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There are a number of terms that people use in the mortgage process. It is very easy to get "lost in translation"
so to speak. Below are a number of regular terms that you will hear, hopefully to make this process an easier one.
Agreement of purchase and sale - the legal contract that adheres the buyers and sellers, and includes all the terms and dates for the purchase.
Amortization - the period of time, usually in years, that it takes to pay the mortgage off.
Appraisal - the process to determine the value of the property.
Assets - an item of value that you own, usually used in determining your net worth.
Beacon Score - the number that is derived by the credit bureau to show your credit worthiness.
Blended Payment - a mortgage payment consisting of principle and interest.
Closed Mortgage - a mortgage that has penalties attached to pay it down or off prior to the scheduled payments.
Closing Date - the date on which the money and ownership changes.
Debt Service Ratio - the ratio between your income and your monthly obligations to determine your ability to repay.
Equity - the difference between the value of your property and the outstanding balance on your mortgage.
Fixed Rate Mortgage - a mortgage in which you pay a specified rate for the entire term.
Floating or Variable Mortgage - a mortgage that is set with prime rate, and adjusts when the prime rate adjusts.
Freehold - the ownership of a property for an indefinite period of time.
Guarantor - a person who "guarantees" or promises to repay the loan or mortgage if the primary borrower does not.
Hi-Ratio Mortgage - a mortgage that is more than 75% of the value of the property. Usually consisting of the need for CMHC insurance.
Interest Adjustment Date (IAD) - the date on which the mortgage term will begin, usually on the first of the following month. This is the cost of borrowing the money from the closing date to the first of the following month.
Interest Rate Differential (IRD) - one way to calculate the penalty of a closed mortgage. The lender will calculate the difference from your contracted rate to what the current rates are. If that amount is greater than 3 months' interest, that will be your penalty.
Mortgage - the term used when a loan is granted using real estate as security.
Mortgage Insurance Premium - a premium added to the mortgage and paid by the borrower over the life of the mortgage. The mortgage insurance insures the lender against loss in case of default by the borrower.
Mortgage Life Insurance - a specific policy that will cover the remaining balance of the mortgage, should there be a death to an insured applicant. The intent is to forsake selling the home in those circumstances.
Multiple Listing Service (MLS) - a program that keeps inventory of properties for sale.
Open Mortgage - a mortgage that can be repaid at any time during the term without any penalty. Usually priced higher than a comparable term of a closed mortgage. A good product if there will be some kind of cash windfall in the near future.
P.I.T. - Stands for Principal Interest and Taxes. This is your blended (principal and interest) payment along with a portion of your property taxes.
Penalty - the sum of money paid to a lender for breaking the terms of a closed mortgage. Commonly 3 months' interest or Interest rate differential.
Portable Mortgage - a mortgage that can be changed to a different property, provided that the lender accepts the property.
Prepayment Option - the right to prepay a specific amount over the regular payments. Usually a percentage of the original mortgage amount.
Principal - the original amount of the mortgage, before interest.
Renewal - when the mortgage term has concluded, the lender will usually offer the option to renew into the current rates for another period of time.
Rental Property - also called investment property. A property that is not occupied by the registered owner.
Second Mortgage - a subsequent mortgage registered after the initial mortgage. In case of default, the initial lender will get their money first, leaving the second lender to get whatever is left over. Typically a higher interest rate due to the increased risk possibility.
Switch - moving your current mortgage from one lender to another. I can arrange this at no cost.
Term - the period of time the financing covers. Current terms are 6 month, 1,2,3,4,5,7,10,15,25 years. Once your term is up, you can renegotiate with your current lender, or look into moving your mortgage to a new lender, see switch.
Utilities - services such as heat and electricity. Lenders will use a set amount in the debt - servicing ratio. Currently about $85.
Vendor Take - Back Mortgage - a mortgage provided to the buyer from the seller.
If you have any questions, please feel free to call me anytime.
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