Different words get thrown around frequently when it comes to mortgages. Below you will find the most important terms involving your mortgage.
Amortization: Length of time over which you will repay your debt
Closed mortgage: A mortgage with a prepayment limit of 15% of the original principal balance per year
Closing costs: Additional costs that go along with home purchase like legal fees, transfer fees and disbursements that are due on closing day
Closing day: The day that new owner takes over the title to the home they’ve purchased
CMHC: The Canada Mortgage and Housing Corporation is a crown corporation that manages the National Housing Act for the federal government, develops and sells mortgage insurance and helps improve housing and living conditions for Canadians
Conventional mortgage: A loan of up to 80% of the lending value of the property for sale
Credit history/Credit report: An official report generated by a trusted Canadian credit bureau that is used by lenders to determine your level of debt handling
Default: Inability to make a mortgage payment as laid out by your mortgage agreement
Down payment: A small portion of the home price that is not covered by the mortgage loan, put forth by the buyer using his/her own funds
Equity: The difference between the current market value of your property and the total debts registered against it (first and second mortgages)
Fixed rate mortgage: A mortgage that features a locked-in rate that cannot increase for the entire term of the mortgage
Insurance: An arrangement through which a guarantee of compensation for specified loss is made in return for a premium (payment for insurance)
Interest: The cost of borrowing money that is paid to the lender in regular installments along with the principal
Interest rate: The price a borrower pays to use the money they’ve been lent
Lender: An institution such as a bank, trust company or credit union that lends funds for a mortgage
Maturity date: The last day of the mortgage term where the mortgage must be renewed or paid in full
Mortgage: A loan based on the value of a property to be purchased
Mortgage approval: Written notification from the lender to the borrower that approves the specified amount of funds under agreed upon conditions
Mortgage broker: An accredited professional who specializes in matching borrowers with the lender that provides the exact mortgage package to suit the borrower’s needs
Mortgage loan insurance: A product set up to protect lenders against borrower default and allows you to purchase a home with a down payment of less than 20%
Mortgage payment: Payments made regularly to the lender that encompasses the mortgage’s interest and principal
Mortgage term: The length of time that the contracts, conditions and interest rate of a mortgage are applicable
Open mortgage: A flexible loan that allows borrowers to make extra payments towards the balance before the end of mortgage’s term
Prepayment privilege: The power to prepay a share of the mortgage’s principal before it’s due without consequences
Principal: The amount you borrow for a loan that does not include interest
Variable mortgage rate: An interest rate that fluctuates based on the conditions of the market without affecting the mortgage payments