Every industry has its language and terms. These words and phrases can be confusing to anyone who is not part of the daily operations of a specific sector, and the mortgage industry is no exception. To help you understand the terms, acronyms, and phrases regularly used when availing of mortgage solutions, The Mortgage Centre Hometown Financial has created this handy reference guide. Here you’ll find valuable information allowing you to comprehend and communicate your mortgage and financial needs effectively.
An appraisal is a report that indicates the estimated value of a property. It’s written by a professional appraiser. You might need an appraisal for financing purposes. As the buyer, you pay the appraisal cost.
Co-borrower A co-borrower is a person who applies for and shares the liability of a loan with another borrower. Under these circumstances, both borrowers are responsible for repayment. Generally, they also share the title in the home or other asset that the loan is for.
A conditional offer is an offer to buy a property only if certain conditions are met. For example, an offer could be dependent on the property passing a home inspection or on the buyer selling their current home by a specific date.
A credit report is a record of your credit history. This data includes current and past financial debts, up to seven years, and a description of all debt payments. A lender uses a credit report, among other details, to decide whether to accept or deny your mortgage application. Lenders get credit reports from credit bureaus like Equifax and TransUnion.
Debt ratios (also called debt service ratios)
Debt ratios measure your ability to repay a mortgage by ensuring debt doesn’t exceed a certain percentage of your income. Lenders and mortgage insurers use two debt-service ratios to determine if you qualify for a mortgage, gross debt service ratio (GDS) and total debt service ratio (TDS).
A down payment is the amount of money, including the deposit you put towards the purchase price of a property. Minimum down payments vary from 5% to 20%, depending on location. If your down payment is less than 20% of the property value, your mortgage is a high ratio, and you need to, by default, buy mortgage insurance.
In a fixed-rate mortgage, your interest rate and monthly payments stay the same for the entire mortgage term. If mortgage interest rates go up during the term, you’re protected because your rate stays the same.
Interest is the money you pay to your lender for using the funds you borrow. Interest is charged from the day you get the money. That day is known as the funding date.
The maturity date is when your mortgage term ends. This is when you either renew your mortgage for a new term, if your lender agrees, or pay it off ultimately.
A mortgage is a loan secured by a lien registered on the title to your home or other real estates. You repay the loan according to specific terms, including interest rate, payment amount, and timeline. These details are set out in the mortgage document. If you can’t repay the loan, your lender has the right to take possession of your property and sell it to collect any money you owe them.
With mortgage pre-approval, you’re asked questions that closely match those of a complete mortgage application. The lender does a credit check. The lender pre-approves you for a maximum amount and gives you a mortgage pre-approval certificate, which is subject to several conditions. This lets you know how much money your lender may lend you, but it doesn’t guarantee final approval.
Mortgage pre-qualification is a quick assessment process. Here, the lender assesses your financial information, including debt, income, and assets. You get an estimate on the mortgage amount you may be approved for. If you’re pre-qualified, your lender has only done a fundamental review of your finances. You must still provide documents and more financial details before getting pre-approved for a mortgage.
Porting a mortgage (also called mortgage portability)
Mortgage portability lets you move or transfer an existing mortgage to a new property. The mortgage term, outstanding balance, and interest rate stay the same. Not all mortgages are portable, and the lender’s approval is required.
Prepayment (also called lump-sum payment)
A prepayment is when you pay off some or all of the mortgage before the term ends. You can pay off most open mortgages without paying a prepayment charge. When you prepay a closed mortgage, you usually pay a prepayment charge to your lender. But most closed mortgages let you make an annual prepayment of 10% to 20% without a charge.
In a variable-rate mortgage, your interest rate changes according to a financial index. Your mortgage agreement explains how and when the rates change. Monthly payments may stay the same. But if interest rates go down, more of your payment goes towards the principal. If rates go up, more of your payment goes towards the interest. If you’re looking for mortgage solutions, reach out to the expert at The Mortgage Centre Hometown Financial. I have been in the business for over fifteen years, working my way to becoming Principal Broker of The Mortgage Centre Hometown Financial. My services include debt consolidation, real estate investment mortgage, mortgage financing, mortgage refinance, first-time home buyer mortgage, mortgage pre-approval, purchase plus improvements, bridge financing, zero-down mortgages, matrimonial split, new-to-Canada mortgage, reverse mortgage, and more. Please view my complete list of mortgage services here, or get in touch with me here.