Business Math Assignment

OPMT 1110 MORTGAGE TERMS

Principal: The outstanding amount of the mortgage. When a purchaser first buys their house or

condominium, the principal of the mortgage would be the difference between the purchase price and

the down payment.

Down payment: The amount of money that the purchaser contributes to the purchase price.

Insured mortgage: If the down payment is less than twenty percent of the purchase price of the

property, so that the mortgage is more than eighty percent of the purchase price, then the mortgage is

considered higher risk and the purchaser must buy mortgage insurance.

Payment: The regular payments to pay off the mortgage. The payments are usually monthly.

Amortization period: The length of time to pay off the mortgage. This is usually twenty-five years for

residential properties such as houses or condominiums.

Term: The length of time during which the interest rate is fixed. This is usually from one to five years.

Closed term mortgage: If a mortgage with a closed term is paid off before the term completes, the

borrower must pay a penalty.

Open term mortgage: A mortgage with an open term can be paid off before the term completes with no

penalty.

Lump sum payment: In addition to the regular mortgage payments, a borrower is allowed to make extra

payments to reduce the principal each time the term of the mortgage completes. Some mortgages also

allow the borrower to make small lump sum payments once per year before the term completes.