MORTGAGE GLOSSARY | of commonly used terms.
Amortization
AMORTIZATION
A mortgage is amortized over a period of years. The amortization period is the length of time it takes to pay off the mortgage in full. The usual amortization period is 25 years. However, this period is adjustable and can be accelerated to pay off the mortgage more quickly or, in some cases, can be stretched to 35 years to reduce the monthly payment.
Assumable
ASSUMABLE
Some mortgages are assumable, with the proper qualifications. This means that should you sell your house before the term of the mortgage is completed, the purchaser can take over your mortgage—if they qualify. This allows you to avoid paying a penalty when breaking your mortgage.
Blend & Increase
BLEND AND INCREASE
These terms pertain to the ability to increase your existing mortgage or the term of the mortgage, with only the increased amount or term at today’s interest rate. The interest rate for an existing mortgage is integrated with the interest rate of the increased amount. This is advantageous if you have a good rate on your existing mortgage or if you want to avoid a penalty to pay out an existing mortgage.
Commitment Letter
COMMITMENT LETTER
This is the document that confirms the basic terms and conditions, upon which the lender will provide the mortgage and indicate the conditions that must be met before funding. The standard conditions include—but are not limited to—receipt of an appraisal, income verification by way of employment letters and income tax returns, as well as proof of downpayment
Discharge
DISCHARGE
For reasons, planned or unplanned, the borrower may need to sell before the end of the mortgage term. Discharge fees vary widely between lenders which may result in thousands of dollars in penalties. Worse yet, if the discharge policy is “No Discharge,” the borrower may be locked in for the entire term of the mortgage.
Interim Financing
INTERIM FINANCING
When the closing date of your new home is before your current home closes you will need interim or bridge financing. During that time you will own both properties, and you did not receive the equity out of your old property yet.
Rate Guarantee
RATE GUARANTEE
Rate Guarantee pertains to the period of time, prior to closing of your house purchase (“the completion date”) that a lender will guarantee that the interest rate they have offered will not rise. This is usually for a period between 60 and 90 days, although longer rate holds are available under special conditions. The commitment letter will also state under what conditions (if any) that they will decrease the interest rate if and when rates in general drop prior to your completion date.
Tax holdback
TAX HOLDBACK
When property taxes are included with mortgage payments, the lender will hold back funds from mortgage proceeds to cover interim or final property taxes payable to the municipality. The amount depends on the month the mortgage was funded, and on the dates when interim and final taxes are due. Holdbacks are used to pay for the current year’s taxes, while monthly tax installments are accumulated in the account to pay for next year’s taxes.
Mortgage
MORTGAGE
This key term is a contract made between a borrower and a lender, where the borrower pledges a property to a creditor as security for the payment of a debt. “Charge” is another word for mortgage.
Standard mortgage fees
MORTGAGE FEES
All mortgages have standard fees associated with them such as renewal fees, discharge fees, NSF fees, etc. These vary from lender to lender and should be considered carefully.
Term
TERM
This is the period of time that the interest rate and the loan is contracted for. Terms can vary from 3 months to 35 years (although the standard term is still 25 years).
Pre-authorized chequing/debit
PRE-AUTHORIZED DEBIT
In this computer age, mortgage payments are normally made by pre-authorized chequing or debit where the lender takes your regular monthly, semi-monthly, bi-weekly, or weekly payment out of a predetermined bank account automatically.
Prepayment privileges
PREPAYMENT PRIVILEGES
These prepayment privileges allow you to make extra lump sum payments, double your payments, or increase your regular payments. Prepayment privileges vary from lender to lender. If you want to be able to pay your mortgage off quickly, check the flexibility of your prepayment privileges.
Portable
PORTABLE
If you have a good mortgage rate and a number of years remaining on your term, you may want to take your mortgage with you to a new home when you move. This can be done if the mortgage is portable. The property you are moving into will have to be reviewed and approved by the lender before you can shift the mortgage to the new property.
Payment frequency options
PAYMENT FREQUENCY
You will often have the choice of making payments on your mortgage on a monthly, semi-monthly, bi-weekly, or weekly basis. Increasing the payment frequency, i.e., bi-weekly instead of monthly, can shorten the amortization of your mortgage and save you a considerable amount of interest. By law, all mortgages in Ontario are registered as having monthly payments. Any change to this is done by an amendment to the mortgage. This amendment is a privilege and can be revoked in the event of failure to make payments.
Mortgage Life Insurance
LIFE INSURANCE
Life insurance that pays off the balance of the mortgage in the case of the borrowers death (i.e., if a spouse dies, the remaining spouse would not have to worry about mortgage payments—it would be paid in full). The monthly cost of getting this insurance through the lender is typically less costly than obtaining a similar coverage directly from an insurance company.
Orangeville Office
193 Broadway,
Orangeville, ON
L9W1K2
Real Mortgage Associates Inc.
578 Upper James Street, Hamilton,
Ontario L9C 2Y6 Hamilton
Contact Info
- (519) 362-0353
- sohidon@gmail.com
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