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Term |
Definition |
| Amortization: |
This refers to the number of years needed to
fully repay a loan. Most mortgages are amortized over 25
years. This means that buy making the set monthly payments -
each blend of interest costs and repayment of the original principal
- you'll have paid back the original amount and all the interest in
25 years. You can , however, chose different amortization
periods. A shorter amortization, 15 or 20 years for example,
will mean higher monthly payments, but significantly lower interest
cost. |
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| Assumable
Mortgage: |
A loan that lets a new buyer of a home take
over the existing mortgage, sometimes (although increasingly rarely)
without having to qualify for the loan. |
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| Balance: |
The amount of the loan owing or outstanding at
any time. |
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| Closed
Mortgage: |
A conventional mortgage in which the interest
rate is fixed for a set term with no right to repay the loan in
advance. |
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| Conventional
Mortgage: |
A traditional mortgage for up to 75 percent of
the appraised value of a property. |
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| Convertible
Mortgage: |
A mortgage that gives the borrower the
flexibility to change from a short-term to a longer-term mortgage if
it seems advantageous to do so - for example, when interest rates
appear to have hit bottom. |
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| Fixed Rate
Mortgage: |
With this type of mortgage, the interest rate
is set at a specific level for a certain term ranging from six
months to fives years or more. |
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| High-ratio
Mortgage: |
A mortgage for more than 75 percent of the
appraised value of a property. Usually high-ratio mortgages
have to be insured against default by the borrower. |
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| Interest: |
The charge paid by the borrower to the lender
for the use of the principal. |
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| Mortgage: |
This refers to a special type of loan used to
buy property. With a mortgage, a home buyer borrows money from
a lender, using the property that is being purchased with the money
as security on the loan. |
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| Mortgagee: |
The lender. |
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| Mortgagor: |
The borrower. |
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| Open
Mortgage: |
Allows the borrower to pay off, renew or
refinance as much of the outstanding balance as desired, without
penalty, at any time. |
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| Principal: |
The amount initially borrowed from the
lender. |
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| Term: |
The term of a mortgage is its life, usually
from 6 months to 5 years. Think of it as the length of the
contract you have entered into with your lender. When the
term is up, the deal is finished, and you are technically supposed
to give the money you've borrowed back. In practice, however,
you simply renegotiate another mortgage for the outstanding balance
at the current rate of interest. While many people do this
almost automatically with their current lender, you are free to
approach any financial institution for your next mortgage, once you
present term has expired. |
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| Terms v.
Amortization: |
It is easy to confuse these words, but they
are very different. Let's look at a typical mortgage - one
that is amortized over 25 years with a 3-year term. What this
means is that your payments will be calculated as if you planned on
taking 25 years to repay the loan. However, after 3 years of
making those payments, your mortgage matures. At that point,
you get a new mortgage, either with the same lender or a different
financial institution. Your new mortgage should be amortized
over 22 years, because when you renew, the amortization should never
be greater than the original amortized period, minus the number of
years of mortgage payments you've already got under your belt.
Remember that once your term has expired, you can put
together a totally different mortgage at a different rate - and with
a different lender if you wish. |
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| Variable-rate
Mortgage: |
A variable-rate mortgage means the interest
rate changes monthly - depending on interest rates in financial
markets. Payments on a variable-rate mortgage generally do not
rise and fall. If interest rates go down, more of the monthly
payment goes to pay off the principal; if rates go up, more money
goes towards paying the interest charges. If rates rise
substantially, you could end up owing more than you borrowed in the
first place. |
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| Vendor-take-back
Mortgage: |
When a seller helps a buyer finance the
purchase of the seller's property by taking a mortgage, usually what
is called a second mortgage. |
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