Sometimes mortgage terminology can be overly technical and even downright confusing. Here are some common terms you may come across and their simple definitions to help you understand your mortgage.
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The actual number of years it will take to pay back your mortgage loan.
Repayment of a loan in equal instalments of principal and interest, rather than interest-only payments.
An estimate of the value of the property. Conducted for the purpose of mortgage lending by a certified appraiser. This appraisal is not to be confused with a building inspection.
Assumability / Assumption of Mortgage:
Allows the buyer to take over the seller’s mortgage on the property.The buyer’s agreement to assume the liability under an existing note that is secured by a mortgage. The lender usually must approve the buyer in order to release the original borrower (usually the seller) from liability.
The limit on how an interest rate or monthly payment can change, either at each adjustment or over the life of the mortgage.
A mortgage that locks you into a specific payment schedule. A penalty usually applies if you repay the loan in full before the end of a closed term.
A common payment among owners which is allocated to pay expenses.
A mortgage loan issued for up to 75% of the property’s appraised value or purchase price, whichever is less.
The buyer’s cash payment toward the property. The difference between the purchase price and the amount of the mortgage loan.
The difference between the home’s selling value and the debts against it.
A mortgage that exceeds 75% of the home’s appraised value. These mortgages must be insured for payment.
The value charged by the lender for the use of the lender’s money, expressed as a percentage.
Land Transfer Tax, Deed Tax or Property Purchase Tax:
A fee paid to the government for the transferring of property from seller to buyer.
The end of the term, at which time you can pay off the mortgage or renew it.
The person of the financial institution that lends the money.
Applies to high-ratio mortgages. It protects the lender against loss if the borrower is unable to repay the mortgage.
Mortgage Life Insurance:
Pays off the mortgage if the borrower dies.
Allows partial or full payment of the principal at any time, without penalty.
A mortgage option that enables borrowers to take their current mortgage with them to another property, without penalty.
Qualifies you for a mortgage before you start shopping. You know exactly how much you can spend and are free to make a “firm” offer when you find the right home.
Voluntary payments in addition to regular mortgage payments.
The amount borrowed or still owing on a mortgage loan. Interest is paid on the principal amount.
Paying off the existing mortgage and arranging a new one or re-negotiating the terms and conditions of an existing mortgage.
Re-negotiation of a mortgage loan at the end of a term for a new term.
Additional financing. Usually has a shorter term and higher interest rate than the first mortgage.
The length of time the interest rate is fixed. It also indicates when the principal balance becomes due and payable to the lender.
Legal ownership in a property.
A mortgage with fixed payments, but fluctuates with interest rates. The changing interest rate determines how much of the payment goes towards the principal.
Vendor Take-Back Mortgage:
When the seller provides some or all of the mortgage financing in order to sell their property.