Mortgage jargon can be confusing, but it doesn’t have to be. This post breaks down some of the most common mortgage terms, so you’ll know what you’re getting into when buying a home. Whether you’re a first-time homebuyer or just brushing up your knowledge, understanding these mortgage terms is key to making the right decisions for your future.
This term is the length of time it would take to pay off the mortgage if the same amount were paid each month. The most common amortization periods are 15 or 30 years. Periods can affect how much interest you pay over the life of the loan and how much your monthly payment will be. A shorter period will generally result in a higher monthly payment, but you will pay less interest overall. A longer period will lower your monthly payment, but you will pay more interest over the life of the loan. You can also use an amortization calculator to see how different amortization periods impact your monthly payment and total interest paid.
These mortgages can be a lot stricter, but there are still some options for accelerated payments (meaning lower interest rates). We’ll have to check with the lender on these kinds of contracts and see if they allow it or not before deciding when you want this mortgage paid off to accrue penalties after the term ends.
In a conventional mortgage, the loan covers no more than 80% of the property’s purchase price. This means that buyers have put at least 20% down – in some cases higher- which helps them avoid default insurance costs if things go wrong.
Something we do everything to avoid, default is the failure to pay your mortgage loan on time. It can result in severe consequences—from increasing interest rates to the property being taken away.
Short for ‘derogatory,’ derogs refer to an overdue account or late payments on your credit report.
Short for ‘down payment.’ The minimum down payment is 5% on any home purchase in Canada.
If you haven’t been keeping up on our blogs, a fixed-rate mortgage means that you are guaranteed to stay at the interest rate for longer periods.
Read more about interest rates here: https://frontdoormortgage.ca/2022/03/11/variable-rates-vs-fixed-rates/
This term refers to a program where homeowners can use their credit cards or other loans as a down payment. The repayment of these debts is included in the calculations, so you won’t have any trouble paying back what was borrowed!
When a borrower fails to keep up their mortgage payments, the lender, or bank, will often take ownership of that property.
Think of a high-ratio mortgage as an insurance policy. The buyer must pay Canada Mortgage and Housing Corp., also known as CMHC, for their share to be covered if anything goes wrong with the purchase.
Mortgage Investment Corp.’s are a group of investors who will lend you the money for your mortgage if it isn’t available from traditional lenders due to unusual circumstances.
It’s a great way to spread the cost of your homeownership and avoid paying those costly fees.
Principal, interest and taxes— a calculation representing the amount you can afford to pay monthly on your home. Heating costs are often included in this calculation (PITH).
Also known as a ‘credit check’ or ‘credit inquiry,’ it is the act of checking your credit report, which can help determine if you are worth investing in before being granted a mortgage.
The length of time that your mortgage agreement between you and the lender can affect the rate you pay and how much homeownership costs. A common 5-year term would be more expensive than 1 year because it has greater security, but 10 years may also come at an increased price due to this added protection.
Tradelines can include any credit card, loan, or mortgage on your credit report.
It refers to the determination and establishment of a particular loan. This includes determining any risks, establishing terms/conditions appropriate given those risks, and identifying who will be providing these services.
A variable-rate refers to an interest rate adjusted periodically to reflect market conditions. Again, consider checking out our previous blog for more information.
20/20 is a common term in mortgage loans. You must pay off 20% or increase your monthly payment by at least this much without incurring any penalties.
Don’t let the jargon in your mortgage contract keep you up at night! A knowledgeable broker can answer all those questions and ensure that you are satisfied with what you agree to sign. Contact us at Front Door Mortgage today to discuss how the conditions can best serve YOUR needs.