The mortgage process can be overwhelming but having a mortgage professional on your side can help to reduce your stress.
“Knowing key mortgage and home buying terms can help reduce confusion and assist you in better understanding the process of buying a home.”
Here are a few terms explained:
AMORTIZATION PERIOD The length of time you agree to take to pay off your mortgage (Usually 25 years).
CONVENTIONAL AND HIGH RATIO MORTGAGES Conventional Mortgage – A loan that is equal to or less than 80% of the lending value of a home. This requires a down payment of at least 20%. High-Ratio Mortgage – A loan that is over 80% of the lending value of a home. This means the down payment is less than 20% and will require mortgage default insurance (CMHC).
DOWNPAYMENT The money that you pay up front for a house. Read my tips on How to Save For Your Downpayment Faster.
MORTGAGE TERM The length of time that the options and interest rate you choose are in effect. When the term is up, you can renegotiate your mortgage and choose the same or different options.
OPEN AND CLOSED MORTGAGES
Open Mortgage – Allows you to pay off your mortgage in full or in part at any time without any penalties.
Closed Mortgage – Offers limited (or no) options to pay off your mortgage early in full or in part, but it usually has a much lower interest rate.
PAYMENT SCHEDULE How often you make your mortgage payments. It can be weekly, every two weeks, or once a month.
PORTABILITY An option that lets you transfer or switch your mortgage to another home with little or no penalty when you sell your existing home. Mortgage default insurance can also be transferred to the new home.
PRE-APPROVED MORTGAGE CERTIFICATE A written agreement that you will get a mortgage for a set amount of money at a set interest rate. Getting a pre-approved mortgage allows you to shop for a home without worrying how you’ll pay for it. Learn more about the Benefits of a Mortgage Pre-Approval.
PRE-PAYMENT OPTION The ability to make extra payments, increase your payments or pay off your mortgage early without incurring a penalty.
REFINANCING The process of paying out the existing mortgage for purposes of establishing a new mortgage on the same property under new terms and conditions. This is usually done when a client requires additional funds and may be subject to a pre-payment cost.
RENEWAL/RENEWING Once the original term of your mortgage expires, you have the option of renewing it with the original lender or paying off all of the balance outstanding.
TYPES OF INTEREST RATES
Fixed rate – The rate doesn’t change for the term of the mortgage.
Variable Rate – the interest rate fluctuates with market rates.
Protected (or capped) variable rate – the rate fluctuates but will not rise over a pre-set maximum rate.
If you need assistance with understanding terms or steps of the mortgage process, contact me to assist you through every step of your mortgage journey.