A Glossary Of Ten Common Mortgage Terms
Every industry has its own language and terms. These words and phrases can be confusing to anyone who is not part of a specific industry’s daily operations, and the mortgage business is no exception.
Therefore, to help you understand the terms, acronyms, and phrases regularly used when securing a mortgage, Mortgages By Erin has created this handy reference guide. Here you’ll find valuable information allowing you to comprehend and communicate your mortgage needs effectively.
Amortization: The time it takes to pay your mortgage balance down to zero. In other words, it’s the process of paying off the balance owed on the mortgage through scheduled, systematic repayments of principal and extra payments of principal at irregular intervals. In Canada, mortgage amortization is typically twenty-five to thirty years.
Bridge Financing: Sometimes called a bridge loan, this is interim financing to “bridge” between the closing date on the purchase of your new home and the closing date on the sale of your current home. It’s common when a borrower’s down payment comes from selling their home, but the sale closes after their purchase closing date.
Closing Costs: It’s the cost involved in obtaining financing in addition to the down payment. Some examples of closing costs are legal fees, title insurance, and land transfer tax.
Conventional Mortgage: It’s a mortgage that covers up to eighty percent of the property’s value. It also doesn’t need to get insured by a mortgage insurer like CMHC, Sagen (previously Genworth), or Canada Guarantee.
Loan to Value or LTV: The difference between the registered lien(s) and the property value expressed as a percentage. For example, suppose a mortgage is registered for $100,000 on a $200,000 property, the loan to value is fifty percent.
Maturity Date: The maturity date is when the mortgage term ends. It’s when the homeowner either renews the mortgage for a new term, transfers it to another institution, or pays it off completely.
Mortgage Default Insurance: Mortgage default insurance protects lenders when borrowers can’t repay their mortgage. This insurance is needed for a high-ratio mortgage or if the down payment is less than twenty percent of the purchase price. Mortgage default insurance gets issued through either CMHC, Sagen (previously Genworth), or Canada Guarantee.
Portability: Mortgage portability lets the homeowner 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 Penalty/Charge: If the mortgage is not fully open, the homeowner may get charged a penalty if they want to pay off all or part of the mortgage before the end of the fixed term. On fixed-rate mortgages, the standard prepayment penalty is the greater of three months’ interest or the interest rate differential (IRD) on the amount that is getting paid off.
With variable or adjustable-rate mortgages, the standard prepayment charge is three months’ interest. Keep in mind that penalty charges can vary depending on the lender.
Term: A term is how long the homeowner commits to the mortgage rate, details, and conditions with a lender. When a term ends, they pay off the mortgage or renew it for another one. Terms range from one to ten years, but four to five-year terms are most common.
We hope these terms made you more comfortable to seek a mortgage. If you’re looking for a mortgage broker in Toronto, ON, reach out to Mortgages By Erin. With over ten years of experience, I have successfully helped hundreds of people realize their homeownership dreams, by rendering the best possible solution. My passion for helping others is the driving force behind my services.
My services include first time home buyer mortgages, second mortgages, and refinance mortgages. I also offer home equity lines of credit, among other services for clients.
I serve clients across North York, Scarborough, Etobicoke, Toronto, Mississauga, Markham, Vaughan, and Richmond Hill, ON.
You can view my full list of services here, read customer reviews here, or get in touch with me here.