Mortgage Term Glossary
Mortgages can be confusing enough without knowing exactly what your banker or broker is talking about when they’re giving all the important figures you should be paying attention to. Terms like amortization period, GDSR, or blended payments. Brush up on some mortgage terminology so in your next meeting with a broker you can look like an expert and take away a little more than you did last time
This one is pretty simple even though it has a confusing name. The amortization period is the number of years it’ll take to repay the entire amount of your mortgage.
The appraisal is the process in which an independent appraiser, who’s usually hired by the bank, determines the value of the property and whether or not it meeting lending criteria. The appraised value may or may not match the purchase price of the home.
Blended payments consist of both a principal and an interest component. They’re paid each month during the term of your mortgage. The principle portion increase each month while the interest portion decreases. However, the monthly payments you make do not change.
This type of mortgage cannot be prepaid, renegotiated or refinanced before the expiry of term, except if you want to breakage fees.
This is a first mortgage – where the principal amount of which cannot exceed 80% of either the appraised value of the property or the purchase price – which ever is lower.
The interest the owner holds in a property. Usually, it’s the difference between an outstanding mortgages and the market value of the property
Fixed Rate Mortgages
This is the type of mortgage where the interest rate is set for a pre-determined amount of time, which is somewhere between 6 months and 10 years. Fixed rate mortgages can not be renegotiated, except when there’s breakage payments made. Interest is calculated semi-annually and not in advance
Gross Debt Service Ratio (GDSR)
This is the percent of the borrower’s gross income that will be used for monthly payments on the principal of the mortgage, interest, taxes, heating and condo fees (where applicable)
The rate of return the mortgage lender gets on the money they’ve lent you The interest rate is usually expressed as an annual percentage rate, calculated semi-annually and not in advance.
Mortgage Default Insurance
This insurance is mandatory for an borrowers with a down payment of anything less that 20% of the purchase price.
A mortgage that can be prepaid at any time prior to maturity, without any breakage costs.
The right to pay back specific portions of your mortgage principle balance prior to the maturity date of the mortgage. Breakage costs may be owed when a prepayment option is used under a close mortgage.
This is the length of time which the mortgage agreement has been effective. When the term expires, the balance of your mortgage is either repaid in full or is renegotiated with the then current market rates and conditions
Total Debt Service Ratio (TDSR)
This is the percentage of the borrower’s gross income that will be used for the monthly payments of principal, interest, taxes, heating and other outstanding loans or debts including car payments.
Variable Rate Mortgage
Interest rate oon a mortgage that fluctuates with the changes in the prime lending rate. A vairable rate mortgage ha payments that are fixed for term, although interest rates may go up or down during that period. If the interest rates go down more of the payment is applied to the principle and if the rates go up more is applied to the interest.
There’s a good listen of terms to get you started on understanding everything your mortgage broker is saying. If you have any further questions or concerns feel free to contact us and we can help you on your way into a beautiful new home.