Mortgage Terms You Should Know
Every industry has its own language and terms. These words and phrases can be confusing to anyone who is not part of a specific industry’s daily operations, and the mortgage business is no exception.
To help you understand the terms, acronyms, and phrases regularly used when purchasing a property, Kraft Mortgages Canada Inc. has created this handy reference guide. Here you’ll find valuable information allowing you to comprehend and communicate your mortgage needs effectively.
Amortization: It’s the duration of the loan repayment, which gets calculated by equal continual payments to pay off the outstanding debt at the end of a fixed period. It includes the accrued interest and principal on the unpaid balance.
Commitment: It’s an agreement in writing between a lender and a borrower to loan funds on a specific date. A list of funding conditions need to be met by the borrower before the transaction can get executed.
Credit Report: A report that provides information to the brokers and financial institutions about the applicants’ current and past credit history.
Equity: It’s the difference between the property value and the financing secured against the home. Whatever portion is not guaranteed by the lending institution constitutes itself as the “owner’s equity.”
Lien: A legal entitlement secured against a property for outstanding payment of a debt or obligation.
Loan-To-Value Ratio: It’s the difference between the amount of the registered lien(s) and the property value expressed as a percentage. For example, if a mortgage gets registered for $100,000 on a $200,000 property, the loan-to-value ratio is 50%.
Title Insurance: A certificate that a title insurance company usually distributes. It guarantees a home buyer’s legal safety against errors in the title search. It also ensures that no other mortgage can get registered without acknowledgment and permission from a lawyer and the originating financial institution.
Title Search: A search that gets usually completed by a lawyer or title company to obtain municipal records before registering a mortgage. It’s completed to confirm the legal ownership of the property and ensure no unknown encumbrances are secured against the home.
Underwriting: It’s when a decision is made on whether to provide a loan to a potential individual seeking financing. The standard underwriting considerations used to assess a file are credit, employment, and net worth. Based on the information submitted, an appropriate rate, term, and loan amount can get offered to the client.
Prepayment: It’s when a lender allows the borrower in a mortgage to make additional payments that don’t get set within the regular payment schedule.
First Mortgage: A mortgage that is in a first lien position. It takes priority over all other liens that get registered against the property. The only way a first mortgage can get pushed into the second position is when the government is involved and registers tax liens against the home.
Fixed-Rate Mortgage: It’s a type of mortgage where the interest rate gets set for a specific period. The rate cannot fluctuate, and a fixed payment is agreed upon during the term, which is negotiated between the lender and the borrower.
Bridge loan: A bridge loan is a short-term loan. You may need a bridge loan if you own a home but need funds from your existing home’s value to close a deal on a new one. The loan is usually only available if you already have a signed, unconditional sale offer on your current home.
Collateral charge: A charge or mortgage is the document registered on a title to secure a loan. A collateral charge may secure more than one loan or line of credit.
We hope these terms have made you more confident to liaise with a mortgage broker. If you’re looking for a mortgage broker, reach out to the experts at Kraft Mortgages Canada Inc. in Surrey, BC.
With over twenty-three years of combined experience in the mortgage industry, we offer excellent on-going support to our clients.
We specialize in home purchase mortgages, refinances, renewals, private mortgage lending, 2nd mortgages, construction financing, and commercial mortgage services.
We offer our services across Surrey, Abbotsford, Delta, Langley, Burnaby, Vancouver, Richmond, Coquitlam, Maple Ridge, North Vancouver, White Rock, New Westminster, and West Vancouver, BC.