Key Mortgage Terms You Should Know

General Nazarina DiSpirito 29 Sep

Here are some key mortgages terms every prospective home buyer should know.   If you have any questions about mortgage terminology, or you want to discuss what mortgage would best suit your individual circumstances, call me today!

Appraisal: a comprehensive report that determines the value of your property based on a number of valuation factors.

Adjustable-Rate Mortgage (ARM): a mortgage with a variable interest rate, which adjusts monthly, biannually, or annually. Option-arms and hybrid mortgages are also considered adjustable-rate mortgages.

Amortization: the way a loan is paid off over time in installments, detailing how much goes toward interest, and how much is paid toward principal.

Biweekly Mortgage: a mortgage where 26 half payments, or 13 full payments, are made annually.

Closed mortgage: In some cases, a closed mortgage cannot be paid off, in whole or in part, before the end of its term. In other cases, the lender may allow for partial prepayment in the form of an increased mortgage payment or a lump sum prepayment. However, any prepayment made above stipulated allowances may incur penalty charges.

Closing: the final step in the loan process when loan documents are signed in the presence of a notary, lawyer or with a title company.

Closing Costs: the amount of money that must be paid to close your loan, including lender fees and third-party charges, along with taxes and land transfer fees.

Commitment letter (or Mortgage Approval): Written notification from the mortgage lender to the borrower that approves the advancement of a specified amount of mortgage funds under specified conditions.

Compound interest: Interest calculated on both the principal and the accrued interest.

Conditional offer: An Offer to Purchase that is subject to specified conditions, for example, the arrangement of a mortgage. There is usually a stipulated time limit within which the specified conditions must be met.

Conventional Mortgage: any mortgage loan that is not insured or guaranteed by the federal government.

Credit bureau:  A company that collects information from various sources and provides credit information on a person’s borrowing and bill paying habits to help lenders assess whether or not to lend money to the person.

Credit history or Credit Report: The main report a lender uses to determine your creditworthiness. It includes information about your ability to handle your debt obligations and your current outstanding obligations.

Debt-to-Income Ratio: the ratio of monthly liabilities and housing expenses divided by the monthly gross income of the borrower.

Delinquency: Failing to make a mortgage payment on time.

Down Payment:  an upfront payment made by the home buyer toward the property purchase price, usually ranging from five to 20 percent. The remainder of the sales price makes up the mortgage loan amount.

First-Time Homebuyer: typically defined as someone who has not owned another property at any time prior to the date of the purchase, as a principal residence.

Fixed-Rate Mortgage: a mortgage with a constant interest rate that will not adjust at any point during the term of the mortgage.

Interest Only: paying just the interest portion of the mortgage payment each month.

Interest rate: The price paid for the use of money borrowed from a lender.

Mortgage Broker: an independent loan originator who works on behalf of consumers to obtain mortgage financing.  Brokers don’t represent a single bank, but rather work with numerous lenders.

Mortgage Term: the length of time you have a specified rate and type of product, usually  5 years but there are shorter and longer terms available.

Pre-Approval/Pre-Qualification: processes to determine what you can afford to ensure you can obtain mortgage financing when purchasing a property.

Prepayment penalty: This is a fee charged to borrowers who pay a loan off faster than the prescribed payment schedule. Some prepayment penalties can add up to thousands of dollars, so they’re worth asking about.

Open mortgage: A flexible mortgage that allows you to pay all or part of the principal before the end of its term.

Principal: The amount that you borrow for a loan (not including interest).

Title: A freehold title is an interest in land that gives the holder full and exclusive ownership of the land and building for an indefinite period. A leasehold title is an interest in land that gives the holder the right to use and occupy the land and building for a defined period.

Total Debt Service Ratio (TDS): The percentage of gross income that will be used for payments of principal, interest, taxes and heat (P.I.T.H.) and other debt obligations, such as car payments or payments of other loans.

Variable mortgage interest rate: Fluctuates based on market conditions.  If the rate goes up, most lenders will change your payment but this should be confirmed with each lender.


Open vs. Closed Mortgages

General Nazarina DiSpirito 19 Sep

With all the different mortgage options out there, it is difficult to decide what route you should take.  On top of that, there are many mortgage terms that the average consumer may not fully understand.  Often overlooked is the repayment terms of the mortgage, meaning whether the mortgage is open or closed.

Open mortgages are a good option if you are planning on paying off your mortgage early either by selling or with cash.  With an open mortgage, you can make prepayments or even pay off your mortgage in full without any prepayment charges.  However, open mortgages often come with higher interest rates.   

Conversely, closed mortgages are a better option if you don’t have plans to pay off your mortgage soon.  Interest rates are typically lower for closed mortgages than open mortgages, but there are often charges for making prepayments over the specified limit.

It is important not to confuse open and closed mortgages with variable or fixed rate mortgages.  Open and closed mortgages refer to the repayment terms, whereas fixed and variable refer to the interest rate.

Before deciding on a mortgage, call a mortgage broker to discuss your financial goals and what mortgage terms would best help you accomplish those goals.

Call me today to discuss how I can help you accomplish your mortgage goals!

Can I Pay My Mortgage Off Sooner?

General Nazarina DiSpirito 13 Sep

Paying off your mortgage early can be tempting.  However, there are many factors to consider before you decide to pay off your mortgage early.

When should you pay off your mortgage early?

If you have a small balance remaining on an “open” mortgage, and you are not planning on buying again, paying off your mortgage early can be a good option.

Paying your mortgage off early can also be a good choice if you have an “open” mortgage, where the lender will not charge you for making prepayments.

When should you hold off paying your mortgage off early?

 If you have a “limited open” or “closed” mortgage, paying your mortgage off early can be disadvantageous.  For these types of mortgages, there is often a limit to how much can be prepaid annually – typically 10% – 20%.  If you prepay more than this, your lender will charge you.

You should also hold off prepaying your mortgage if you have other debts, such as credit card debt, that should be dealt with first due to the higher interest rates typically charged on credit cards. 

What can you do?

There are several options available to you that can help you save money in interest payments.  For example, you can opt for accelerated bi-weekly payments instead of monthly payments.  By doing this, you make 26 half-month payments, which means an extra monthly payment every year, helping you pay off your mortgage sooner.

You can also opt to keep your mortgage payments the same, even when offered a lower rate by your lender.  By maintain the same payments, even with a lower interest rate, you can make a bigger dent in your mortgage payments.

If allowed, you could also make a lump-sum payment.  Even if your mortgage is closed, lenders will often allow you to pay up to 10% – 20% of the original principal each year without paying a penalty. Even if you cannot afford to pay the full 10% – 20%, you can still make smaller payments that will reduce your overall balance.

A mortgage broker will give you the information you need to make the right decision on what type of mortgage is best for your situation.  By going over your file and discussing your financial goals with a mortgage broker, you are equipping yourself with the knowledge and advice you need to save you money. 

Whether you are renewing an existing mortgage or have just started looking to buy, call me today to discuss your mortgage goals.

7 Questions to Ask Your Mortgage Broker

General Nazarina DiSpirito 1 Sep

  1. 1. How much can I afford?

Before you go home shopping, a mortgage broker can tell you what you can afford, and give you an idea of what your payments may look like.  A pre-approval will help narrow down your home search, and let you budget your monthly expenses in preparation for a new mortgage.

  1. 2. What documentation will I need?

Talking to a mortgage broker early in the home-buying process will allow you to find out what documentation you will need to prepare, giving you enough time to gather all your documents. 

  1. 3. What type of mortgage is best for my situation?

A mortgage broker should be able to tell you what type of mortgage is best for you, including whether a fixed or variable rate would be best.  

  1. 4. How long will it take?

A mortgage broker can tell you how long your mortgage approval will take, as well as keep you informed at each stage of the process.

  1. 5. Can I make early repayments or overpayments?

Making overpayments or an early repayment can save you money in interest, but some lenders will charge you a penalty for doing that.  A mortgage broker will let you know whether you can repay your loan early or make an overpayment without penalty.

  1. 6. What costs can I expect besides the down payment (closing costs)?

First time buyers have exemptions on the Property Transfer Tax which is charged when you buy a property in BC.   There will also be legal costs, appraisal costs, inspection costs.   Your broker will be able to tell you which ones will be applicable to your situation and approximately how much they might be.

  1. 7. What can you do for me?

A mortgage broker will give you all the information you need to make the right choices.  Whether you are a first time buyer, refinancing your mortgage, buying a rental or vacation property, or having cash flow issues, I can help find the best mortgage for your situation.  I am with you throughout the entire process—from when you start looking for your home, to providing advice after your mortgage has closed.

Call me today to discuss how I can find you the best mortgage for your situation!