Whether you’re new to the mortgage process or not, there are a lot of terms that you’ll hear when talking to banks and mortgage brokers, and it can get confusing and be difficult to make sense of them all. Knowing some of the key terms that are used throughout the mortgage and home buying process can help to make you feel more in control of things, and prevent things from becoming overwhelming and bewildering. Not only that, but when you meet with your mortgage broker, they won’t have to spend so much time explaining everything to you.
Below are some of the most common and important terms for home buyers to understand:
This describes the money that you pay up front to purchase a home
- Interest rates
Fixed: throughout the term of the mortgage, the rate stays the same
Variable: the rate fluctuates with the market
Protected variable rate: while the rate fluctuates, it never rises over a preset maximum rate
- Open and closed mortgages
Open: enables you to pay a mortgage off in full, or part, anytime and without penalties
Closed: with a lower interest rate, you generally cannot pay the mortgage off early or in part
- Conventional and high-ratio mortgages
Conventional: requiring a minimum down payment of 20%, this loan is equal to or less than 80% of the lending value of a home.
High-ratio: likely requiring mortgage loan insurance due to a down payment of less than 20%, these loans are over 80% of the lending value of a home.
- Amortization period
This describes the length of time that you agree to pay off your mortgage within; it’s typically, 25 years.
- Payment schedule
Whether weekly, fortnightly or monthly, this refers to how often you make your mortgage payments.
- Pre-approved mortgage certificate
Allowing you to shop for a home without the worry of how you’ll pay for it, this describes a written, signed agreement that you’ll get a mortgage for a set figure, at a set rate.
- Pre-payment options
This refers to an ability to increase payments, pay off a mortgage early or make extra payments without incurring a penalty.
This option enables you to switch or transfer your mortgage to another home with either no penalty, or a small one, when you sell your existing home.
Typically carried out when a client needs extra funds, this term describes the process involved when you pay out an existing mortgage for the purpose of establishing a new one on the same property, but under new terms and conditions.
- Renewal or renewing
When your original mortgage term expires, you can choose to either renew it with the original lender, or pay off the outstanding balance.
- Mortgage term
Describing the period of time in which the options and interest rate of your mortgage are in effect, when your mortgage term is up, you can renegotiate the terms of your mortgage and choose the same ones should you so wish.
While it pays to know at least some of the terms surrounding mortgages and home buying, any qualified and professional mortgage broker will be more than happy to talk you through them all, so why not call and schedule a non-biased, non-obligatory consultation, today.