Important mortgage terms to buying a house
Not everyone can easily understand financial and mortgage terms. If you’re looking for your first home or you’re about to renew your mortgage, here are a few definitions that may come in handy.
If you need more explanations, check out our expert advices. After all, it’s our job to be mortgage specialists.
Amortization
The total period in which to repay the entire loan. Generally speaking, amortization is set over 25 years. With a fixed rate, the longer your mortgage, the more interest you’ll pay in the long run.
Bridge loan
This allows you to take out a short-term loan equivalent to the down payment. It allows for the notarization of a new property, whose down payment comes from the equity of the sale of the current property, which has not yet been notarized.
Capital
The balance of the loan. A payment pays the interest and repays the capital.
Capped rate
Variable rate whose payments are set to exceed the actual payments. The difference is used to repay the capital. If the prime rate increases, the payment will not increase but the excess portion going towards the capital will be reduced.
Closed mortgage
A loan whose payment deadlines are predetermined and not subjected to modifications. An early mortgage repayment could bring about penalties if the amount exceeds the limit set out by the lender when the loan was signed.
Convertible rate
Allows the lender to change a variable rate for a fixed rate during the term.
Down payment
The portion of the price of purchase that is paid without mortgage assistance. A down payment of less than 20% will require mortgage insurance. To learn more about down payment, consult our article “How to save for a down payment”.
Discounted mortgage
A mortgage that offers you cashback. This amount is not included in your balance, and you do not have to repay it. Before considering this type of loan, it’s important to know that it comes with certain conditions (higher interest rate, only fixed, 5 year minimum term, etc.).
Expiry
The date that ends the mortgage term. This determines the moment to renew the mortgage or make the final reimbursement.
Fixed rate
When a mortgage rate is fixed, the rate and the payments remain the same for the duration of the term.
Home equity line of credit
A home equity line of credit gives you access to financing of up to 65% of your property’s market value. In return, you must put up your property as collateral. Once you get the line of credit, it is yours to use as you see fit. There are no restrictions as to what you can spend the money on. Read our article to find out more about the difference between loan and a home equity line of credit.
Interest
Fee paid by the borrower to the lender in exchange for the use of borrowed money.
Mortgage
A loan guaranteed by a building. Because of this guarantee, the interest rate is lower than a personal loan. Read this page to learn more about mortgage.
Mortgage insurance
The government requires lenders to insure all mortgage loans with a down payment of less than 20%. The loan can be insured by the CMHC, Genworth or Canada Guaranty. Mortgage insurance does not replace home insurance, which is necessary for a mortgage loan.
Mortgage lender
Refers to the financial institution that lends the necessary funds for purchase or refinancing.
Open mortgage
Unlike a closed mortgage, you can repay it partially or entirely without paying a penalty.
Pre-qualification
With a mortgage pre-qualification, it is possible to know the mortgage amount you can afford before starting the steps to purchasing a property. It also offers, under certain conditions, a guaranteed rate for the client for a fixed period. Get your pre-qualification now with our online form!
Purchase offer
A legal agreement between the buyer and seller of a real estate property. It contains the price, the date of closing and other information relevant to the sale of a property.
Refinancing
A mortgage increase of up to 80% of the property’s market value if the client qualifies. If refinancing is requested during the term, a penalty may be added to the loan.
Renewal
When the term expires and the mortgage conditions need to be renegotiated. The mortgage amount and the remaining amortization remain unchanged. If the client chooses to increase their loan and extend their amortization, they should consider a refinancing.
Stress test
A simulation allowing financial institutions to ensure that you can weather rate hikes and unforeseen circumstances. Read our article to find out more.
Term
The period during which the mortgage conditions apply. The term usually ranges between 6 months and 5 years.
Transferability
Denis Doucet from Multi-Prêts explains: “This refers to the transfer of a mortgage to another property. It can be worth it to do so if rates are rising, as it allows you to keep your initial rate.” s.
Variable rate
When a mortgage has a variable rate, the rate and payments vary according to increases and decreases in the prime rate.
Any questions left?
We’ve put together a wealth of information on the different aspects of mortgages and real estate. Whether you’re a first-time buyer or a seasoned investor, we’ve got content for you. Want to know more about a topic? Contact one of our brokers who will be happy to help.