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Mortgage Jargon – Part 3
If you missed the previous article – Mortgage Jargon – Part 2
We will continue in our series of Mortgage jargon. As full time Canadian real estate investors, we need to utilize the following definitions as part of our everyday language.
Default
Default is the failure to make any monthly mortgage payment, or meet any other term of a mortgage agreement.
Buy-down
Paying down the mortgage rate, by giving the lender a premium at the time of funding. This means that you are contributing to the amount of the outstanding loan right off the bat, and therefore they can use that to lower your mortgage. And sometimes mortgage brokers, to be competitive, will spend some of their commission to buy down the rate at the lenders for you (if you are getting the mortgage)
Commitment Letter
A commitment letter is written from a lender to a borrower who is considering lending mortgage funds to a borrower. These commitments contain conditions that need to be met before closing.These usually consist of asking the borrower for supporting documents etc., thus “substantiating” the statements made in the mortgage application.
Rate hold
There is often a component in the commitment called a rate-hold which is used when interest rates are moving up or down. The lender may hold the rate they are offering you for 60, 90, or even 120 days. Some of these rates may be a capped rate which can be used on new home purchases. They can have an even longer hold time because the builder has not finished the particular project. They could be held for up to six months, or even as long as a year.
Compliance Letter
A compliance letter is required in many municipalities before a property title can be transferred. This is essentially acknowledging that the property has either been cleared or is cleared of any work orders that have been specific for clean-up or fix-up that the owner must complete before the title transfer happens. This could pertain to a house with mold in it as a result of a grow-op or the like. These acknowledgments come from the municipal building department.
Doubling Up
This is a feature in some mortgages which allows you to double up your mortgage payments at any time without a penalty. This also allows you to skip a payment later on in the mortgage. So if you have doubled up once, then you can skip a payment once, because you have already made a payment. This can be used to accelerate your mortgage (pay it off faster). And when you pay a mortgage off faster, you are essentially saving a lot of money on interest payments.
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For the next article in the series – Mortgage Jargon – Part 4
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An article by Gord Lemon
Gord Lemon has been investing in Canadian real estate for over 25 years. He has been a real estate investment trainer since 2002 and is co-founder of Canadian Wealth Builders. To read more articles by Gord Lemon |
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