The Facts and Breakdown of Mortgages and Pre-Approval for Mortgages
Another useful article written for the New Home Buyers Guide (HomeBase.ca magazine in the Lower Mainland), this breakdown goes through the different types of mortgages available on the market these days for home buyers, first time purchasers and how to get the best pre-approval for your home buying situation and how to secure your mortgages with banks. Originally presented in the December 08, 2006 to January 05, 2007 edition of the New Home Buyers Guide, you can read more about current real estate developments and mortgage bank information online at the www.homebase.ca HomeBase website today.
There is no such thing as “just a mortgage” these days. Today’s home owners have a special needs and widely varied financial circumstances. Because of this, there are numerous types of mortgages, mortgage pre-approvals and bank payment options designed to meet the unique requirements of every home owner. In addition to the HomeBase.ca definitions, we have also include the Real Estate Board of Greater Vancouver mortgage definitions too. The fundamental components of a bank mortgage wherever you live include:
Mortgage Principal
The amount of money you need to borrow, usually the difference between the selling price of the real estate property and the down payment. The bank mortgage is the amount initially borrowed or the portion still owing on the mortgage. Interest is calculated on the principal amount.
Interest
The amount you will pay for borrowing money for your principal real estate amount.
Mortgage Payment
A regular instalment, usually made up of principal and interest, by which you repay the mortgage over its term to maturity.
Amortization Period
The actual number of years it will take you to repay the entire mortgage, generally a period anywhere between fifteen and twenty five years. A table showing the amounts of principal and of interest comprising each level payment due at regular intervals and the outstanding principal balance of the loan after each level payment is made.
Amortized Mortgage
A bank mortgage requiring periodic payments which include both a partial repayment of the debt and interest on the outstanding balance.
Mortgage Term
The length of time which a specific mortgage agreement covers generally being between six month and twenty years (although twenty five year terms have recently been introduced). When the term matures or expires, the balance of the mortgage is generally renegotiated for another term at prevailing rates and conditions in effect at that time.
Home Equity
The value of the real estate property over and above all claims, generally being the different between market value and the outstanding principal of all mortgages relating to the property. Essentially the difference between the price of which a real estate property can be sold and the mortgage(s) on the property. Home equity is the owner’s stake in the property.
Conventional Mortgage
A mortgage loan that is seventy five per cent or less of the loan to value ratio; and does not require insurance by CMHC or other private insurer.
Debt Service Ratio
The percentage of a borrower’s income that can be sued for housing costs.
Gross Deb Service (GDS) Ratio
The amount that a lender will permit a borrower to use from his/her gross income in order to qualify for a loan for housing costs, including mortgage payment and taxes (and condominium fees, when applicable).
Total Debt Service (TDS) Ratio
The maximum percentage of a borrower’s income that a lender will consider for all debt repayment (other loans and credit cards, ect.) including a mortgage.
High-Ratio Mortgage
A bank mortgage that exceeds seventy five percent of the loan to value ratio; must be insured by either the Canada Mortgage and Housing Corporation (in Canada also known as CMHC) or a private insurer (in the United States and Canada) to protect the lender against default by the borrower who has less equity invested in the property.
Mortgage Insurance
Government backed or private-backed insurance protecting the lender against the borrower’s default on high-ratio (and other types of) mortgages.
Open Mortgage
A mortgage that can be prepaid or renegotiated at any time and in any amount, without penalty.
Variable Rate Mortgage
A bank mortgage for which payments are fixed, but whose interest rate changes in relationship to fluctuating market interest rates. If mortgage rates go up, a larger portion of th epyament goes to interest. If the rate goes down, a larger portion of the payment is applied to the principal.
These definitions and information on mortgages is brought to you by HomeBase.ca and the Real Estate Board of Greater Vancouver.
There is no such thing as “just a mortgage” these days. Today’s home owners have a special needs and widely varied financial circumstances. Because of this, there are numerous types of mortgages, mortgage pre-approvals and bank payment options designed to meet the unique requirements of every home owner. In addition to the HomeBase.ca definitions, we have also include the Real Estate Board of Greater Vancouver mortgage definitions too. The fundamental components of a bank mortgage wherever you live include:
Mortgage Principal
The amount of money you need to borrow, usually the difference between the selling price of the real estate property and the down payment. The bank mortgage is the amount initially borrowed or the portion still owing on the mortgage. Interest is calculated on the principal amount.
Interest
The amount you will pay for borrowing money for your principal real estate amount.
Mortgage Payment
A regular instalment, usually made up of principal and interest, by which you repay the mortgage over its term to maturity.
Amortization Period
The actual number of years it will take you to repay the entire mortgage, generally a period anywhere between fifteen and twenty five years. A table showing the amounts of principal and of interest comprising each level payment due at regular intervals and the outstanding principal balance of the loan after each level payment is made.
Amortized Mortgage
A bank mortgage requiring periodic payments which include both a partial repayment of the debt and interest on the outstanding balance.
Mortgage Term
The length of time which a specific mortgage agreement covers generally being between six month and twenty years (although twenty five year terms have recently been introduced). When the term matures or expires, the balance of the mortgage is generally renegotiated for another term at prevailing rates and conditions in effect at that time.
Home Equity
The value of the real estate property over and above all claims, generally being the different between market value and the outstanding principal of all mortgages relating to the property. Essentially the difference between the price of which a real estate property can be sold and the mortgage(s) on the property. Home equity is the owner’s stake in the property.
Conventional Mortgage
A mortgage loan that is seventy five per cent or less of the loan to value ratio; and does not require insurance by CMHC or other private insurer.
Debt Service Ratio
The percentage of a borrower’s income that can be sued for housing costs.
Gross Deb Service (GDS) Ratio
The amount that a lender will permit a borrower to use from his/her gross income in order to qualify for a loan for housing costs, including mortgage payment and taxes (and condominium fees, when applicable).
Total Debt Service (TDS) Ratio
The maximum percentage of a borrower’s income that a lender will consider for all debt repayment (other loans and credit cards, ect.) including a mortgage.
High-Ratio Mortgage
A bank mortgage that exceeds seventy five percent of the loan to value ratio; must be insured by either the Canada Mortgage and Housing Corporation (in Canada also known as CMHC) or a private insurer (in the United States and Canada) to protect the lender against default by the borrower who has less equity invested in the property.
Mortgage Insurance
Government backed or private-backed insurance protecting the lender against the borrower’s default on high-ratio (and other types of) mortgages.
Open Mortgage
A mortgage that can be prepaid or renegotiated at any time and in any amount, without penalty.
Variable Rate Mortgage
A bank mortgage for which payments are fixed, but whose interest rate changes in relationship to fluctuating market interest rates. If mortgage rates go up, a larger portion of th epyament goes to interest. If the rate goes down, a larger portion of the payment is applied to the principal.
These definitions and information on mortgages is brought to you by HomeBase.ca and the Real Estate Board of Greater Vancouver.
Labels: Banks, Breakdown, Checklist, Facts, Finance, Financing, Mortgages, Pre-Approval, Real Estate
posted by hattrick @ 4:30 PM
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