Morissa recently moved to her first home. There are a lot of technical terms you hear when you buy a new property, and we are here to make it easier for you to understand…
The road to home ownership is paved with terminology that you likely have never heard before. Unless you have gotten a mortgage in the past, you’re not going to be familiar with the terms flying around. But they are important to understand – vital, even, to making the most informed decisions as they relate to your first mortgage. Mortgage glossary terms might make you scratch your head at first, but if you take a moment to familiarize yourself with them you will find it easier to comprehend the rest of the home-buying process.
Here’sa list of the most commonly used terminology, curtesy of our friends at AskRoss.ca
Amortization Period: This is the period of time in which the total balance on the mortgage loan becomes zero – when the principal on the loan is paid off in full.
Appraised Value: The value of the property being sold, as determined by a licensed and accredited appraiser.
Blended Payment: A payment toward a mortgage that goes toward both principal and interest.
Closed Mortgage: A mortgage of this variety locks the homeowner into the loan for a specified length of time. During this time, the mortgage rate is locked in as well. This means that the rate of the closed mortgage will not fluctuate, even when rates change.
Closing Costs: Any money that is used to finalize the sale of the property should be accounted for in closing costs. Inspection fees, lawyer fees and insurances will likely be paid as a part of closing.
Closing Date: The date that the home buyer will officially possess the title to the property.
Conventional Mortgage: This type of mortgage requires a down payment of at least 20% of the property’s appraised value.
Credit Report: A document that details an individual’s financial/credit history.
Down Payment: The home buyer’s initial investment into the property. The down payment is deduced by subtracting the mortgage loan amount from the total appraised value of the property.
Equity: The amount of the home that the buyer “actually” owns. The more the mortgage loan becomes paid off, the more equity the home buyer has with their property.
Equity Loan: A loan taken out against the accumulated equity of the property.
Fixed-Rate Mortgage: A mortgage wherein interest rates will not increase or decrease over the duration of the loan.
Foreclosure: When the mortgage lender sells the property, after the buyer has defaulted on their loan.
HELOC: Home Equity Line of Credit. This allows the homeowner to take out a line of credit against their equity rather than receiving one lump sum.
High-Ratio Mortgage: A mortgage loan of more than 80% of the home’s appraised value. These mortgages must be insured to protect the lender.
Interest Rate: The charge placed onto the loan in exchange for using the lender’s money. This is paid as a part of the mortgage payment.
Lien: A claim that’s been made against the property to ensure the repayment of other debts.
Loan: Money that is borrowed and then repaid in full, plus interest.
Maturity Date: The date by which the mortgage needs to either be paid in full or renewed. This date is the final date wherein the terms of the mortgage are in effect.
Mortgage: This is a loan that is taken out through a licensed lender, like a bank, toward the purchase of a property. A mortgage is to be paid off via monthly payments that go toward the loan’s principal as well as interest imposed by the lender.
Mortgage Insurance: A mortgage must be insured if it is more than 80% of the property’s appraised value. This insurance is paid by the borrower to protect the lender from the event of default.
Mortgage Payment: The monthly payment that goes toward the principal and interest on one’s mortgage.
Mortgage Life Insurance: In the event of the homeowner’s death, family members will be financially protected.
Mortgagee: The lender.
Mortgagor: The borrower.
Offer to Purchase: A document detailing what the buyer agrees to as a part of purchasing the property. When the buyer and the seller agree on these conditions, a sale is made.
Open Mortgage: This type of mortgage can be reassessed and renegotiated at any time.
Operating Costs: The expenses that must be paid each month toward the operation of the home. This includes relevant taxes and utilities.
Portable Mortgage: This kind of mortgage allows homeowners to “port” their mortgage to another property if they move before the mortgage has reached maturity.
Pre-Approval: A process in which the prospective home buyer qualifies for a mortgage amount prior to searching for a property.
Principal: The amount of the loan, minus interest.
Property Insurance: This form of insurance financially protects the property owner in the event of damage coming to the property. A property insurance policy should be high enough to rebuild if the buildings on the property are completely destroyed.
Property Tax: Taxes placed on the home, as determined by its value in the municipality in which it resides.
Rate Lock: This is an agreement made between the lender and the borrower to keep the loan available at a set rate for a specified period of time.
Renewal: The renegotiation of terms between the lender and the borrower when the term of the mortgage has expired.
Survey: This document shows boundaries relevant to the property, as well as measurements and the location of any buildings on the property.
Term: The length of time wherein the terms of the mortgage are fixed.
Title: Documentation that gives the holder exclusive rights to the property.
Title Insurance: Insurance that protects against damage/loss as it effects the title.
Variable-Rate Mortgage: In this type of mortgage, the interest rates fluctuate with changing rates. If overall rates increase, so does the interest rate on the mortgage. This is also true if the overall rates decrease, leading to a lower interest rate on the mortgage.