The real estate market kicks into high gear this Spring. For first-time homebuyers it can feel like a whirlwind. Between bidding wars and blink-and-you-could-miss-them flash listings, you’ll have an advantage over other first-timers if you’re prepared. See a mortgage specialist to get pre-approved for a mortgage. But first, review our handy mortgage glossary of common phrases that newbie buyers need to know. Here’s an A-Z guide to the key mortgage speak you’ll be using in the weeks and months to come:
The number of years it will take to pay off your mortgage. Genworth Canada offers amortization periods of up to 25 years.
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).
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.
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 39% (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.
The lender of the mortgage.
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.)
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.
The amount of money charged for prepaying all, or some, of your mortgage.
The amount you currently owe on the mortgage.
The principal, interest and taxes due on your mortgage.
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.