan for the purpose of purchasing a property. We don't associate anyone's death with it! (Although, it might seem as if you might be dead before your mortgage is paid off.)

Home mortgages are the most common type of mortgage. Very few of us will be in the unique position of paying cash for our home.

Unlike most loans, your home mortgage will be renegotiated before you've paid it off. This is standard. In fact, you will have a 'life' of the home mortgage and a 'term' for the interest rate that you pay. The life of the home mortgage is commonly 20, 25 or 30 years. This represents the length of time in which your home will be paid off (if you pay regularly and with the specified amount).

You will also have a term for the interest rate that you pay on your home mortgage. This is the length of time over which you will have an agreed payment schedule with certain additional conditions. In effect, this is the time period over which you've agreed to:

  • Pay at a particular rate of home mortgage interest (either locked in or floating)
  • Certain restrictions for additional payments (usually a certain percentage of the original home mortgage which you can put down each year)
  • Certain restrictions for the increase of monthly home mortgage payments (usually a percentage of the specified monthly payment)
  • Certain restrictions on your ability to re-negotiate the home mortgage interest rate (which is determined by whether the mortgage is "open" or "closed")
  • Penalties if you want to renegotiate the terms of the home mortgage before the specified time period of the contract is expired.

This contractual agreement is normally from 6 months to 10 years. Note that many financial institutions will only negotiate terms for a home mortgage for 5 years or less.  Check out the links to the right for local mortgage lenders.


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