Different Mortgage Terms Frequently Utilized In Real Estate Deals
Prior to entering into a long-term binding contract, every client has to understand what the various mortgage terms mean. This is a list which covers the basic terminology that are frequently utilized in a mortgage contract.
Amortization
Amortization is the payment schedule that establishes the duration and payments of your loan. It separates the loan amount from the principal amount and shows how much of your periodic payments are going to each. Initially, most of your payments will go towards the interest.
Appraised Value
To be able to determine the mortgage amount, the lender would use the appraised value. This refers to the approximate market value of the property and is commonly made by an appraiser.
Assessment
The local municipality evaluates the value of a property to be able to determine the property tax which is due.
Assumable Mortgage
A mortgage which is transferred to the buyer from the seller. Once the property is bought, the buyer should take over the responsibility of making the mortgage payments.
Blended Mortgage
A mortgage rate that is created by combining two mortgage rates, and one having a higher rate compared to the other. The new mortgage would have an interest rate that hovers between the two original rates.
Buy-down
The method of acquiring a lower interest rate by paying additional points to the lender or purchaser in one lump sum or in monthly installments.
Closed Mortgage
In this particular kind of mortgage, the borrower is not allowed to make whichever pre-payments or to renegotiate the mortgage contract.
Conventional Mortgage
When the downpayment is more than 20 percent, a typical mortgage is given. The lender will not need loan insurance for this kind of mortgage.
Debt Service Ratio
This ratio represents the percentage of the borrower’s income that the lender would permit them to use in the loan qualifications. Total Debt Service Ratio refers to the highest amount that a lender will consent to for all debt repayments, like mortgages, credit cards and other loans.
Default
When the borrower does not pay the installments which were established in the mortgage terms contract.
Discharge
A discharge is when the financial burdens are removed from the property. This consists of the mortgage.
Equity
This is the total difference between the mortgages owed and the selling value of the property. It is considered the owner’s “stake” in their property.
First Mortgage
The first mortgage that is taken out on a property. Any other mortgages which are secured against the house are called secondary mortgages.
Foreclosure
A foreclosure is when a borrower defaults on a loan and the lender takes possession and ownership of the home.
Gross Debt Service (GDS) Ratio
This is a percentage of the gross income a customer should in order to cover monthly housing expenses. It is suggested that this percentage should not be higher than 32 percent of your total monthly income.
Gross Household Income –
This number represents the total income of a household prior to deductions, such as wages, commissions and salary. Whoever member of the household who are co-applicants for the mortgage are included in this particular amount.
Hazard Insurance
Lenders require this insurance policy to ensure that a property is protected against whatever damage caused by weather, fire, water, etc.
High Ratio Mortgage
A high ratio mortgage is when the borrower makes a downpayment of lower than 20% of the loan. The Canada Mortgage and Housing Corporation or a private insurer must insure the loan to be able to protect the lender against default.
Interest Rate Differential Amount (IRD)
You could be subject to an IRD charge if you pay off the mortgage principal before the maturity date or will be required to pay beyond the prepayment amount previously agreed which was agreed upon in the contract. This amount is determined by calculating the prepaid amount using an interest rate that is equivalent to the difference between the interest rate which the lender is presently charging when re-lending the money for the remaining term of the mortgage and your existing mortgage interest rate.
Interim Financing
This financing is short-term. It helps the buyer to smooth the gap between the closing date on their existing home and the closing date of their new residence.
Maturity Date
This date is the time or day the mortgage contract would come to an end.
Mortgage
This is an agreement which is made between a lender and a borrower. In order to guarantee loan repayment, the borrower will pledge the property as security.
Mortgage Broker
The professional who works as the intermediary between the lender and the borrower.
Mortgage Insurance Premium
This is a premium which is added on top of the mortgage and paid by the borrower over the term of the mortgage. This amount is normally only charged on a mortgage loan where the downpayment was under 20% percent. This helps protect the lender against loss in the event of default.
Mortgage Life Insurance
This particular term insurance is accessible to all borrowers. Should one of the owners, or the owner, comes to an untimely end the insurance company would pay the remaining balance on the mortgage. This helps to make sure that the survivors would not lose their house.
Mortgage Payment
These are payments which are made on a regular schedule which go towards paying off the interest and principal due on a mortgage.
Mortgage Term
The borrower has a prearranged amount of time to pay back the lender. At the end of the term, the borrower could choose to either renegotiate the mortgage or they can repay the remaining principal due. Terms normally run from six months up to 60 months.
Mortgagee
Also known as a lender. This is the entity who lends the money to the borrower.
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