Top 20(ish) Must Know Definitions when talking about Mortgages

A typical mortgage broker class

Sometimes us mortgage brokers forget that not everybody has gone through an all you need to know about applying for a mortgage course. Websites and MBs will throw certain words at you repetitively as if you know them. Here are some of those words for a handy quick reference guide. Of course, most lenders will also have a glossary of common terms on their websites.

Interest Rate  Simply put, it's the cost of borrowing money from a lender. The higher the interest rate, the more you pay for borrowing.

Amortization The time over which all regular payments would pay off the mortgage but not to be confused with 'term'.

Term The length of the current mortgage agreement, after which time the mortgage contract can be renewed or renegotiated with no penalty to the borrower.

Consider a Term as being a base hit. Amortization is a home run. 

Variable or Fixed Rate  lenders offer you 2 types of interest rates when creating your mortgage agreement; variable and fixed.

Variable  fluctuates with the established Interest Rate which can change 8 times a year. It is also called a Floating Rate. It's a gambler's rate as if the rate starts climbing you may pay more in interest or conversely most lenders allow you to 'lock in' your rate at any time in the first 3 years of your term.

Fixed Rate  the interest rate is agreed upon for the term of the mortgage. You can 'lock in' on a fixed rate and forget about it until the end of your term.

Open Mortgage  A mortgage which can be prepaid at any time, without requiring the payment of additional fees.

Closed Mortgage A mortgage agreement that cannot be prepaid, renegotiated or refinanced before maturity, except if agreed upon beforehand.

Loan to Value (LTV) A lending risk assessment ratio that lenders examine before approving a mortgage. High LTV ratios are seen as higher risk and therefore the loan will generally cost the borrower more in interest. They will also need to purchase mortgage insurance.

LTV = mortgage requested divided by the appraised value of property.

Total Debt Service Ratio How much do you need to be making in order to cover all monthly debts that will occur for your new household? Your TDSR should not exceed 40% of your gross monthly income.

Beacon Score aka Credit Score All lenders require a credit check. The result that is returned to them is your beacon score. A score of 650 or higher is good, 650 or below may cause concerns in approving a mortgage.

has excellent beacon score

Maturity Date  Last day of the term of your mortgage agreement. Most lenders look to lock in another mortgage term before the maturity date.

Appraisal Value  An estimate of the market value of the property in question

Conventional Mortgage A mortgage that does not exceed 80% of the purchase price of the home. Mortgage insurance is not need in a conventional mortgage.

High Ratio Mortgage If you don't have 20% of the purchase price or appraised value of the property, your mortgage must be insured against payment default by a Mortgage Insurer, such as CMHC.

CMHC (Canada) or Genworth These are companies that provide mortgage insurance to the lender against loss in case of default by the borrower. The premium is paid by the borrower. CMHC is federally run and is the number one reason why mortgage insurance rates remain low.

Interest Rate differential (IRD) If you wish to perhaps buy out your mortgage as you found a better rate elsewhere or wound up with a lot of extra cash, an IRD is what your bank will charge you for breaking the term's agreement. It handcuffs a lot of owners who may wish to take advantage of lower rates as an IRD can run into the thousands of dollars. Simply put, the IRD can be equivalent to a kick in the balls when you check into how much it would cost to pay out your mortgage.

there's your IRD!

Porting This allows you to move to another property without having to lose your existing interest rate. You can keep your existing mortgage balance, term and interest rate plus save money by avoiding early discharge penalties.

Principal  the easiest for last; the principal is the actual amount of money you borrowed from the lender, not including interest

Hope it helps! Good luck. Contact me with any questions or clarifications.