Understanding Mortgage Terminology
October 4th, 2010
by Daryl Maksymec
Most people think that buying a house or property is a simple process. That is until you start to get into the legal and financial side of things and are then confronted with a whole lot of terminology and jargon. Understanding what is being referred to can go a long way towards helping you understand the mortgage process. Here are the definitions of some of the commonly used terms and phrases to help you understand what is involved with mortgages.
What Is a Mortgage?
A mortgage is the term used to refer to a housing loan. Typically, it is a loan used to finance the purchase of property over a long period of time. Mortgage terms can last anything between five and 30 years, depending on the governing regulations of where you stay. A mortgage will be made up of a capital amount which is the purchase price of your home, plus an interest amount. The purchase price is what you negotiate with the seller and that typically decides on the mortgage value. Often, lending institutions will require a down payment which is a lump sum that has to be paid separately from the mortgage amount. The interest amount is calculated on an annual basis and added to your monthly repayments.
What Is a Mortgage Broker and How Can One Benefit You?
A mortgage broker is a business that negotiates better mortgage rates and deals on your behalf. They are able to do this because they have a large customer base and therefore considerable buying power. Mortgage brokers also know the industry very well and have excellent relationships with the various lending and finance institutions. Typically, a mortgage broker will be able to provide you with much better rates than you’d be able to get negotiating on your own. They also have deals that help you to pay off your mortgage over a shorter period of time. This can help you to save on a considerable amount of interest and will have your home as a paid-off asset much more quickly which is a huge benefit.
Interest Rates and How They Are Determined
An interest rate is the annual percentage of interest you will be charged on your mortgage. Interest rates can be fixed over a period of time or you can select to have a variable interest rate in which case it will fluctuate in line with the market trends. Typically, a financial institution will offer a standard interest rate on a mortgage. You can then negotiate to get a better rate based on your credit rating and history as well as the value of your mortgage. For example, if you are buying your second home after selling your first, you may not need a very large mortgage. You may have some profits from the sale of your first home and only require a mortgage to make up the difference of the buying price on your new home. For smaller mortgages, you can often get a much better interest rate as you pose a lower risk to lending institutions. In addition, if you have had a mortgage before, you will have a credit history that the mortgage institution can refer to. If you have been diligent about meeting your financial obligations then you will have more room for negotiation in terms of your interest rate. Perhaps one of the most important factors in deciding your interest rate is your credit rating or credit score.
The Importance of Credit Scores
A credit score is basically a ranking based on your credit history. This is something that mortgage lenders look at in detail when considering your application for a loan. They will look at things such as the amount of credit you have made use of and whether you have made adequate repayments based on the minimum repayment required. They also check if the payments were made on time and how long it took you to repay the loan. If you were consistently late in paying accounts and credit cards then this will count against you. If you still have sizeable amounts of outstanding debts, this is also considered a negative. The financial institutions will also look at how often you have applied for credit. Before applying for a mortgage, it is a good idea to get a report of your credit score. In this way, you can make an effort to clear any outstanding debts and improve your overall credit score. A high credit score will see you benefiting from lower interest rates and more flexible repayment terms. A bad credit score can result in them refusing your loan application. If you are fortunate enough to have your loan granted with a bad credit score, you can be certain that you will have a much higher interest rate.
The Canadian Equity Group Inc was formed by a group of mortgage professionals in December of 2001 with the vision to expand the mortgage market and to be a front-runner with major banking institutions. We predict very soon that more than 75% of all mortgages in Canada will be placed through the services of a mortgage broker. If you want to find the best mortgage rates, visit us online today!
October 4th, 2010 by Daryl MaksymecReal Estate Blog
Most people think that buying a house or property is a simple process. That is until you start to get into the legal and financial side of things and are then confronted with a whole lot of terminology and jargon. Understanding what is being referred to can go a long way towards helping you understand the mortgage process. Here are the definitions of some of the commonly used terms and phrases to help you understand what is involved with mortgages.
What Is a Mortgage?
A mortgage is the term used to refer to a housing loan. Typically, it is a loan used to finance the purchase of property over a long period of time. Mortgage terms can last anything between five and 30 years, depending on the governing regulations of where you stay. A mortgage will be made up of a capital amount which is the purchase price of your home, plus an interest amount. The purchase price is what you negotiate with the seller and that typically decides on the mortgage value. Often, lending institutions will require a down payment which is a lump sum that has to be paid separately from the mortgage amount. The interest amount is calculated on an annual basis and added to your monthly repayments.
What Is a Mortgage Broker and How Can One Benefit You?
A mortgage broker is a business that negotiates better mortgage rates and deals on your behalf. They are able to do this because they have a large customer base and therefore considerable buying power. Mortgage brokers also know the industry very well and have excellent relationships with the various lending and finance institutions. Typically, a mortgage broker will be able to provide you with much better rates than you’d be able to get negotiating on your own. They also have deals that help you to pay off your mortgage over a shorter period of time. This can help you to save on a considerable amount of interest and will have your home as a paid-off asset much more quickly which is a huge benefit.
Interest Rates and How They Are Determined
An interest rate is the annual percentage of interest you will be charged on your mortgage. Interest rates can be fixed over a period of time or you can select to have a variable interest rate in which case it will fluctuate in line with the market trends. Typically, a financial institution will offer a standard interest rate on a mortgage. You can then negotiate to get a better rate based on your credit rating and history as well as the value of your mortgage. For example, if you are buying your second home after selling your first, you may not need a very large mortgage. You may have some profits from the sale of your first home and only require a mortgage to make up the difference of the buying price on your new home. For smaller mortgages, you can often get a much better interest rate as you pose a lower risk to lending institutions. In addition, if you have had a mortgage before, you will have a credit history that the mortgage institution can refer to. If you have been diligent about meeting your financial obligations then you will have more room for negotiation in terms of your interest rate. Perhaps one of the most important factors in deciding your interest rate is your credit rating or credit score.
The Importance of Credit Scores
A credit score is basically a ranking based on your credit history. This is something that mortgage lenders look at in detail when considering your application for a loan. They will look at things such as the amount of credit you have made use of and whether you have made adequate repayments based on the minimum repayment required. They also check if the payments were made on time and how long it took you to repay the loan. If you were consistently late in paying accounts and credit cards then this will count against you. If you still have sizeable amounts of outstanding debts, this is also considered a negative. The financial institutions will also look at how often you have applied for credit. Before applying for a mortgage, it is a good idea to get a report of your credit score. In this way, you can make an effort to clear any outstanding debts and improve your overall credit score. A high credit score will see you benefiting from lower interest rates and more flexible repayment terms. A bad credit score can result in them refusing your loan application. If you are fortunate enough to have your loan granted with a bad credit score, you can be certain that you will have a much higher interest rate.
The Canadian Equity Group Inc was formed by a group of mortgage professionals in December of 2001 with the vision to expand the mortgage market and to be a front-runner with major banking institutions. We predict very soon that more than 75% of all mortgages in Canada will be placed through the services of a mortgage broker. If you want to find the best mortgage rates, visit us online today!