Glossary
of Terms
Acceleration
This
is an expression that is usually used when a person chooses to pay
a mortgage on a weekly or a bi-weekly basis although it can apply
to any repayment program. All mortgages are drawn with a requirement
that you make payments monthly, however, the bank will usually agree
to administer the mortgage with some other payment frequency. If you
choose to pay bi-weekly and pay one half of the required monthly payment
each bi-weekly period, you are paying the equivalent to one extra
monthly payment per year and therefore paying off your mortgage more
quickly. If you choose to pay weekly and pay one quarter of a monthly
payment each weekly period you get the same benefit. Be sure to arrange
that your mortgage payment dates match your pay days!
Amortization
The period
of time it takes to pay off your mortgage in full. Typically you would
choose the longest amortization available which is 25 years.
Appraisal
A process
which determines the market value of property. This will usually be
performed by a professional appraiser who will prepare a comprehensive
report complete with photographs of the home. When you deal with Mortgage
Depot®, one copy will be given to you for your records.
Assumable
When
a mortgage is assumable, a buyer may take over the responsibilities
and benefits of the sellers' existing mortgage. This may be advantageous
to a buyer if the interest rate on the mortgage is below current market
rates. Before assuming a mortgage, approval must be obtained from
the lender.
Blended
Payment
A mortgage
payment that includes both interest and principal repayment. The amount
of interest taken from each payment reduces while the amount applied
to principal reduction increases over time, but the payment remains
constant.
Closed
Mortgage
A mortgage
may be an open or closed mortgage. An open mortgage usually charges
a higher interest rate but may be paid off at any time without penalty
while a closed mortgage may not be paid off during the term without
penalty. Be careful as some mortgages may not be paid off even with
a penalty before the maturity date. See also Prepayment
Penalty and Maturity Date.
Closing
Costs
Expenses,
in addition to the purchase price of the home, that are payable on
the completion date. These costs will include appraisal, legal and
survey costs. Be sure to talk to your Mortgage Depot specialist for
a thorough review of expenses.
Commitment
letter
Written
notification from the lender to the borrower that approves the mortgage
request and which should include the amount of the mortgage, interest
rate, payment and all terms and conditions.
Completion
Date
The date
on which your purchase will complete and money will change hands between
you and the sellers.
Conventional
Mortgage
A mortgage
loan up to a maximum of 75% of the purchase price is referred to as
a conventional mortgage. Any mortgage in excess of 75% must be insured
against default. See also High Ratio
Mortgage.
Gross
Debt Service Ratio (GDS)
The percentage
of your gross income which you will be using to pay for the mortgage
payment including property taxes. See also Total
debt service ratio (TDS).
High
Ratio Mortgage
A mortgage
where you have a downpayment of less than 25% of the purchase price.
This type of mortgage must be insured against default. See also Conventional
Mortgages.
Interest
Adjustment Date
The date
from when the lender will start collecting interest. Your regular
payments will commence one payment period after this date. For example,
if you have chosen to make bi-weekly payments, your first payment
will come due two weeks after the Interest Adjustment Date. When you
sign your mortgage papers the bank will collect from you an "Interest
Adjustment" which is a calculation of interest from the Completion
Date to the Interest Adjustment Date.
Loan
to Value Ratio
The amount
of the mortgage expressed as a percentage of the value of the home.
For example, if you wish to borrow $190,000 on a home you are buying
for $200,000, the Loan to Value Ratio is 95%.
Maturity
Date
The last
day of the term of your mortgage agreement. On the Maturity Date the
mortgage must be paid in full, renewed with the same lender or transferred
to a new lender. At Mortgage Depot® we are constantly searching
the market for the best terms available for a free mortgage transfer
to compare with what your present lender is offering.
Mortgage
A mortgage
is actually a document which is registered in Land Titles Office and
provides evidence that you have given your home as collateral to a
lender to secure a loan. In practice, the loan itself is usually referred
to as a mortgage.
Mortgagee
The lender
who provides a loan secured by a mortgage.
Mortgagor
A person
who takes out a loan which is secured by a mortgage.
Net
Worth
The difference
between what you own (assets) and what you owe (liabilities) is called
your net worth.
Portable
A portable
mortgage is a mortgage that can be transferred from one property to
another. This is particularly useful if you sell one home and buy
another.
Prepayment
Penalty
Unless
it is open, the mortgage may not be paid off before the Maturity Date
without paying a Prepayment Penalty. Sometimes the calculation of
the penalty can be complex and it would be better to talk to your
Mortgage Depot® specialist than to attempt to explain it in great
detail here. Be very careful when negotiating a mortgage as some mortgages
cannot be paid off at all before the Maturity Date. See also Closed
Mortgage and Maturity Date.
Prepayment
Privilege
When
you negotiate a closed mortgage, you are entering into an agreement
with the lender that you will not pay off the mortgage during the
term. In return the lender agrees to maintain the same interest rate
throughout the term. However, most mortgages allow certain prepayment
privileges such as an annual prepayment of a certain percentage of
the mortgage amount. or an annual increase in the mortgage payment.
An open mortgage will usually cost more but allows you to repay the
mortgage in full or in part at any time without penalty. See also
Closed Mortgage and Prepayment
Penalty.
Principal
The amount
of money actually borrowed.
Survey
A certificate
showing the home and other buildings relative to the property boundary.
Term
The length
of time that the lender guarantees the interest rate. At the end of
the term, the mortgage comes up for re-negotiation. See also Maturity
Date.
Total
Debt Service Ratio
The percentage
of your gross income which you will be using to pay for the mortgage
payment including property taxes and all other debt payment such as
credit cards and bank loans. See also Gross
debt service ratio (GDS)
