Canadian home sales soared to their highest rate in March of 2021 ever. While they did slow slightly in April, actually they had a 256% year-over-year gain from last April, which was the worst month in home sales ever.
If you’re hoping to be a homebuyer and a part of this housing boom, there’s a lot to learn. Probably one of your biggest concerns is learning everything you need to know about getting a mortgage and the mortgage application process.
This handle tool is going to be so helpful as you navigate the homebuying process. Read on to learn the mortgage terminology you need to know to be knowledgeable as you prepare to enter the housing market. Here’s all the mortgage terminology you should know.
Adjustable-Rate Mortgage
This is one type of mortgage you can get where the interest rate you pay on the mortgage adjusts based on market interest rates. Your payment amount will adjust as the adjustable-rate fluctuates. Most adjustable-rate mortgages have a period when they remain locked before you start seeing fluctuation in the rate.
Amortization Period
The amortization period is the amount of time it takes for a homebuyer to pay off a mortgage in monthly payments. The longer the amortization period the lower the payments. It also means the more interest you’ll pay. The amortization amount includes the accrued interest and the principal balance.
Assets and Liabilities
When you apply for a mortgage, your lender will want a full accounting of your assets and liabilities. Assets are things like your cash balance, investments and retirement accounts, and money in checking. Liabilities include any money you owe.
Bridge Loan
A bridge loan or bridge financing is a type of credit that bridges the time between when you can get a permanent mortgage. Often people need a bridge loan between the time when they buy one home and have yet to sell their previous one.
Cash Back Mortgage
A cash back mortgage is one type of mortgage you might seek. In this mortgage type the borrowers are given cash back at closing. This means the cash they get back is looped into the balance of the loan. It allows them to get cash for closing costs, lawyers fees, moving or even home renovations on the new house.
Construction Mortgage
A construction mortgage is used to fund the construction on a property before a conventional mortgage can be secured.
Conventional Mortgage
A conventional mortgage is a traditional mortgage and in the truest form comes with a 20% down payment. Now, conventional mortgages are available with even smaller down payments, depending on the lender.
Credit Score
Your score is a number assigned to you by the credit reporting agency, in Canada that’s TransUnion and Equifax. This number represents how creditworthy you are. The higher your score the better mortgage terms you can secure. Before even considering applying for a mortgage you should be looking at your credit score and working to improve it.
Down Payment
The down payment is the amount of cash you have to put towards the purchase of your home. It’s your good faith money to show the lender you’re willing to commit to the purchase. Often the down payment includes cash for closing costs too.
The amount of cash you need can vary to a minimal percentage like 3% up to 20%, depending on the terms of the mortgage. The more you put down as a down payment, the less you will pay in interest and the lower your monthly payment will be.
Fixed-Rate Mortgage
A fixed-rate mortgage means the amount of interest you’ll pay on the amount of money you borrow. The rate stays the same for the entire amortization period of the loan.
Home Equity Line of Credit
A home equity line of credit or a HELOC is a loan that many homeowners seek to borrow against the equity they have built up in their home. They are considered a second mortgage on the home.
Interest Rate
The interest rate is the percentage you pay on the principal amount. This is the amount paid to the lender because they loaned you the mortgage principal amount.
Mortgage Broker
A mortgage broker is a person a homebuyer goes to help them find a mortgage. Instead of working with just one lender, a mortgage broker works with a variety of lenders and helps you to find a mortgage that works for you. A mortgage broker charges their fee as part of the closing costs on a mortgage.
Mortgage Insurance
This is an insurance policy that’s required for borrowers to pay so the lender is protected in the event of a default. If a borrower doesn’t put enough of a down payment down, the lender can require the mortgage insurance which protects their investment.
Payment Schedule
Once you obtain a mortgage you’ll have a payment schedule that spells out when and how often you need to make payments towards your mortgage. You might make monthly, semi-monthly, bi-weekly, or weekly payments. It’s most common to pay monthly. Anytime you pay sooner that it’s due, it helps lower the interest you’ll pay overall.
Pre-Approval
Getting a mortgage pre-approval is a pretty standard practice in today’s home buying world. A pre-approval tells the seller that you’ve already been approved for a certain amount of money and it’s like you’ve also locked in an interest rate. Some realtors are even reluctant to show homes to potential buyers without a pre-approval since there’s not guarantee you’ll get financed.
Prepayment Penalty
Some mortgages will have terms that either don’t allow you to pay off early or charge a penalty if you pay off the loan before the term of the loan ends.
Principal
The principal is the amount of money borrowed for the mortgage but not including the interest you’ll pay. You actually pay interest on the principal amount.
Know the Ins and Outs of Mortgage Vocabulary to be Prepared
Buying a house is likely the biggest investment you’ll ever make in your lifetime. It’s important to know all the mortgage terminology involved with buying a house so you understand what the process is about.
If you’re ready to take the leap and become a homeowner, we can help. Get started today with your application process so you’re one step closer to homeownership.
