Mortgage Glossary - Mortgage Vancouver BC
Amortization – In simple terms, the number of years it will take to pay off the mortgage based on the regular payment. Common amortizations include 25-35 years, with the most popular currently at 35 years. Longer amortizations make it easier to qualify for a larger mortgage, minimize payments, and offer you the most overall flexibility.
Term – The length of current mortgage agreement - typically 3-5 years. This is different than amortization which is the number of years it will take to pay off the mortgage in full. The most popular term in Canada is 5 years. After your current mortgage term is up (matured) you can quite easily switch the term to a new lender and rate.
High Ratio Mortgage – A mortgage with less than 20% down payment or equity in property. These are different than conventional mortgages, which have 20% or more down payment or equity. High ratio mortgages require CMHC/Genworth default insurance, with the cost built into the mortgage. The majority of first time buyers are going with high ratio mortgages.
Conventional Mortgage – With a 20% or greater down payment or equity a mortgage is considered “conventional”. These mortgages can sometimes be approved with greater ease and do not require default mortgage insurance (CMHC). Many people go conventional to minimize costs and pay down their mortgages quickly.
Renewal – When your mortgage term ends a mortgage can be renewed with a new agreement between the lender and borrower. Quite often, lenders assume clients will renew without exploring other options, so it’s advisable to speak with a mortgage broker prior to renewal.
Refinancing – Many people choose to refinance to take advantage of lower rates, consolidate debt, or utilize home equity. In other words, you have to ability to renegotiate your existing mortgage agreement with the current or a new lender. Unless your existing mortgage is “open” penalties will usually apply. As long as the interest savings or benefits of a refinance exceed the penalty this strategy is generally worth pursuing.
Variable Rate Mortgage – Can be called a variable or adjustable rate mortgage (VRM/ARM), where the interest rates fluctuate with the bank prime rate. These can be a good option when prime rate is going down, but are not advisable for all people. If prime rate is 2.5% and VRM is P+1% then the actual rate would be 3.5%.
Porting – The ability to take your existing mortgage to another property while keeping your interest rate and avoiding penalties. Most lenders today offer this service to clients.
Prepayment Privileges – Most lenders will offer some additional prepayments without penalty. The most common privilege is 20% per year lump sum as well as a 20% increase in regular payment.
Mortgage Insurance (MPP) – Mortgage Protection Plan (MPP) life and disability insurance is available and should be considered by all applicants. It is important to consider how the mortgage would be paid in the case of disability or death.
Mortgagee and Mortgagor – Often confused, the lender is the mortgagee and the borrower is the mortgagor.
Fixed-Rate Mortgage - The interest rate on the mortgage is fixed for the entire term of the mortgage. This is by far the safest bet which guarantees the rate and payment will not change for a number of years.
Pre-Approval – It is important to get a pre-approval before shopping for a home. We will perform a free pre-qualification to any serious home buyer. A 120 day rate hold can also be secured if you are not buying immediately, which can safeguard against rising interest rates. A fully underwritten approval is not possible until you have found a specific property and have entered into a purchase contract.
Subject to Financing (Purchase Contract) – When making an offer on a property we always recommend writing it “subject to financing”. By allowing 5-10 business days to set up your mortgage financing you can minimize potential risks. Mortgage approvals can be complicated and often take more time than anticipated, so it’s good to have a few extra days in your contract.
Lenders – Lenders can include major banks, non-bank financial institutions, credit unions, trust companies and more.