Essential Mortgage Terms
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, Christina Montesano Mortgage Broker has created this handy reference guide. Here you’ll find valuable information allowing you to comprehend and communicate your mortgage needs effectively.
Closed Mortgage: A closed mortgage locks in a mortgage rate; and it will not fluctuate if the Bank of Canada changes their rate. The most common term for a closed mortgage is five years.
Closing Costs: Expenses you pay that are associated with the purchase of a property. These costs can include legal fees, inspection fees, and land transfer tax.
Down Payment: The money that you pay upfront for a house. Down payments typically range from 5%-20% of the total value of the home.
Equity: The difference between the market price of a property and the amount still owing on any mortgages or liens. Home equity = Property value - Total debt secured by the property.
Gross Debt Service (GDS) Ratio: The percentage of annual gross income required to cover the principal mortgage payments, mortgage interest payments, property taxes, and heat payments. If the property is a condominium, condo fees will also get worked into this ratio.
Mortgage: A loan that you take out from a lender to purchase a property. The collateral is the property itself.
Open Mortgage: A mortgage with no term. It means that you can pay off your mortgage either fully or partially at any time with no penalty. Open mortgage rates are usually higher than closed mortgage rates. If rates start to increase, you can easily pay off an open mortgage or switch to a closed one.
Qualifying Rate: The rate a lender uses when determining if you qualify for a mortgage. Your lender uses this rate to calculate your debt-service ratio, which is a measure of the difference between your debt and income. It helps your lender determine if you can repay the mortgage.
Refinancing: The process of paying out the existing mortgage to establish a new mortgage on the same property under new terms and conditions. It usually gets completed when a client requires additional funds.
Total Debt Service (TDS) Ratio: The percentage of annual gross income required to cover the principal mortgage payments, mortgage interest payments, property taxes, and heat payments. It also includes monthly payments of any other debt the borrower holds. If the property is a condominium, condo fees will also get worked into this ratio.
Variable Rate Mortgage: An interest rate that will fluctuate in accordance with the prevailing market prime rate during the mortgage term.
I hope these terms have made you more confident to liaise with a mortgage broker. If you’re looking for an experienced mortgage broker, reach out to Christina Montesano, Mortgage Broker in Montreal.
I have over fourteen years of banking experience with several financial institutions and have focused on mortgages for the past seven years. Consequently, I render personalized services to meet each of my clients’ unique needs and expectations.
My services include first-time home buyer mortgages, investment properties, mortgage portability, plan b mortgage services, self-employed mortgages, and refinancing, to name just a few.
I serve clients across LaSalle, Montreal, Dorval, Boucherville, Repentigny, Brossard, Terrebonne, Laval, Saint-Jean-sur-Richelieu, Mont-Saint-Hilaire and Longueuil, QC.