Must-Know Mortgage Terms

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Does dealing with your mortgage ever feel like learning another language? Amortization. Total debt service ratio. Principal. The jargon can feel endless! But we’re ready to translate. Here are some of the most important mortgage terms to know.

Amortization Period: The period required to completely pay off a mortgage if all conditions are met and all payments are made on time. Mortgage debt is reduced or paid off by making regular payments. The size of your payment is determined by the length of the amortization period.

Closing Costs: The legal fees, transfer fees, disbursements and other costs that must be paid when buying a home. These are in addition to the down payment and the GST (plus PST and HST if applicable). Closing costs are due on the day the buyer officially takes ownership of the home, and they usually range from 1.5% to 4% of the purchase price.

Conventional Mortgage: A mortgage loan equal to or less than 80% of the value of a property. (That is, where the down payment is at least 20%.) Conventional mortgages don’t usually require mortgage insurance.

Deposit: Money that a buyer places in trust to show they are serious when they make an offer to purchase a home. The deposit is held by the real estate agent or lawyer (or notary in Quebec) until the sale is complete, and then it’s transferred to the seller.

Equity: The cash value that a homeowner has in their home after subtracting the amount of the mortgage or other debts owed on the property. Equity usually increases over time as the mortgage loan is gradually paid. Changes in overall market values or improvements to a home can also affect the value of the equity.

Fixed Rate Mortgage: A mortgage with a locked-in interest rate, meaning it won’t change during the term of the mortgage.

Guarantor: A person with an established credit rating and sufficient earnings who guarantees to repay the loan for the borrower if the borrower does not. A guarantor is not a co-owner and therefore cannot be listed on title.

High Ratio Mortgage: A mortgage loan from a regulated lender for more than 80% of the value of a property. (That is, where the down payment is less than 20%.) A high-ratio mortgage must be insured against default with mortgage loan insurance provided by CMHC, Sagen, or Canada Guaranty.

Interest Adjustment Date: The date on which the mortgage term will begin. The interest adjustment is the amount of interest accrued between your closing date and the day of your first mortgage payment.

Lender: A bank, trust company, credit union, caisse populaire, pension fund, insurance company, finance company, or other institution that loans people money to buy a home.

Maturity Date: The last day of the term of a mortgage. The mortgage loan must either be paid in full, renegotiated, or renewed by this day.

Premium: The amount homebuyers have to pay to CMHC or another insurer to insure their mortgage against default if their down payment is less than 20% of the purchase price. The CMHC premium is calculated as a percentage of the mortgage loan and is based on factors like the size and source of the down payment. In general, the smaller the down payment is, the higher the insurance premiums will be. Premiums can typically be paid separately or be included in the regular mortgage payments to the lender.

Principal: The amount a person borrows for a loan (not including the interest).

Renewal: When the mortgage term has concluded, your mortgage is up for renewal. It is open at this time for prepayment in part or in full. It can be renewed with the same lender or transferred to another lender at no cost (which your Jencor mortgage advisor can arrange).

Term: The period of time the mortgage agreement covers. Common mortgage terms available are: 6-month, 1, 2 to 4, 5, 7, and 10 year terms.

Title: A registered document showing all legal encumbrances filed. It shows who has legal ownership of the property.

Total Debt Service (TDS) Ratio: The percentage of a person’s or household’s gross monthly income that goes to pay the mortgage principal and interest, property taxes and heating costs, plus all other debt obligations such as car payments, personal loans, or credit card debt. To qualify for a mortgage, the borrower’s TDS ratio must meet the lender/insurer guidelines.

Variable Rate Mortgage: A mortgage where the interest rate fluctuates based on the

current market conditions. The payments will generally remain the same, but the amount of each payment that goes toward the principal or the interest on the loan changes as interest rates fluctuate.

With these terms in your vocabulary, you are on your way to mortgage-industry fluency! Time to give your Jencor mortgage advisor a call and show off your skills.