Mortgage Jargon – Part 1
As a full time real estate investor, we will be getting a number of mortgages during our career. It is best that we understand all of the mortgage jargon in order to fully understand our mortgage brokers, bankers, lenders, etc., not to mention the contracts we will be signing.
So let's highlight some typical jargon that we may encounter on a regular basis:
This is the amount of time it takes to repay a loan in full, at the payment amount and payment frequency that you have agreed upon at the current interest rate. A standard amortization period is 25 years. Often will get five 5-year term during that time. At the beginning of our new term, our rate will be changed to reflect the current rates available at the time. Our amortization period can be chosen from 1-35 years. You must remember that the longer the amortization period, the less you will pay monthly, but it will take longer to pay, and the more interest you will ultimately pay.
Property assessment is the value of your property which is used by the municipal or local government as a way to calculate your annual property taxes. Depending on your province, you will receive this assessment notice each year or every 2 or even 3 years. To get your yearly tax payment amount , the property value is multiplied by what is called a ‘mill-rate’. There are many other key elements on the tax assessment document that we will require from the seller in order to write a proper offer. Not only the tax assessed value, but the legal description of the property, the year the property was last purchased, and sometimes even the amount that the property was purchased for by the previous owner.
A VRM is based on the current prime rate. Depending on the economics at the time, the mortgage could be the prime rate + an amount or prime rate – an amount. In most cases, a variable rate mortgage is considered open in that you can lock in to a fixed rate at any time of your choosing.
A process whereby a person hired by a lender as an underwriter decides if your deal with qualify with the lender. They take in all the information and documentation that is required. Based on the lending criteria of that particular lender, the underwriter will calculate your debt/service ratios, as well as take into account your credit score. From there they determine if you qualify to get a mortgage loan.
Gross debt/service ratio
Your GDS is required to be no more than 32%. What that means is that no more than 32% of your gross income can be going to servicing the debt for your property, which is your principle, interest, property taxes, heat, and 1/2 condo or strata fees.
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To read the next article in this series – Mortgage Jargon – Part 2
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