A basic mortgage payment is a combination of principal (what you are paying down to reduce your mortgage balance) and interest (the amount you are being charged to use someone else’s money to buy your home).
Amortized Mortgages
At the beginning of amortized mortgages, you pay very little towards paying off the balance of your mortgage. It is mostly interest you are paying. Over time, that gradually flips to where you are mostly paying off your mortgage balance, and some of your mortgage payment is considered interest.
Fixed Rate Term Mortgage
With a fixed-rate term mortgage, your interest at the start of the term remains the same until the end of the term. This is the most common choice. It is easy to budget because the payment amount stays the same throughout the term of the mortgage.
Variable Rate Term Mortgage (Variable Payment Amount)
Your payment amount varies throughout the term of your mortgage, depending on the changes in Canada’s prime rate. The amortization period and the amount of money paid towards the balance stay the same, similarly to a fixed-rate term mortgage.
Variable Rate Term Mortgage (Fixed Payment Amount)
The payment amount stays the same throughout the term of your mortgage. As Canada’s prime rate changes, you will be paying either more or less towards the principle of your mortgage. This could result in you taking longer to pay off your mortgage or being able to pay off your mortgage sooner. Not many lenders offer this option.
Home Equity Line of Credit (HELOC)
Payments towards paying down your HELOC are very similar to paying down your balance on a regular (unsecured) line of credit. The only real difference between an unsecured line of credit and a HELOC is that a HELOC is secured by your home. These products are based on the prime rate.
Interest Only
This is exactly as it sounds. With an interest-only mortgage, you pay only the interest each month on your loan, and nothing is paid towards the principle. These products can be a handy short-term solution.
Payment Add-ons:
Taxes.
Your property taxes are often collected and paid by the lender. They will include a portion of your property taxes with each mortgage payment. Having the lender take care of your property taxes is optional with many lenders. It is a good budgeting strategy to have the lender take care of the property taxes.