Do you know the essential mortgage terminologies in Canada? These following terms are necessary for you to fully understand mortgage in Canada.
Mortgage is a specific type of loan used to purchase a home, where the home being purchased is also the security for the loan. Terminologies refer to the specific terms used in relation to a concept, and as such, mortgage terminologies mean the particular terms used in relation to a mortgage. Thus, central to understanding a mortgage is knowledge about its terminologies.
Contrary to the general belief, understanding mortgage in Canada is not so tedious; rather, it is pretty straightforward. However, you must first understand the essential terminologies associated with a mortgage in Canada for this to be possible. Once you know the key terms related to mortgage in Canada, you will see that understanding mortgage in Canada is easy; so, read on.
Essential Mortgage Terminologies in Canada
In recent years, mortgage usage has been on the increase in Canada. Interestingly, many first-time homebuyers still find it tasking, confusing, and tiring despite its popularity. However, for you, this will not be as you would learn the critical terminologies related to it in this post.
So, follow me on this trip to learn the essential terminologies of mortgages in Canada. Below are the indispensable mortgage terminologies;
You should know that mortgages have various terms. A mortgage term is the period or length of time in which a mortgage contract will be effective. Per the Canadian financial system, there is the Long-term mortgage which is more than 5 years, and the Short-term mortgage, which is 5 years or less.
In Canada, most mortgage holders have a mortgage of 5 years which they renew upon the expiration of the 5 years, mortgage contract. So, in Canada, the short-term mortgage is widely accepted and more popular.
This is an essential terminology in Canada Mortgage. Do you know what amortization means? Well, it is the period required to pay off your mortgage.
It is an estimate based on the interest rate for your current term. The maximum amortization allowed for default-insured mortgages is 25 years. Notwithstanding this, mortgage lenders also offer 30-year amortizations on uninsured mortgages.
One substantial benefit of a more extended amortization period is that the mortgage payments will be lower but, you will pay more interest rates if you take too long to pay your mortgage.
Mortgage Fee or Prepayment Penalty
Crucial to a mortgage is the mortgage fee. It would help if you were prepared for your mortgage lender to charge you a mortgage fee in certain circumstances. This fee comprises 3-month interest, which you pay upon the occurrence of certain events.
For instance, when you make payments more than the accepted additional payments towards your mortgage or when you pay your mortgage loan before the expiration of your term.
Also, you would pay this fee or prepayment penalty when you breach the agreed terms of your mortgage contract or when you do something contrary to the mortgage contract, such as trying to pay out the mortgage loan before the expiration of the timeframe contained in the mortgage contract. You’re bound to pay the mortgage penalty when you breach your mortgage agreement with your mortgage lender.
Ordinarily, a contractual penalty is unenforceable, and the prepayment penalty on the surface is a contractual penalty. However, currently, mortgage lenders are permitted to collect prepayment penalties. Canadian Courts have declared that prepayment penalty is not a contractual penalty per se, but rather a payment that the bank demands as compensation for getting out of an agreed contract earlier than the stipulated time.
Also, it is crucial you know that the leading authority on Mortgage in Canada is the Canada Mortgage and Housing Corporation (CMHC). The CMHC provides mortgage default insurance to protect lenders if you default on your mortgage.
CMHC is a national agency saddled with many duties and responsibilities towards developing mortgages in Canada.
A mortgage broker is an individual who engages in selling mortgages on behalf of multiple lenders. If you want to buy a home or plans to get a house, a broker can assist you in analyzing the best loan options from different lenders.
They render full support and assistance throughout the mortgage process. They help get your financial information, obtain your credit report, process income statements, and manage the application and closing process on your behalf. Most provinces in Canada have licensed mortgage brokers.
This means an entity that lends money for the sole purpose of purchasing a property. The loan is then secured using the property the mortgage lender gave you as collateral.
Mortgage lenders include banks, credit unions, trust companies, mortgage finance companies, insurance companies, and so forth. In Canada, the bulk of money lenders is banks.
This is the total amount of money owing to the mortgage lender. If you want to close your mortgage, you must make monthly installment payments to the lender, including principal and interest portions.
A mortgage rate is the interest lenders charge on a mortgage loan, expressed as a percentage of the loan principal. Canada has two primary mortgage rates. The Fixed mortgage rate, which is like its name, is fixed and guarantees a fixed interest rate for the mortgage term period.
The other type of mortgage rate is Variable mortgage rates, which vary from time to time due to the current financial realities.
Guess you thought this was an actual test. This is not a test per se but rather a set of rules employed by the financial institutions of Canada to ensure that you pay your mortgage irrespective of any financial troubles. If you want to own a house in Canada through a mortgage, you must pass the stress test.
When you’re applying for a mortgage, your property serves as collateral, and a mortgage lender can sell off this collateral if you fail to pay up the mortgage. Foreclosure is a situation where a mortgage lender takes possession of a property when you default on your mortgage obligations.
Once you grasp the critical terminologies involved in mortgages, the process of getting a house in Canada will be more transparent.
Explore more about Mortgage in Canada at our site Best Mortgage Online.