Essential Mortgage Terms

Every industry has its own 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 business is no exception.

To help you understand the terms, acronyms, and phrases regularly used when purchasing a home, 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: It’s the duration of the loan repayment. It’s calculated by equal continual payments to pay off the outstanding debt at the end of a fixed period, including accrued interest and principal on the unpaid balance.

Closing: It’s the final step in the mortgage process, which involves a meeting between the purchaser, vendor, and lender. It is where the property, title ownership, and money legally change hands.

Closing Costs: It’s the costs involved in obtaining financing. The major expenses include appraisal fees, legal fees, and transfer taxes. The closing costs usually are around 1.5% of the purchase price.

Commitment: It’s a written agreement between a lender and a borrower to loan funds on a specific date. It includes a setlist of conditions that need to be met before funding by the borrower for the transaction to get correctly executed.

Conventional Loan: A mortgage that doesn’t get insured by a mortgage Insurer (C.M.H.C., Sagen, and Canada Guaranty. (Under 80% Loan To Value)

Down payment: The funds provided by the borrower to make up the difference between the mortgage amount and the purchase price.

Equity: The difference between the property value and the financing secured against the home. Whatever portion is not covered by the lending institution constitutes itself as the “owner’s equity.”

Loan-To-Value Ratio: The difference between the amount of the registered lien(s) and the property value expressed as a percentage. For example, if there is a mortgage registered for $100,000 on a $200,000 property, the loan to value ratio is 50%.

P.I.T.H.: It’s an abbreviation for principal, interest, taxes, and heat. P.I.T.H. is also known and referred to as a monthly housing expense. It helps to calculate how much an individual can qualify to borrow.

Prepayment: It’s when a lender allows the borrower in a mortgage to make additional payments that are not set within the regular payment schedule.

Prepayment Penalty: It’s a penalty charged to the client for paying out a mortgage before its natural expiration.

Title Insurance: It’s a certificate that a title insurance company usually distributes. It guarantees a home buyer’s legal safety against errors in the title search. It also ensures that no other mortgages can get registered without acknowledgment and permission from a lawyer and the originating financial institution.

Underwriting: It’s when a decision gets made to pursue or provide a loan to a potential individual seeking financing. Standard underwriting considerations used to assess a file are credit, employment, and net worth. Based on the information provided, an appropriate rate, term, and loan amount get offered to the client.

Adjustable-Rate Mortgage(A.R.M.): It’s a type of mortgage where the interest rate fluctuates periodically based on the bank’s prime rates. It is also known as the variable rate mortgage.

Fixed-Rate Mortgage: It’s a type of mortgage where the interest rate is set for a specific period. The rate cannot fluctuate, as a fixed payment is negotiated for the term between the lender and the borrower.

If you’re looking for a mortgage, reach out to the experts at Mortgages By Erin. With many years of experience, we offer a wide range of mortgage services.

Our services include Mortgage Pre-approvals, Refinancing, Home Purchase Mortgages, 2nd Mortgages, Refinance Plus Improvement Mortgages, and Home Equity Lines of Credit. We also assist with Renewals/Transfers, Self-Employed Mortgages, Credit Counselling For Bruised Credit, Spousal Buyout Mortgages, Permanent/ Temporary Resident, and Alternate/ Private Mortgage Lending.

We serve clients across Ontario, including North York, Scarborough, Etobicoke, Toronto, Mississauga, Markham, Vaughan, and Richmond Hill, ON.

Please view our complete list of services here, read customer reviews here, or get in touch with us here.