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What is a Mortgage?  A mortgage is a loan used to purchase a home. As a condition of the loan, the borrower pledges the property as security to guarantee repayment.What is Principal? Principal is the amount of money borrowed. Payments will comprise a portion of both principal repayment and interest.What is Interest? Interest is the cost of borrowing. It is the amount paid on the money borrowed and it is represented as an annual percentage rate, applicable to the mortgage. You will frquently hear the term P.I.T. in relation to mortgage payments. This refers to the composition of a mortgage payment of Principal, Interest and Taxes.What are Taxes in the term Principal, Interest and Taxes? Taxes refer to a portion of property taxes that is included in a mortgage payment. Often, but not always, one-twelfth of the estimated yearly property tax is included in your mortgage.What personal information should I have ready when applying for a mortgage?
Why is a pre-approved mortgage such a good idea? Based on you current financial situation and a satisfactory credit review, a Pre-Approved Mortgage determines:
Open mortgages allow you to make payments towards your mortgage above and beyond the agreed regular payments. A closed mortgage, may limit your additional repayments, but usually carries a lower interest rate than an open mortgage of a similar term.Open mortgages are generally not available for longer terms. If it's likely you'll make only regular payments and perhaps limited prepayments, the closed mortgage is usually preferable.Convertible Mortgages A convertible mortgage also typically offers a lower rate than an open mortgage of the same term. A convertible mortgage allows you to change to a closed term or another convertible term, without interest penalty. Some conditions apply if changing from a fixed to a variable rate.Fixed Vs. Variable Interest Rate With a Fixed Rate mortgage, your interest rate remains constant to the end of your term. With a Variable Rate mortgage*, the interest rate fluctuates with money market trends. Your actual payments generally don't change during your term. But, if rates go down, more of your payment is applied toward the principal. If rates go up, more of your payment is applied toward repaying the interest.
Amortization: With a mortgage, the borrower agrees to pay back the amount borrowed over a period of time. This breaking of the loan into smaller parts to be paid back over uniform blocks of time is amortization. Amortization Period: The actual number of years it will take to repay a mortgage in full. this period can be longer than the loan's term. For example, a mortgage may have a five-year term and a 25 year amortization period. Appraised Value: An estimate of the market value of the home (and property) that the borrower pledges as security for the mortgage. This value may be more or less than the purchase price of the property. Assets: The things of value that you own. Blended Mortgage: A mortgage that combines the amount the borrower owes under an existing mortgage with additional mortgage money required by the borrower. The interest rate for the new amount borrowed is a "blend" (or combination) of the interest rate of the "old mortgage" and the interest rate for the additional amount to be borrowed. Blended Mortgage Payment: A regular installment payment composed of both Principal and Interest in which part of the money received is applied toward the principal of the loan and part is put to pay the interest. This is the norm for mortgage payments. Blended payments are separate from the concept of a Blended mortgage. Bridge Financing: A loan made for a short term, to "bridge" (or cover) the time gap between completing the purchase of one property and finalizing arrangements to pay for it. The need for this type of financing often results from mismatched closing dates. Carrying Costs: The expenses of living in, and maintaining a home (and property). This includes mortgage payments, property taxes, heating, repairs and so on. Closed Mortgage: A mortgage that connot be prepaid, or renegotiated, unless the lender agrees and the borrower is willing to pay an interest penalty. Closing Date: The date the purchase of the property becomes final and the new owner takes possession. Collateral Mortgage: A loan evidenced by a promissory note and backed by the collateral security of a mortgage on a property. The money borrowed is generally used for a purpose other than the purchase of a home, such as a vacation, or home renovations. Conventional Mortgage: A first mortgage for the purchase of a home, of up to 75% of the property's appraised value or purchase price, whichever is lower. Deed: A legal document that transfers and evidences ownership of the property to the buyer. Default: Failure to repay an outstanding debt as agreed. Deposit: A sum of cash that is required to be paid to the vendor by the purchaser. This money is a symbol of the purchaser's commitment to buy. If the offer is accepted, the deposit is applied to the down payment. If the offer is later turned down by the buyer, the deposit may or may not be returned. Down Payment: The amount of money put forward by the buyer toward the purchase price of a home. Equity: The difference between the price for which a property could be sold and the total amount owing on it. First Mortgage: A mortgage which is registered first against the property. This mortgage has to be paid first in the event of sale or default. Fixed Rate Mortgage: A mortgage for which the rate of interest is fixed for the term (i.e. a set period of time). Floating Rate Mortgage: See Variable rate mortgage. Gross Debt Service Ratio: The percentage of a borrower's gross monthly income that can be used to pay the housing costs, including monthly mortgage payment (principal and interest), heating costs and property taxes (and condominium fees when applicable). The total should not be more than 32% of monthly gross income. High Ratio Mortgage: A mortgage for more than 75% of either or both a property's appraised value and purchase price. In other words, the down payment amount is less than 25% of the purchase price/appraised value. Interest: Interest is the cost of borrowing. It is the amount paid on the money borrowed. It is represented as an annual percentage rate applicable to the mortgage. Liabilities: What you owe. For example: taxes, mortgages, car loans and credit cards. Maturity Date: The last day of the term of your mortgage agreement. The mortgage must be paid in full, or the agreement renewed, by this date. Mortgage: A mortgage is both a loan used to purchase a home and a security for the repayment of the loan since the property purchased is pledged by the borrower to guarantee repayment. Mortgage Disability Insurance: Insurance that pays the mortgage installments should the insured borrower become ill or disabled and unable to work. Mortgage Loan Insurance: Government-backed or privately-backed insurance protecting the lender against the borrower's default in high-ratio mortgages. Mortgage Life Insurance: Insurance that pays off the mortgage debt should the insured borrower die. Mortgage Payment: The regular installments made towards paying back the principal and paying interest on a mortgage. Mortgagor: The borrower. Open Mortgage: A mortgage that can be prepaid or renegotiated at any time and in any amount with out interest penalty. Pre-Approved Mortgage: A mortgage for a set maximum amount and interest rate that is arranged prior to the purchaser finding a house. Often arranged prior to home-shopping, this option can help the purchaser establish an affordable price range. Prepayment options: Allows the borrower to prepay a portion, or all of the principal balance, with or without penalty. These options are typically restricted to specific amounts and times. Principal: the amount initially borrowed, under the mortgage. Rate (Interest): The annual percentage amount charged in return for borrowing funds. Second Mortgage: A mortgage granted when there is already a mortgage registered against the property. If the borrower defaults and the property is sold, the second mortgage is paid after the first. Security: Property (assets) offered as backing for a loan. In the case of mortgages, the property being purchased with the loan forms the security of the loan. Survey: A document providing details of a property's boundaries, measurements and structures. It will also describe any easements, rights-of-way, or encroachments made by either your property or by adjoining properties onto your property. Term: The length of time a lender will lend mortgage funds to a borrower. Title: The legal reference of ownership of a property. Title Search: A detailed examination of the registered title documents to ensure there are no liens or other encumbrances (claims) on the property, and no question regarding the seller's statement of ownership. Total Debt Service (TDS) Ratio: The percentage of a borrower's gross (before tax) monthly income needed to cover payments for housing costs (principal, interest, taxes, condominium fees, heating costs) and all other debts and obligations (typically loans and credit cards). The total should not be more than about 40 percent of gross monthly income. Variable Rate Mortgage: A mortgage for which the rate of interest fluctuates as the Bank's prevailing prime rate changes. While the regular payments you make stay the same for the term, the amount applied toward the principal changes according to the change (if any) in the rate of interest. This is also referred to as a Floating Rate Mortgage. Portions of the proceeding made available by the Bank of Montreal at their Web Site http://www.bmo.com/NetLndg/Mtg_Site/ |
