A Glossary of Top Mortgage Terms Explained

Every industry has its own language and terms. These words and phrases can be confusing to anyone who is not part of the daily operations of a specific sector, and the mortgage business is no exception.

To help you understand the terms, acronyms, and phrases regularly used when buying a property, Team Sabourin Mortgages has created this handy reference guide. Here you’ll find insightful information allowing you to understand and communicate your mortgage needs effectively.

Amortization period
The length of time it takes to pay off the entire mortgage. The amount of time given to pay off a mortgage depends on the percentage paid for a down payment when purchasing a home.

Appraisal
A report written by a professional appraiser that indicates the estimated value of a property. The value is determined by a direct comparison of the cost or income approach.

Agreement of purchase and sale
A legally binding contract between a buyer and a seller. This contract will include price, deposit, closing date, and other vital details about the real estate deal. It lays out the terms and conditions for the buyer to buy and the seller to sell on the specified date. An offer to purchase, when accepted by the seller, becomes an agreement of purchase and sale.

Blended mortgage
When the rate from an existing mortgage is combined with a new mortgage rate to come up with a figure somewhere in-between the two. One would opt for a blended mortgage to access equity and avoid breaking their mortgage early. Or to obtain a lower mortgage rate which would mean having to pay a prepayment penalty.

Bridge loan
A short-term loan where funds are used from the value of an existing loan to close on a new loan.

Cash back mortgage
A mortgage product that allows an individual to take out additional money on closing day – generally between 1% and 5% of the principal amount borrowed. Cashback mortgages always come with fixed interest rates so that lenders can compensate for the additional money paid out upfront.

Closing costs
The financial costs included in obtaining a mortgage. Whether one is buying, selling, or refinancing, the closing costs can consist of any of the following: inspections, legal and administrative fees, deposits, down payments, and penalties.

Debt service ratios
There are two types of ratios that lenders use to help determine how much an individual can afford when purchasing a home: Gross Debt Service Ratio (GDS) and Total Debt Service Ratio (TDS). GDS is the monthly mortgage payments, including principal and interest, taxes, and heat (PITH), whereas TDS considers all of the current debt and monthly commitments. For example, car payments and credit card payments.

Mortgage renewal
At the end of a borrower’s current mortgage, they will need to renew it for another term if they still have a balance on their mortgage. It’s essential to look at options for the best mortgage rate and product before the maturity date. Otherwise, the lender may automatically renew the mortgage for another term.

Fixed mortgage rate
A mortgage rate that stays the same for the entire length of a mortgage term. For instance, if one agrees to a five-year fixed rate at 2.79%, their mortgage rate and payment amount will stay the same for those five years.

Mortgage default insurance
Often known as CMHC insurance, mortgage default insurance is a required type of insurance that Canadians have to buy if they can’t make a down payment of 20% or more. Mortgage default insurance protects the lender in case the borrower ever defaults on their mortgage loan. There are three insurers in Canada - CMHC, Sagen, and Canada Guarantee.

Home equity line of credit (HELOC)
A revolving line of credit secured by one’s home, it offers a lower interest rate than a traditional line of credit. With a HELOC, one can borrow up to 65% of their home’s value minus the outstanding balance of their mortgage. Remember that their mortgage balance and HELOC cannot equal more than 80% of the value of their home (20% equity must get maintained at all times).

PITH
An abbreviation for Principal, Interest, Taxes, and Heat. These are all taken into consideration when calculating what an individual can be allowed to borrow.

Variable mortgage rate
A mortgage rate attached to the prime rate. If the prime rate goes up or down, the mortgage rate and payment amount will follow. Though prime rates can change, borrower rate’s relationship to prime will stay constant over their mortgage term. Variable rates are generally lower but are typically less stable than a fixed rate.

Mortgage pre-approval
A combination of your credit score, down-payment, debt service ratios are all used to determine your maximum affordability. Mortgage brokers can show you the maximum mortgage amount, rate, and payment. A pre-approval can get you a rate hold which can be held for a specific amount of time - typically ninety to one hundred and twenty days.

We hope these terms made you feel more comfortable about getting a mortgage. If you’re looking for a mortgage agent in Kingston, ON, reach out to Team Sabourin Mortgages. With many years of experience in the mortgage industry, we can help you find the best mortgage to suit your needs. We have a genuine passion for helping people and strive to give the best personal service with quick response times. Our services include refinancing, renewals, short-term fixed-rate mortgages, long-term fixed-rate mortgages, low-interest-rate mortgages, interest-only mortgages, and mortgage amortizations. We serve clients across Kingston, Greater Napanee, Gananoque, Deseronto, Westport, and the surrounding areas.

Please view our complete list of services here, or get in touch with us here.