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20
Mortgage Financing: Mini Series - Part 2
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Mortgage Financing: Mini Series - Part 2
In Part 1 of Mortgage Financing, we looked at Credit Bureaus and what they are. Part 2 of Mortgage Financing: Mini Series will deal with some Mortgage Terminology.
Mortgage Terminology
- Agreement of Purchase and Sale: Sometimes referred to as an Offer to Purchase, this is essentially the contract between Buyer & Seller that sets out the agreed upon price of the purchase / sale of the home as well as the conditions of the sale. Mortgage Lenders need a copy of this document in order to provide a final mortgage. This document assures them precisely the amount of money they will lend to a buyer.
- Amortization Period: This is the length of time over which the loan is to be repaid. In Canada, for a typical new mortgage, it is 25 years.
- Appraised Value: This is an estimate of the market value of a property. In some cases, Mortgage Lenders will send an appraiser to evaluate the price of the property in order for them to lend the mortgage. It is the Lender’s way of verifying that the offer for the property accurately matches the market value of the home.
- Closing Date: The date when the buyer assumes ownership of the purchased property and the Mortgage Lender has the money ready for the purchase. Sometimes referred to as the Possession Date.
- CMHC / GEMICO (Genworth Financial) insurance premium: Mortgage Lenders will insure themselves against default by the borrower by using one of the two principal Mortgage Insurers in Canada. For any loan over 75% of purchase price (non conventional mortgage), a CMHC or Genworth Insurance premium will apply.
- Conventional / High-Ratio mortgage:
- Home Equity: The difference between the price for which a home could be sold (market value) and the total debts registered against it.
- Interim Financing: Also referred to as bridge financing, is a short-term financing to help a buyer bridge the gap between the closing date on the purchase of a home and the closing date on the sale of the current home.
- Mortgagee / Mortgagor: Mortgagee is the Lender. The Mortgagor is the borrower.
- Mortgage Pre-Payment: These are special payments above the regular payment scheduled as outlined in the mortgage agreement. Mortgage Pre-Payment is a great strategy for both paying off a mortgage faster and saving money on interest in the long run.
- Mortgage Term: The time frame / number of years months over which you pay a specific interest rate. Terms will typically range from 6 months to 10 years. Many people sometimes confuse the Amortization Period of a mortgage and the Mortgage Term. Whilst Amortization Period refers to the payment schedule over 25 years of a certain mortgage of specific interest rate, a Mortgage Term is the period of time for which that interest rate applies. Therefore, people have to renew a mortgage periodically at the latest interest rates set by the banks.
- P.I.T: Principal, Interest & Taxes. Together, these make up the regular payments on a mortgage, if you choose to have property taxes included. Otherwise, a normal mortgage payment includes only Principal & Interest payments, or P.I.
- Porting: This is a feature of some mortgages. Essentially, it allows you to keep the current term & conditions of your mortgage should you choose to move. Any money you borrow on top of your current mortgage, say you bought a bigger house, will continue under the same terms until your current Mortgage Term ends.
- Pre-Approved / Pre-Approval: A pre-approval on a mortgage lets a buyer reasonably know how much they can expect to borrow when buying a home, therefore giving buyers a price range of homes for which to search for. A pre-approval, especially from banking institutions, also guarantees an interest rate and term for a set amount of time. In other words, a pre-approval will “lock in” an interest rate & term.
- Principal: The amount of money borrowed for a new mortgage or now owing on an existing one
Mortgage Terminology: Download the Mortgage Terminology Printout.
From the Online Etymology Dictionary.
mortgage (n.)
1390, from O.Fr. morgage< .i> (13c.), mort gaige, lit. “dead pledge” (replaced in modern Fr. by hypothèque), from mort “dead” + gage “pledge;” so called because the deal dies either when the debt is paid or when payment fails. O.Fr. mort is from V.L. *mortus “dead,” from L. mortuus, pp. of mori “to die” (see mortal). The verb is first attested 1467.
Again, I wish to thank Linda Rudolph of TD Canada Trust for her help in compiling this information.
Linda Rudolph
Manager, Residential Mortgages
Telephone: (416) 282-1677
Fax: (416) 282-5299
Web: Linda Rudolph’s website here
For more information, contact:
Radu Medan
Sales Representative
Coldwell Banker Case Realty, Brokerage
416.250.9000
rmedan@trebnet.com
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February 20th, 2007
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