The mortgage process can be overwhelming. Knowing key mortgage and home buying terms can help reduce confusion and assist you in better understanding the process of buying a home.
Types of interest rates Fixed rate – The rate doesn’t change for the term of the mortgage. Variable rate – The interest rate fluctuates with market rates.
Open and closed mortgages Open mortgage – Lets you pay off your mortgage in full or in part at any time without any penalties. Closed mortgage – Offers limited (or no) options to pay off your mortgage early in full or in part, but it usually has a lower interest rate.
Conventional and high-ratio mortgages Conventional mortgage – A loan that is equal to or less than 80% of the lending value of a home. This requires a down payment of at least 20%. High-ratio mortgage – A loan that is over 80% of the lending value of a home. This means the down payment is less than 20% and will likely require mortgage loan insurance.
Appraisal An appraisal is a rough estimate of how much your home is worth. Mortgage lenders require that you get an appraisal before you sign on a home loan. The appraisal assures the lender that they aren’t loaning you more money than what your home is worth. Your lender may help you by scheduling an appraisal, done by an independent third party.
Amortization period The length of time you agree to take to pay off your mortgage (usually 25 years).
Payment schedule How often you make your mortgage payments. It can be weekly, every two weeks or once a month.
Pre-payment options The ability to make extra payments, increase your payments or pay off your mortgage early without incurring a penalty.
Portability An option that lets you transfer or switch your mortgage to another home with little or no penalty when you sell your existing home. Mortgage loan insurance can also be transferred to the new home.
Refinancing The process of paying out the existing mortgage for purposes of establishing a new mortgage on the same property under new terms and conditions. This is usually done when a client requires additional funds. The client may be subject to a pre-payment cost.
Renewing Once the original term of your mortgage expires, you have the option of renewing it with the original lender or paying off all of the balance outstanding.
Mortgage term The length of time that the options and interest rate you choose are in effect. When the term is up, you can renegotiate your mortgage and choose the same or different options.