Understanding Mortgage Terms
January 19, 2016
Is this your first home? Are you confused with all of the mortgage terms?
Are you pre-approved for a mortgage for your new home?
Here is a quick guide to help you understand what all these mortgage terms mean!
To make things easier for you, use our mortgage calculators to see what your approximate monthly mortgage payments would be. If you are renting or have a monthly expenditure that you know you can spend on you home, check out our Rent VS Own Calculator to see what you could afford for the same as if you were renting.
These are calculators that help you get started. Once you are ready, you will need to consult professional mortgage advice on your actual affordability.
A mortgage is a security interest given in the property you are purchasing which secures repayment of the loan related to the property. That security interest is discharged on payment of the principal and interest owning on the loan in accordance with the mortgage document.
Written notification from the mortgage lender to the borrower that approves the advancement of a specified amount of mortgage funds under specified conditions.
The job of the mortgage broker is to find you a lender with the terms and rates that will best suit you.
A mortgage lender is an institution (bank, trust company, credit union, etc.) that lends money for a mortgage
A regular payment to the lender that includes both the interest and the principal.
Length of time that the mortgage contract conditions, including interest rate, is fixed.
Adjustable Mortgage Interest Rate
With an adjustable rate, both the interest rate and the mortgage payment vary, based on market conditions.
Fixed Mortgage Interest Rate
A locked-in rate that will not increase for the term of the mortgage.
Variable Mortgage Interest Rates
Fluctuates based on market interest rates but the mortgage payment remains unchanged.
A flexible mortgage that allows you to make prepayments before the end of its term without penalty. The interest rate on an open mortgage is usually higher than a closed mortgage with a comparable term length
In some cases, a closed mortgage cannot be paid off, in whole or in part, before the end of its term. In other cases, the lender may allow for partial prepayment in the form of an increased mortgage payment or a lump sum prepayment. However, any prepayment made above stipulated allowances may incur penalty charges.
The portion of the home price that is not financed by the mortgage loan. The buyer must pay the down payment from his/her own funds or other eligible sources before securing a mortgage.
Mortgage term is the length of time that the mortgage contract conditions, including interest rate, are fixed.
Length of time over which the debt will be repaid.
The amount that you borrow for a loan (not including interest).
The monthly, biweekly, or weekly mortgage payments.
A mortgage loan up to a maximum of 80% of the lending value of the property. Typically, the lending value is the lesser of the purchase price and market value of the property. Mortgage insurance is usually not required for this type of mortgage.
A mortgage loan higher than 80% of the lending value of the property. This type of mortgage must be insured — by CMHC or a private company, for the benefit of the approved lender, against payment default.
If you need help with anything home related, contact us! We are here to help!