Vancouver Mortgage Information for Newbies (Part 1) – From your Friendly Vancouver Mortgage Broker

Vancouver Mortgage Information for Newbies (Part 1) – From your Friendly Vancouver Mortgage Broker

Many first time homebuyers can be a little bewildered by both the terminology and the types of mortgages available. This Vancouver mortgage broker can appreciate how daunting this process can be for you.

To help you along, we’ve drawn up a 2 part articles to help ease you into the world of mortgage financing. In the first part of this article, we’re going to explain some basic mortgage terminology so you will better understand what these terms mean. Part 2 of the article will explain the differences of the basic mortgage types.

Common Mortgage Terminology Definitions

Agreement of Purchase and Sale

A legal agreement of a purchase offer made on a home which be 1.Conditional (conditions are attached usually related to financing or the sale of a home), or 2. Unconditional which means no conditions are attached.

Amortization

The time used to pay off a mortgage using regular mortgage payments and is generally 25 to 30 years.

Blended Payments

Means regular mortgage payments which are a mix of both principal and interest. The principal portion increases (paying down the amount owed) while interest portion decreases over the life of the mortgage.

Bridge Financing

A loan which is used to bridge the gap during which you are selling a home and buying a new home.

Certificate of Location or Survey

A legal survey of the land you are buying and showing its exact location/boundaries, a description of the building and subsequent additions.

Canada Mortgage and Housing Corporation

Commonly known s as CMHC which operates a mortgage insurance fund for borrowers who do not have a 20% down payment. CMHC insures the mortgage lender against default by the mortgagor (mortgage borrower) who pays the cost of the insurance premium provided by CMHC to the lender.

Closing Date

The date when the sale of the home is finalized and the new owner takes possession of the purchased home.

Debt Service Ratio

The amount of the gross income used by the borrower to pay for the costs of buying a home including the principal and interest on the mortgage, property taxes, heating costs. If is a condominium purchase then the condominium fees must also be included.

Gross Debt service Ratio

Also known as GDS. The percentage of gross income which is used to pay for the costs of buying a home and should generally not exceed 32% of the gross monthly income of the borrower before taxes.

Interest Rate Differential Amount

Also know as IRD. Means prepayment charges you may have to pay if you pay off your mortgage prior to maturity. 

Mortgagee and Mortgagor

Mortgagee is the mortgage lender and mortgagor is the person who borrows the money for a mortgage.

Mortgage Term

The number of years you pay an interest rate which has been specified.

P.I.T.

An acronym for Principal (the amount used to pay down the mortgage) Interest (the amount of interest charged on the mortgage) Taxes (refers to the property taxes assessed by the City Of Vancouver).

Principal

The amount of money you borrow in total to buy a home or condo.

Renewal

Occurs at the end of a mortgage term whereby you must renew the mortgage at a new rate of interest or pay the mortgage off in full.

Term

Refers to the length of your current mortgage agreement you have with a lender.

Total Debt Service Ratio

Also known as TDS. Means the amount of your total gross income which is used to cover all the payments for your home plus all other existing debts you have and should not generally exceed 40% of your total gross income in total.

We hope that takes some of the mystery out of mortgage terminology. As a Vancouver mortgage broker we understand the complexity of the mortgage lingo and hope this helps to make the lingo more comfortable. Stay tuned for part 2 as we explain the basic differences in available mortgage types.