Mortgage Terms Frequently Utilized And Their Meaning
There are numerous mortgage terms that every consumer must know prior to going in to a binding agreement. Here is a list that covers the basic terminology which are usually involved in a mortgage agreement.
This is the schedule that determines how frequently you make payments for the duration of your loan. It separates the loan amount from the principal amount and shows how much of your regular payments are going to each. In the beginning, most of your payments would be put towards the interest.
To be able to determine the mortgage amount, the lender will use the appraised value. This means the estimate property market value and is generally made by a appraiser.
The local municipality evaluates the property value so as to determine the property tax which is due.
Assumable mortgage is the mortgage that is transferred to the buyer from the seller. Once the property is sold, the buyer should take over the responsibility of paying the mortgage.
A mortgage rate which is created by combining two mortgage rates, with one having a higher rate then the other. The new mortgage would have an interest rate which hovers between the two original rates.
Bridge financing can help the borrower by assisting them with the cash to meet their existing obligations between the periods of closing their existing home and buying a new home.
A buy-down involves paying the lender in monthly installments or in one lump sum in order to get a lower interest rate.
Canada Mortgage and Housing Corporation (CMHC)
The Mortgage Insurance Fund is operated by the Canada Mortgage and Housing Corporation. This fund makes sure that NHA approved lenders are completely insured over any losses that result from the borrower defaulting on the loan.
In this particular kind of mortgage, the borrower is not allowed to make whichever pre-payments or to renegotiate the mortgage agreement.
Under several conditions, a lender may choose to advance mortgage funds of a specific amount. A commitment is a written notification which assures the potential borrower of the lenders intention.
This mortgage loan is given when the downpayment is over 20%. For this type of mortgage, the lender does not require loan insurance.
Debt Service Ratio
This is a specific percentage of a borrower's earnings that a lender would allow them to use towards qualifying for a loan. Total Debt Service Ratio means the maximum amount which a lender would allow for paying all debts, like credit cards, other loans, and mortgages.
When the borrower does not pay the installments which were established within the mortgage terms contract.
A discharge is when the financial burdens are removed from the house. This comprises the mortgage.
Equity is the total difference between the overall selling property value and the amount mortgage owed. It is considered the owner's "stake" in their property.
This is the first mortgage that was taken out on a house. Whatever other mortgages which are secured against the home are called secondary mortgages.
A foreclosure is when a borrower defaults on a loan and the lender takes ownership and possession of the house.
Gross Debt Service (GDS) Ratio
This is a percentage of the gross income a consumer should in order to cover monthly housing costs. It is recommended that this percentage must not be higher than 32% of your total monthly income.
Gross Household Income -
This number represents the total income of a household before deductions, like for instance salary, wages, and commissions. Whoever member of the household who are co-applicants for the mortgage are included in this amount.
Lenders need this particular insurance policy in order to make certain that a house is protected against any damage caused by fire, water, weather, and so forth.
High Ratio Mortgage
A high ratio mortgage is when the borrower makes a downpayment of lower than 20 percent of the loan. A private insurer or the Canada Mortgage and Housing Corporation should insure the loan in order to protect the lender against default.
The lender may choose to hold back some of the cash which is to be paid out at intervals or at the end of construction, in order to make certain that the home construction is entirely satisfactory. Normally, the held amount is equal to the projected cost to complete building the home.
Interest Rate Differential Amount (IRD)
You could be subject to an IRD fee if you pay off the principal of the mortgage before the maturity date or will be required to pay beyond the prepayment amount previously agreed which was agreed upon in the contract. This amount is determined by calculating the prepaid amount using an interest rate that is equivalent to the difference between your current mortgage interest rate and the interest rate that the lender is currently charging when re-lending the money for the remaining term of the mortgage.
This represents short-term financing. It helps the buyer to smooth the gap between the closing date of their new house and the closing date on their present home.
The day that the term of the mortgage agreement comes to an end.
The mortgage is the contract made between a lender and the borrower. In order to ensure repayment of the loan, the borrower will pledge the house as collateral.
A licensed person who acts as a liaison between a borrower and a lender for a fee.
Mortgage Insurance Premium
This is a premium that is added on top of the mortgage and paid by the borrower over the term of the mortgage. This particular amount is normally just charged on a mortgage loan where the downpayment was under 20% percent. This helps protect the lender against loss in the event of non-payment.
Mortgage Life Insurance
All borrowers can get this type of insurance. If the owner, or one of the owners, come to an unfortunate end the insurance company will pay the mortgage's remaining balance. This helps to ensure that the survivors will not lose their house.
Mortgage payments are paid on a regular schedule and goes towards the interest on the mortgage agreement and towards the principal amount.
The prearranged amount of time that the borrower would need to pay back the lender. At the end of the term, the borrower could choose to either repay the remaining principal due or they can renegotiate the mortgage. Terms generally run from six months to 60 months.
Mortgage Prepayment Penalty
If the borrower decides to break an agreement with their lender, they are normally charged a mortgage prepayment penalty. This is generally the equivalent to the interest for three months. In several cases, it can also be the same amount that the lender would have been given via interest until the end of the contract.
The mortgagee is the lending institution who lends the money to the borrower.
The person who borrows the cash is referred to as the mortgagor. In order to promise repayment, the borrower pledges a home as security.
If the borrower decides to renegotiate or repay their mortgage payments, they can do so at whatever time without penalty.
The frequency at which the borrower makes a mortgage payment regularly is the payment frequency. This could be on a weekly basis, every other week, monthly or twice a month.
The amount which is still owned by the lender is referred to as the principal. The amount of interest charged is established on the principal amount.
P, I & T
This represents the interest, taxes and principal still owing on the mortgage.
P & I
This represents the entire principal and interest still owed on the mortgage.
Partially Open or Closed Mortgage
At specific times throughout the mortgage the borrower is permitted to prepay a predetermined part of their mortgage principal with or without penalty.
A particular amount of cash which the lender charges the borrower if they wish to prepay a mortgage in part or in full.
Porting will allow the borrower to move another one of their homes without losing their present interest rate. You could keep your existing mortgage balance, term and interest rate plus save money by avoiding early discharge penalties.
An open mortgage that can be fully renegotiated or paid off within the term without incurring whatever penalties.
This refers the method of replacing your old mortgage with a new mortgage that offers a lower rate of interest compared to the old one.
When the mortgage term is completed, the lender and borrower can negotiate for new terms and conditions that are agreeable to both parties. If a settlement cannot be made, the lender is entitled to be repaid in full. At this point, alternative financing can be sought by the borrower.
This is loan where the interest rate is fixed for a particular amount of time. When the end of the specified term comes around, the mortgage "rolls over". At this point, the lender and the borrower could decide to extend the loan or, alternatively, they can part ways. If they cannot reach an acceptable solution for both parties, the lender is entitled to be repaid in whole. At this point, other funding can be sought after by the borrower.
A second mortgage is an additional financing agreement made on a home which is already secured. Usually, the interest rates for a second mortgage are higher and are issued on a shorter term compared to the initial mortgage.
In this particular type of mortgage, the payments are fixed but the interest rate changes depending on market interest rates. If the interest rates decrease, a bigger portion of the fixed payment is applied onto the principal amount. Similarly, if the interest rates go up, the amount which goes towards interest increases.
Vendor Take Back
This term means the situation in which the seller of a property pays some or all of the mortgage financing with the hopes of making the house more attractive to prospective customers.
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