Common Mortgage Terms
In this article we explain common mortgage terms you may have heard from a mortgage lender. A clear understanding of mortgage terms is essential when negotiating mortgage rates with your lender. Contact Phoebe for further explanation of these terms.
Amortized Mortgage: A mortgage requiring periodic payments which include both a partial repayment of the debt and interest on the outstanding balance.
Amortization Schedule: A table showing the amounts of principal and of interest comprising each level payment due at regular intervals and the outsanding principal balance of the loan after ecah level payment is made.
Basis Point: A small unit of measure used to describe yield changes of less than 1% in debt instruments such a mortgage. Onve basis point is equal to one-hundredth of one percent. (For example, a rate change of one quarter pf a percent equals 25 basis points).
Blanket Mortgage: A single mortgage registered against two or more individual parcels of real property.
Blended Mortgage Payments: Equal or regular mortgage payments, consisting of both a principal and an interest component.
Blenede Mortgage Rate: The interest rate on an increased mortgage which is derived from a formula that takes into account the interest rate on the existing loan and the interest rate on the increase mortgage amount.
Buy-down: When the seller reduces the interest rate on a mortgage by paying the difference between the reduced rate and the market rate directly to the lender or to the purchaser.
Conventional Mortgage: A mortgage loan that is 75% or less of the loan-to-value ratio; and does not require insurance by CMHC or other private insurer.
Debt Service Ratio: The percentage of a borrower's income that can be used for housing costs. Gross Debt Service (GDS) Ratio is the amount that a lender will permit a borrower to use from his/her gross income in order to qualify for a loan for housing costs, including mortgage payment and taces (and condominium fees, when applicable). Total Debt Service (TDS) Ratio is the macimum percentage of a borrower's income that a lender will consider for all debt repayment (other loans and credit cards, etc.) including a mortgage.
Equity: The difference between the price for which a property can be sold and the mortgage(s) on the property. Equity is the owner's stake in the property.
Foreclosure: A legal process by which the lender takes possession and ownership of a property when the borrower doesn't meet the mortgage obligations.
High-ratio Mortgage: A mortgage that wxceeds 75% of the loan-to-value ratio; must be insured by either the Canada Mortgage and Housing Corporation (CMHC) or a pribate insurer to protect the lender against default by the borrower who has less equity invested in the property.
Mortgage: A contract between a borrower and a lender. The borrower pledges a property as security to guarantee repayment of the mortgage debt.
Mortgage Insurance: Government-backed or private-backed insurance protecting the lender against the borrower's default on high-ratio (and other types of) mortgages.
Mortgage Prepayment Penalty: Is a fee paid by the borrower to the lender in exchange for being permitted to break a contract (a mortgage agreement); usually three months' interest, but it can be a higher or it can be the equivalent of the loss of interest to the lender.
Open Mortgage: A mortgage that can be prepaid or renegociated at any time and in any amount, without penalty.
Prepayment Clause: A clause inserted in a mortgage, which gives the mortgagor the pribilege. Interest is calculated o the principal amount.
Principal: The mortgage amount initially borrowed or the portion still owing on the mortgage. Interest is calculated on the principal amount.
Term Mortgage: A non-amortizing mortgage under which the pricipal is paid in its entierty upon the maturity date. Sometimes called a straight loan.
Variable-rate Mortgage: A mortgage for which payments are fixed, buy whose interest rate changes in relationship to fluctuating market interest rates. If mortgage rates go up, a larger portion of the payment goes to interst. If rates go down, a larger portion of the payment is applied to the principal.
Vendor Take-Back Mortgage: When sellers use their equity in a property to provide some or all of the mortgage financing in order to sell the property.
