If you are entering the mortgage industry for the first time or are applying for a mortgage for the first-time, then there might be some terms that you would not be familiar with. Hence, here are some commonly used â but not always understood â words to describe mortgages.
Amortization Period
Amortization period is referred to as the number of years it will take you to repay the entire mortgage in full and is determined when you are approved. Having a longer amortization period will result in lower payments but will incur more overall interest as it will take longer to pay off. The typical amortization period is 15 to 30 years.
Closed Mortgage
Closed mortgages include any mortgages where you have agreed to pay the lender within a specific period of time. This means that you cannot pay it off, refinance or renegotiate the terms of your mortgage before the mortgage term ends without incurring a penalty. You can also have an option for accelerated payments but that is dependent entirely on the lender and is also dependent on your particular mortgage contract. Although closed mortgages can be strict, they generally have lower interest rates than an open mortgage.
Conventional Mortgage
In the case of a conventional mortgage, the loan covers no more than 80% of the purchase price on the property. This means that that buyer has put 20% or more down on the property. These mortgages do not require default insurance due to the amount of money put down.
Default
Failure to pay your mortgage on time will result in the default of the loan. When a mortgage goes into default it becomes due and payable immediately and there will be additional penalties that must be paid.
Derogs
Short for âderogatoryâ, derogs refers to an overdue account or late payments on your credit report.
Down
Short for down-payment. In Canada, the minimum down payment is 5% on any home purchase.
Fixed
A fixed-rate mortgage means you are locked in at the interest rate agreed for the entire mortgage term.
Flex Down
Flex down is referred to as the borrowed down payment program. This allows homeowners to âborrowâ funds for the down payment from a credit card, line of credit or other loan. In this case, the repayment of loan is included in the debt ratio calculations.
Foreclosure
This refers to the possession of a mortgaged property by the bank or lender if a borrower fails to keep up their mortgage payments.
High-Ratio Mortgage
When a buyer has provided a down payment of less than 20% of the purchase price and is required to purchase CMHC insurance to insure against a default, it is then known as high-ratio mortgage.
MIC
Short for Mortgage Investment Corporation, this is a group of investors who will lend you the money for a mortgage when a traditional lender will not be due to unusual circumstances.
Open Mortgage
An open mortgage means you can pay out the balance at any time, without incurring a penalty.