Amortization Period: The actual number of years it will take to pay back your mortgage loan.
Appraised Value: An estimate of the value of the property. Conducted for the purpose of mortgage lending by a certified appraiser. This appraisal is not to be confused with a building inspection.
Assumability: Allows the buyer to take over the seller’s mortgage on the property.
Closed Mortgage: A mortgage that locks you into a specific payment schedule. A penalty usually applies if you repay the loan in full before the end of a closed term.
Condominium Fee: A common payment among owners which is allocated to pay expenses.
Conventional Mortgage: A mortgage loan issued for up to 75% of the property’s appraised value or purchase price, whichever is less.
Down Payment: The buyer’s cash payment toward the property. The difference between the purchase price and the amount of the mortgage loan.
Equity: The difference between the home’s selling value and the debts against it.
High-Ratio Mortgage: A mortgage that exceeds 75% of the home’s appraised value. These mortgages must be insured for payment.
Interest Rate: The value charged by the lender for the use of the lender’s money. Expressed as a percentage.
Land Transfer Tax, Deed Tax Or Property Purchase Tax: A fee paid to the municipal and/or provincial government for the transferring of property from a seller to buyer.
Maturity Date: The end of the term, at which time you can pay off the mortgage or renew it.
Mortgagee: The borrower.
Mortgage Insurance: Applies to high-ratio mortgages. It protects the lender against loss if the borrower is unable to repay the mortgage.
Mortgage Life Insurance: Pays off the mortgage if the borrower dies.
Mortgagor: The person or the financial institution that lends the money.
Open Mortgage: Allows partial or full payment of the principal at any time, without penalty.
Portability: A mortgage option that enables borrowers to take their current mortgage with them to another property, without penalty.
Pre-Approved Mortgage: Qualifies you for a mortgage before you start shopping. You know exactly how much you can spend and are free to make a "firm" offer when you find the right home.
Prepayment Privileges: Voluntary payments in addition to regular mortgage payments.
Principal: The amount borrowed or still owing on a mortgage loan. Interest is paid on the principal amount.
Refinancing: Paying off the existing mortgage and arranging a new one or re-negotiating the terms and conditions of an existing mortgage.
Renewal: Re-negotiation of a mortgage loan at the end of a term for a new term.
Second Mortgage: Additional financing. Usually has a shorter term and higher interest rate than the first mortgage.
Term: The length of time the interest rate is fixed. It also indicates when the principal balance becomes due and payable
to the lender.
Title: Legal ownership in a property.
Variable-Rate Mortgage: A mortgage with fixed payments, but fluctuates with interest rates. The changing interest rate determines how much of the payment goes towards the principal.
Vendor Take-Back Mortgage: When the seller provides some or all of the mortgage financing in order to sell their property.
Here’s How Big Mortgage Savings Are Made
By Linda J. Binns
Most financial institutions offer you a complete range of mortgage products with payment plans to suit your budget. Depending on the payment plan you select, you can save in interest costs, shorten your repayment period by years and pay off your mortgage more quickly. Let’s look at how the savings add up.
Weekly Repayment Plan
With weekly repayment options, you can suit your payments to your income schedule and budget. Table 1 gives you an idea of the savings you can realize by selecting a weekly repayment option.
Many lending institutions offer rapid paydown options. A key feature is the ability to prepay your mortgage in a couple of different ways, without charge. The Toronto-Dominion Bank’s Equity builder allows you to make a lump sum payment of up to 10 percent of the original loan amount. You can take advantage of this once a year on any regular payment date and it is not cumulative. If your original mortgage was $60,000, you can pay up to $6,000 as your lump-sum yearly payment.
Another money saving alternative is to increase your monthly payment (once per year on any regular payment date) by any amount up 10 a maximum of double your original payment over the term. For instance, if you have a starting monthly payment of $500 on a three-year term, you can increase it up to $1,000. You can do so all at once (by $500) in the first year or by any amounts you choose that total $500 over three years. And, if you find that the increase puts too much strain on your budget, you can decrease it again by any amount down 10 the original monthly payment. You can do all of this at no charge.
Table 2 below shows you some examples of how features like rapid paydown can reduce your mortgage costs. On a $75,000 mortgage at 10 percent, total savings can amount to over $101.900. Whether you’re a new homebuyer or about to purchase your second or third home, there are several important factors to consider that can make your home financing as affordable as possible. Make sure to check them out.
|# of Payments Per Year||52||26||24||12|
|Total Interest Cost||$87,920.72||$88,363.88||$89,269.63||$126,255.13|
|Repayment Period||18 YRS, 36 WKS||18 YRS, 38 WKS||18 YRS, 11 MNTHS||25 YRS|
|Total Interest Savings||$38,334.28||$37,891.25||$36,985.50|
|Rapid Paydown Options||Total Interest Paid at 10% per year||Years to pay down a 75% mortgage||Total Interest Savings||Total Interest Savings %|
|Note: With regular monthly payments of $670.87 a $75,000 mortgage at 10% would be paid in 25 years. Interest costs would be $126,255.13||$126,255.13||25 YRS||0||0|
|1. Increase your monthly payment 10% year over year.||$51,671.73||9 YRS, 11 MNTHS||$74,583.40||59%|
|2. Increase your monthly payment 20% year over year||$39,203.42||7 YRS, 5 MNTHS||$87, 051.71||69%|
|3. Regular monthly payments of $670.87 plus annual prepayment of $7,500||$30,128.91||7 YRS.||$96,126.22||76%|
|4. Increase your monthly payment 10% year over year plus annual prepayment of $7,500||$26,723.96||6 YRS||$99,531.17||79%|
|5. Increase your monthly payment 20% year over year plus annual prepayment of $7,500||$24,339.76||5 YRS||$101,915.37||81|