A little Monday Mortgage News from:
Pippa Fogarty, AMP
Pippa Fogarty, AMP
Accredited Mortgage Professional
Ideal Mortgage Solutions
The Spring Market is starting to kick in to high gear and house hunting could turn a little frantic! Here are some words that you might hear a lot throughout the process.
Amortization
The number of years it will take to pay off your mortgage.
Appraised Value
An official estimate of your proposed home’s property value, as provided by an accredited real estate appraiser, who assesses the home’s size, condition, comparable homes on the same street, among other factors. An accurate amount is necessary as the property itself is the security on your loan (mortgage).
Closed mortgage
A mortgage that discourages prepayment privileges (making extra payments beyond the agreement terms, to pay your mortgage off faster). Closed mortgages allow prepayment privileges of no more than 10% of your mortgage each year.
Debt to service ratio
This amount shows the ratio of your household’s debt payments to gross household income. Banks look at this when assessing how much money to loan you.
Down payment
The amount of money you provide as your initial payment to secure a mortgage. The minimum down payment on a home is 5%.
Fixed rate mortgage
The interest rate on this type of mortgage is locked in for the term. You’ll pay the same installment each month for the term of your mortgage.
Gross debt service ratio (GDSR)
The percentage of your gross monthly income that housing-related payments (mortgage, property taxes and heating) eats up. To qualify for a mortgage, your GDSR should be 32% (or less) of your gross monthly income.
High ratio mortgage
A mortgage where the borrower’s down payment will be under 20% of the home’s purchase price; will require mortgage loan insurance.
Low ratio mortgage (aka conventional mortgage)
A mortgage where the borrower’s down payment will be 20% or more of the home’s purchase price; no mortgage loan insurance required.
Mortgagee
The lender of the mortgage.
Mortgagor
The borrower/homeowner.
Mortgage loan insurance
Mortgage insurance protects lenders from payment default. It’s mandatory on high ratio mortgages. Lenders pay the insurance premium and it’s passed on to you; pay it off as a lump sum or add it to your mortgage for monthly payments.
Mortgage Life insurance
Optional term insurance, which ensures that if one of the borrowers dies, the insurance will pay off the remaining mortgage, so survivors will own the home free outright. (Don’t confuse this with the similarly named item above.)
Open mortgage
If you want to pay off your mortgage faster, you can make as many “extra” payments of any amount as you wish, with no penalty. “Extra” payments are called prepayment.
Penalty
The amount of money charged for prepaying all, or some, of your mortgage.
Principal
The amount you currently owe on the mortgage.
PIT
The principal, interest and taxes due on your mortgage.
Term
The length of time your mortgage agreement is valid, anywhere from 6 months to 10 years. After that term, you renegotiate your mortgage – or pay it off in full if you can!
Variable rate mortgage
Unlike a fixed rate mortgage, the interest charged on a variable rate mortgage changes with fluctuations to the market’s prime lending rate. Increases to the prime rate will see your interest and monthly payments go up, while the opposite occurs when the prime lending rate goes down.
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