For most of us, securing a home mortgage is the most significant financial decision we will make in our lifetime. As is the true with any large decision, the more information you can accrue, the better. There are a lot of terms involved in mortgages that are unfamiliar to most, and so taking a few moments to learn a few basic concepts can help improve the process for everyone.
Mortgages are actually comprised of a lot more than just 25 terms and definitions, but this list plus additional information covered in Calgary’s Mortgages By Candice’s Glossary and FAQs pages, should get you started. Good luck!
1. Amortization: The reduction of debt by making regular payments. Most Canadian mortgages are for 25 years, but they can be for as few as five.
2. Assessed Value: Municipalities in Alberta apply an annual property assessment to properties based on the market value of your home for that year. The number determined is then used to calculate the amount in property taxes you owe.
3. Assets: Everything a borrower owns, including other real estate, vehicles, bonds, stocks, savings, cash and household items.
4. Assumption: When a buyer can assume responsibility of a seller’s current loan, including the terms and rate defined by the original mortgage documents.
5. Closing Costs:Fees related to the closing of the property, including insurance, title search, legal fees and lender and broker fees.
6. Canadian Mortgage and Housing Corporation (CMHC): The CMHC administers the National Housing Act. If a buyer makes a down payment of less than 20 per cent of the purchase price of the home (which is common), the CMHC require mortgages insurance to protect the lender.
7. Compound Interest: Interest charged on a loan’s principal AND interest.
8. Conventional Mortgage: A mortgage in which the amount of the loan is no more than 80 per cent of the property’s lending value. Conventional loans are actually becoming less and less conventional because of the high value of homes in Calgary and area.
9. Credit Bureau Report: Every Canadian’s credit history (no matter who your company is) is maintained by either Equifax Canada or TransUnion Canada. In the process of pre-approval,vyou will allow your potential lender to obtain your credit file, also called a credit report, which provides a “snapshot” of your credit history. Unfortunately, each time your credit is checked it can actually harm your credit history, so “shopping” for mortgages on your own could cause more harm than good. By working with a mortgage broker you can avoid this possibility, as they will only need to check your credit once.
10. Equity: The difference between a property’s value and what is owed.
11. Fixed-Rate Mortgage: A loan in which the interest rate does not change for the entire term of the mortgage. With a fixed-rate mortgage, payments remain about the same every month.
12. Gross Debt Service Ratio (GDS): The percentage of a borrower’s annual (gross) income that is required to maintain mortgage payments, hydro, and property taxes.
13. High Ratio Mortgage: A mortgage for a higher percentage of a home’s value than a conventional mortgage. High ratio mortgages require loan insurance.
14. Interest: A rate (usually a percentage) paid to a lender over a period of time for a specified amount.
15. Liabilities: A borrower’s debts, including auto loans, mortgages, credit cards, etc.
16. Loan to Value (LTV): The ratio between the loan and value of the property, usually shown as a percentage.
17. Market Value: A property’s value based on a comparison of selling prices of other similar properties in an area.
18. Mortgage Broker: A trained mortgage professional with access to a variety of mortgage products from different lenders. Mortgage brokers are contracted by each individual home buyer, work independently of lenders and are able to focus on a client’s financial needs even outside typical business hours.
19. Net Worth: Determined by subtracting liabilities from assets.
20. Prepayment:Prepayment: A clause in a mortgage allowing a borrower to pay off a percentage or all of a mortgage before its maturity. Be careful, though, some lenders charge prepayment penalty fees.
22. Tax Hold Back: When including property taxes in a mortgage payment, tax hold back is used to pay taxes for the current year while monthly tax installments accumulate in an account to pay taxes for the next year.
23. Term: The length a mortgage is valid. Many homeowners renegotiate mortgages after five or ten years.
24. Total Debt Service Ratio (TDS):The percentage of a borrower’s annual income necessary to maintain payments for mortgages, hydro, property taxes, and all other debts, including credit cards, loans, etc.
25. Variable-Rate Mortgage: As compared to a fixed-rate mortgage, the interest rate for type of mortgage adjusts based on rising or falling prime lending rates. If rates go down, more of the payment goes to principal. If rates go up, so does the interest payment.
Mortgages By Candice operates in Calgary, Okotoks, High River and the surroundings areas, and will work with you to help find a mortgage that suits the needs of your life right now and fits in with your plans for the future. Mortgage brokers are becoming the norm when it comes to buying homes. We are able to offer far more possibilities for your home loan than large banks or lenders, who have a limited number of products they present.
Contact Mortgages By Candice today!