1. Be sure to get the loan that’s right for you.

Once you have found the home of your dreams, or thinking of renovating the basement to your needs, or building that wonderful kitchen. Hold everything, even if you’ve think that you may have all your bases covered, stop and make sure you get a loan that’s appropriate for your needs.

Common mistake to many borrowers make is taking an adjustable- rate mortgage because of the “attractive rate.” You know you are going to be in your house for more than just three or four years, you ought to consider getting a rate that is made specifically for your situation. At MMAMortgages.com we will consult you on which mortgage is made for your specific needs.

2. Use a mortgage broker, they can bargain for a better rate.

Consumers today have all the resources necessary to shop around and get the best price possible. As a consumer you may find the best rate on the internet, or the local bank but you should really hold that thought and analyze what you are really doing. Every lender you visit to shop for your best rate will pull a credit bureau on you current situation. Did you know that every inquiry on your credit situation can slowly decrease the score you have worked so hard to achieve? By using MMAMortgages.com, we will pull your credit bureau ONCE!, and with that credit bureau we can shop all available Canadian Lenders to ensure that you get the best possible rate for your specific situation.

3. Mortgage insurance is a must, why you should have it.

If you are the primary earner in your family and you carry a current mortgage on your home, it is important that you consider risk management in the event that something bad was to happen to you. This is particularly important if you do not have adequate savings for your family to pay bills and live comfortably in the event of your death.

4. “Prequalified” doesn’t mean that you can now buy what you see.

Lenders will tell you until they are blue in the face that you have qualified for XX amount. Well….they will pre-approve you based on what you have told them or you have written on paper with no actual verification on what your situation really looks like. Believe us when it comes to actually getting your mortgage, your pre-approvals really mean nothing. The true approval is made when you have found the property, and they closely analyze you and your property. At MMAMortgages.com we will always tell you exactly what the score is, so when you ask for a preapproval, the best way for that is buy a home you can afford and let us do the rest!

5. Interest rates change daily, let a professional help you.

Trying to compare rates from different mortgage lenders, compare apples to apples compare interests from the same day. Ask your MMAMortgages.com agent to help hold your rate to accommodate your specific need.


Note that we have capitalized each word here, many people fall prey to smooth talkers. Paying any fees upfront does not guarantee you a better loan or a mortgage. At MMAMortgages.com we will not charge you anything up front, we only get paid once you get what you are asking for and have received it.

7. Mortgages are not commodities, it’s just not about rate, rate, rate!

If you think “it’s all about what’s my best rate”, you are sadly mistaken. Shopping for a mortgage should be about finding a reputable and creditable mortgage broker that has your best interest in mind. At MMAMortgages.com we will help out finding a trusted partner help you map out the best course of action for your specific need. We will help you with reading complex mortgage documents, offer honest advice and will always be available to respond to any questions that you may have throughout the loan process. But wait it does not end there, at MMAMortgages.com you are not the flavor of the month or just another customer, all our customers our customers for life. Call us anytime to discuss your financial situation.

8. NEVER EVER make the bare minimum payment.

You will slowly find yourself owing more money that you initially started with. MMAMortgages.com to assist you in choosing the best course of action to become debt free quicker, and easier. Paying off your mortgage should not take a lifetime, ask us how to do it right!

9. Never miss a payment, and pay more towards principal if you can.

Now that you have your dream, and it has become a reality, DO NOT fall victim to letting it go so easy. Always pay your mortgage, ALWAYS. MMAMortgages.com will guide you through the right mortgage made for you, always looking at your situation. “Never bite off more than you can chew!”

What is a mortgage?

A mortgage is a loan to buy a home. You borrow money and pay it back to the lender with interest overa set period of time. This mortgage loan is secured against the home you buy – if for any reason you cannot repay your mortgage, the lender can take back your property and sell it to recoup their loan.

How much can I borrow?

The amount you can borrow depends on your circumstances, and you need consider carefully how much you can afford to repay each month. Traditionally, mortgage lenders will lend up to 32% of your salary (before tax) – some may lend you more to a maximum of 50%. Lenders will assess your income and expenses in order to decide on amount they’ll lend you.

What do lenders want to know?

Lenders require information prior to issuing you a mortgage. You should keep all details of your employment, salary and history to hand, plus a record of previous, regular mortgage or rental payments. A credit bureau is also used to gauge your risk level when borrowing money. Some may overlook minor credit problems from the past if your application is strong in other ways, but overall the deal has to make sense for you and them.

Do I need a Down Payment?

In Canada 100% financing is gone. A minimum down payment of 5% is needed plus an additional 1- 1.5% closing cost to be paid up-front. Remember that if your down payment is less than 20%, it may be subject to mortgage insurer fees escalating as high as 5.75% of the mortgage loan! It is become more common for new Home Owners to now save a 15-20% down payment to avoid these costs.

How much interest will I pay?

Mortgage rates tend to increase and decrease in line with the Bank of Canada’s prime rate, mortgage lenders constantly come up with new deals to attract new customers, and your initial interest rate will depend on the deal you choose. Let MMA Mortgages.com shop the market for you to discover what discounts are available and what product best suits your needs.

Can MMA Mortgages.com get a great deal?

Whether you already have a mortgage or are looking to obtain a new one, let MMA Mortgages.com work for you. In order to see if you have the best deal, check your annual statement to see what you’re paying each month and when you term is up. Once your minimum period with your current lender has expired you can shop around for a newer, cheaper deal – it’s not illegal to switch mortgage providers, but there may be fees involved depending on your provider.

Can I pay my mortgage off early?

Some mortgages allow you to do this for free while others charge a fee depending on the arrangement you’ve taken out, especially if you’ve taken advantage of a special deal for a fixed period that has not yet ended. You should always plan to pay off the mortgage on your home before you retire unless you’re certain you can keep up payments on your pension or savings.

What is refinancing?

Refinancing is not about buying a new home but switching your current mortgage to a deal that can lower your repayment amounts and save money. It is of particular relevance if the value of your home has risen, and you are looking to use the equity for an investment or consolidate debt.

A-Credit A consumer with the best credit rating, deserving of the lowest prices that lenders offer. Most lenders require a EQUIFAX score above 720. There is seldom any payoff for being above the A-credit threshold, but you pay a penalty for being below it.

Accelerated Mortgage Payment An option that allows for an increased periodic mortgage payment. An accelerated payment frequency will reduce the overall amount repaid.

Affordability A consumer’s capacity to afford a house. Affordability is usually expressed in terms of the maximum price the consumer could pay for a house, and be approved for the mortgage required to pay that amount.

Agreement of Sale A contract signed by buyer and seller stating the terms and conditions under which a property will be sold.

Alternative Documentation Expedited and simpler documentation requirements designed to speed up the loan approval process. Instead of verifying employment with the applicant’s employer and bank deposits with the applicant’s bank, the lender will accept paycheck stubs, and the borrower’s original bank statements. Alternative documentation remains “full documentation”, as opposed to the other documentation options

Amortization The actual number of years it will take to repay a mortgage in full. A common amortization period is 25 years, though shorter and longer timeframes are available. The maximum amortization for a mortgage in Canada is 30 years.

Amortization schedule A table showing the mortgage payment, broken down by interest and amortization, the loan balance, tax and insurance payments if made by the lender, and the balance of the tax/insurance escrow account.

Application A request for a loan that includes the information about the potential borrower, the property and the requested loan that the solicited lender needs to make a decision.

Appraised Value An estimate of the market value of a home and property. This value may be more or less than the purchase price of the property.

Appraiser A professional with knowledge of real estate markets and skilled in the practice of appraisal. When a property is appraised in connection with a loan, the appraiser is selected by the lender, but the appraisal fee is usually paid by the borrower

Appraisal fee A fee charged by an appraiser for the appraisal of a particular property.

Arrears Payments which have not been paid as requested and have become overdue.

Assets The possessions of value that you own. Common examples are your home, car, investments or summer home

APR The Annual Percentage Rate, which must be reported by lenders under Truth in Disclosure to Borrow. It is a measure of credit cost to the borrower that takes account of the interest rate, points, and flat dollar charges by the lender. The charges covered by the APR also include mortgage insurance premiums, but not other payments to third parties, such as payments to title insurers or appraisers. The APR is adjusted for the time value of money, so that dollars paid by the borrower up-front carry a heavier weight than dollars paid in the future. However, the APR is calculated on the assumption that the loan runs to term, and is therefore potentially deceptive for borrowers with short time horizons.

Approval Acceptance of the borrower’s loan application. Approval means that the borrower meets the lender’s qualification requirements and also its underwriting requirements. In some cases, especially where approval is provided quickly as with automated underwriting systems, the approval may be conditional on further verification of information provided by the borrower.

Assumption A method of selling real estate where the buyer of the property agrees to become responsible for the repayment of an existing loan on the property. Unless the lender also agrees, however, the seller remains liable for the mortgage.

Assumable mortgage A mortgage contract that allows, or does not prohibit, a creditworthy buyer from assuming the mortgage contract of the seller. Assuming a loan will save the buyer money if the rate on the existing loan is below the current market rate, and closing costs are avoided as well. A loan with a “due-on-sale” clause stipulating that the mortgage must be repaid upon sale of the property, is not assumable.

Authorized user Someone authorized by the original credit card holder to use the holder’s card. The card-holder is responsible for the charges of the authorized user, but the authorized user is not responsible for paying any charges, including his own. But sometimes authorized users are dunned for the unpaid bills of the card holder.

Balance The amount you owe, after taking payments into account.

Bimonthly mortgage A mortgage on which the borrower pays half the monthly payment on the first day of the month, and the other half on the 15th.

Biweekly mortgage A mortgage on which the borrower pays half the monthly payment every two weeks. Because this results in 26 (rather than 24) payments per year, the biweekly mortgage amortizes before term.

Blemished borrowers Borrowers with one or more of the following risk factors: they can only make a very small or no down payment; they cannot fully document their income and assets; their property is something other than a single-family home; their loan is intended to raise cash or to purchase an investment property; they have low credit scores; their income is low relative to their expected total obligations; and their mortgage carries an adjustable rate that will result in substantially higher payments in a few years

Blended Payments Payments are made up of both a principal and an interest component. Over the term of the mortgage, the principal portion of payment increases while the interest decreases.

Bridge loan A short-term loan, usually from a bank, that “bridges” the period between the closing date of a home purchase and the closing date of a home sale. Unsecured bridge loans are available if the borrower has a firm contract to sell the existing house. Secured bridge loans are available without such a contract.

Builder-financed construction Having the builder finance the construction.

Cash-in refi As part of a refinance transaction, paying down the loan balance in order to reduce the loan-to-value ratio and qualify for a lower interest rate and/or reduced mortgage insurance premium

Closed Mortgage A mortgage that cannot be pre-paid renegotiated or refinanced before maturity. A lender may permit payout under certain circumstances but will charge a penalty.

Cash Back Option When the borrower receives an amount of cash on closing. The amount of cash back is a percentage of the total loan amount.

Cash-Out refi Refinancing for an amount in excess of the balance on the old loan plus settlement costs. The borrower takes “cash-out” of the transaction. This way of raising cash is usually an alternative to taking out a home equity loan.

Closing On a home purchase, the process of transferring ownership from the seller to the buyer, the disbursement of funds from the buyer and the lender to the seller, and the execution of all the documents associated with the sale and the loan. On a refinance, there is no transfer of ownership, but the closing includes repayment of the old lender.

Closing Date The date upon which, the sale of a property becomes final.

Conventional Mortgage A mortgage that does not exceed 80% of the value of the property. Mortgages with a higher Loan to Value ratio must be insured against default and are considered “high-ratio” mortgages.

Collateral Assets pledged as security for the repayment of a loan.

Construction financing The method of financing used when a borrower contracts to have a house built, as opposed to purchasing a completed house.

Co-Borrowers One or more persons who have signed the note, and are equally responsible for repaying the loan. Unmarried co-borrowers who live together are advised to agree beforehand on what happens if they split.

Credit report A report from a credit bureau containing detailed information bearing on credit-worthiness, including the individual’s credit history.

Credit score A single numerical score, based on an individual’s credit history, that measures that individual’s credit worthiness. Credit scores are as good as the algorithm used to derive them. The most widely used credit score is called EQUIFAX which developed it.

Debtaholic A borrower who cannot handle debt except by complete abstinence. Debt consolidation Rolling short-term debt into a home mortgage loan, either at the time of home purchase or later. For columns on the subject, see Debt Consolidation.

Debt elimination Scams designed to relieve you of your money by promising to eliminate your mortgage debt.

Deed (Certificate of Ownership) The document required to transfer ownership of a home from seller to the purchaser.

Deed in lieu of foreclosure Deeding the property over to the lender as an alternative to having the lender foreclose on the property

Default Failure of the borrower to honour the terms of the loan agreement. Lenders (and the law) usually view borrowers delinquent 90 days or more as in default.

Deferred interest Same as negative amortization.

Delinquency A mortgage payment that is more than 30 days late. For articles on payment problems, see Payment Problems. Don’t confuse with Late payment.

Demand clause A clause in the note that allows the lender to demand repayment at any time for any reason.

Disaster Myopia  The tendency of lenders to ignore potential shocks that can cause them major losses if a long period has elapsed since a shock has occurred..

Disclosure Form A document given to a potential borrower by a lender stating all the terms of the loan. This includes the interest rate, the length of the loan, and any applicable fees. Lenders are required to provide disclosure statements.

Discount mortgage broker A mortgage broker who claims to be compensated entirely by the lender rather than by the borrower.

Documentation requirements The set of lender requirements that specify how information about a loan applicant’s income and assets must be provided, and how it will be used by the lender.

Down payment The difference between the value of the property and the loan amount, expressed in dollars, or as a percentage of the price. For example, if the house sells for $100,000 and the loan is for $80,000, the down payment is $20,000 or 20%.

Equity The difference between the value of the property and the amount of any loan secured against it.

Escrow An agreement that money or other objects of value be placed with a third party for safe keeping, pending the performance of some promised act by one of the parties to the agreement. It is common for home mortgage transactions to include an escrow agreement where the borrower adds a specified amount for taxes and hazard insurance to the regular monthly mortgage payment. The money goes into an escrow account out of which the lender pays the taxes and insurance when they come due

Escrow abuse The practice of using escrow accounts inappropriately to generate more income from hapless borrowers.

Fallout Loan applications that are withdrawn by borrowers, sometimes because they have found a better deal.

Fees The sum of all upfront cash payments required by the lender as part of the charge for the loan.

Final prices The prices paid by the borrower, as opposed to posted prices.

First mortgage A mortgage that has a first-priority claim against the property in the event the borrower defaults on the loan. For example, a borrower defaults on a loan secured by a property worth $100,000 net of sale costs. The property has a first mortgage with a balance of $90,000 and a second mortgage with a balance of $15,000. The first mortgage lender can collect $90,000 plus any unpaid interest and foreclosure costs. The second mortgage lender can collect only what is left of the $100,000.

Fixed rate mortgage (FRM) A mortgage on which the interest rate and monthly mortgage payment remain unchanged throughout the term of the mortgage..

Foreclosure Happens when the lender takes ownership of the property after the borrower does not make payments (known as defaulting).

Gift of equity A sale price below market value, where the difference is a gift from the sellers to the buyers. Such gifts are usually between family members. Lenders will usually allow the gift to count as down payment.

Grace period The period after the payment due date during which the borrower can pay without being hit for late fees. Grace periods apply only to mortgages on which interest is calculated monthly. Simple interest mortgages do not have a grace period because interest accrues daily

Gross Debt Service Ratio (GDS) The percentage of the borrower’s gross annual income required to cover monthly mortgage payments, land taxes, heating costs and half of any condominium maintenance fees.

Hazard insurance Insurance purchased by the borrower, and required by the lender, to protect the property against loss from fire and other hazards. Also known as “homeowner insurance”, it is the second “I” in PITI. See Questions About Home Owners Insurance.

High Ratio Mortgage This is a mortgage over 80% loan to value. If the borrower has less than 20% down payment, the mortgage must be insured by a mortgage insurer such as CMHC.

Homeowner’s equity See Equity.

Homeowners insurance Insurance purchased by the borrower, and required by the lender, to protect the property against loss from fire and other hazards.

Home equity line of credit (HELOC) A mortgage set up as a line of credit against which a borrower can draw up to a maximum amount, as opposed to a loan for a fixed dollar amount. For example, using a standard mortgage you might borrow $150,000, which would be paid out in its entirety at closing. Using a HELOC instead, you receive the lender’s promise to advance you up to $150,000, in an amount and at a time of your choosing. You can draw on the line by writing a check, using a special credit card, or in other ways.

Home equity line Same as HELOC.

Home equity loan Same as second mortgage.

Housing bubble A marked increase in house prices fueled partly by expectations that prices will continue to rise.

Housing expense The sum of mortgage payment, hazard insurance, property taxes, and homeowner association fees.

Housing expense ratio The ratio of housing expense to borrower income, which is used in qualifying borrowers.

Housing investment The amount invested in a house, equal to the sale price less the loan amount.

Interest accrual period The period over which the interest due the lender is calculated. If the interest accrual period on a 6 % mortgage for $100,000 is a year, as it is on some loans in the UK and India, the interest for the year is .06($100,000) = $6,000. If interest accrues monthly, as it does on most mortgages in the US, the monthly interest is .06/12($100,000) = $500. If interest accrues biweekly, as on a few programs in the US, the biweekly interest is .06/26($100,000) = $230.77. And if interest accrues daily, as HELOCs and some other mortgages do, the daily interest is .06/365($100,000) = $16 .44.

Interest cost A time-adjusted measure of cost to a mortgage borrower. It is calculated in the same way as the APR except that the APR assumes that the loan runs to term, and is always measured before taxes. The formula is shown in Mortgage Formulas. Interest cost is measured over the individual borrower’s time horizon, and it may be measured after taxes at the individual borrower’s tax rate. In addition, the cost items included in interest cost may be more or less inclusive than those included in the APR. See

Interest due The amount of interest, expressed in dollars, computed by multiplying the loan balance at the end of the preceding period times the annual interest rate divided by the interest accrual period. It is the same as interest payment except when the scheduled mortgage payment is less than the interest due, in which case the difference is added to the balance and constitutes negative amortization.

Interest-only mortgage A mortgage on which for some period the monthly mortgage payment consists of interest only. During that period, the loan balance remains unchanged. See Interest Only Mortgages.

Interest payment The dollar amount of interest paid each month. It is the same as interest due so long as the scheduled mortgage payment is equal to or greater than than the interest due. Otherwise, the interest payment is equal to the scheduled payment.

Interest rate The rate charged the borrower each period for the loan of money, by custom quoted on an annual basis. A rate of 6%, for example, means a rate of 1/2% per month. A mortgage interest rate is a rate on a loan secured by a specific property. See Mortgage Interest Rates.

Interest rate adjustment period The frequency of rate adjustments on an ARM after the initial rate period is over. The rate adjustment period is sometimes but not always the same as the initial rate period. As an example, a 3/3 ARM is one in which both periods are 3 years while a 3/1 ARM has an initial rate period of 3 years after which the rate adjusts every year.

Interest Rate Differential (IRD) An IRD is a compensation charge that may apply if you pay off your mortgage principal prior to the maturity date or pay the mortgage principal down beyond the prepayment privilege amount. The IRD is calculated on the amount being prepaid using an interest rate equal to the difference between your existing mortgage interest rate and the interest rate that the lender will charge when re-lending the funds for the remaining term of the mortgage.

Investor In real estate, a borrower who owns or purchases a property as an investment rather than as a residence.

Late fees Fees that lenders are entitled to collect from borrowers who don’t pay within the grace period. Most mortgage notes offer borrowers a 10 or 15-day grace period, with a late charge of about 5% on payments received on the 16th or later.

Lease-to-own purchase A transaction in which a hopeful home buyer leases a home with an option to buy it within a specified period.

Lessee The person to whom a lease is granted – the tenant.

Lessor The person who grants a lease – the landlord.

Lender See Mortgage lender.

Lien The lender’s right to claim the borrower’s property in the event the borrower defaults. If there is more than one lien, the claim of the lender holding the first lien will be satisfied before the claim of the lender holding the second lien, which in turn will be satisfied before the claim of a lender holding a third lien, etc.

Loan amount The amount the borrower promises to repay, as set forth in the mortgage contract. It differs from the amount of cash disbursed by the lender by the amount of points and other upfront costs included in the loan.

Loan officer Employees of lenders or mortgage brokers who find borrowers, sell and counsel them, and take applications

Loan provider A lender or a mortgage broker.

Loan-to-value ratio The loan amount divided by the lesser of the selling price or the appraised value. Also referred to as LTV. The LTV and down payment are different ways of expressing the same set of facts.

Lock An option exercised by the borrower, at the time of the loan application or later, to “lock in” the rates and points prevailing in the market at that time. The lender and borrower are committed to those terms, regardless of what happens between that point and the closing date.

Maturity The period until the last payment is due. This is usually but not always the term, which is the period used to calculate the mortgage payment.

Maximum loan amount The largest loan size permitted on a particular loan program. For programs where the loan is targeted for sale to Fannie Mae or Freddy Mac, the maximum will be the largest loan eligible for purchase by these agencies. On FHA loans, the maximums are set by the Federal Housing Administration, and vary somewhat by geographical area. On other loans, maximums are set by lenders.

Maximum loan to value ratio The maximum allowable loan-to-value ratio on the selected loan program.

Minimum down payment The minimum allowable ratio of down payment to sale price on any program. If the minimum is 10%, for example, it means that you must make a down payment of at least $10,000 on a $100,000 house, or $20,000 on a $200,000 house.

Monthly housing expense Same as Housing expense.

Monthly debt service Monthly payments required on credit cards, installment loans, home equity loans, and other debts but not including payments on the loan applied for.

Monthly total expenses Same as Total housing expense.

Mortgage A written document evidencing the lien on a property taken by a lender as security for the repayment of a loan. The term “mortgage” or “mortgage loan” is used loosely to refer both to the lien and the loan. In most cases, they are defined in two separate documents: a mortgage and a note.

Mortgage broker An independent contractor who offers the loan products of multiple lenders, termed wholesalers. A mortgage broker counsels on the loans available from different wholesalers, takes the application, and usually processes the loan. When the file is complete, but sometimes sooner, the lender underwrites the loan. In contrast to a correspondent, a mortgage broker does not fund a loan. For articles on mortgage brokers and how to deal with them, see Mortgage Brokers.

Mortgage lead A packet of information about a consumer who a loan provider might be able to convert into a borrower. You become a lead when you fill out a questionnaire about yourself on-line in response to a sexy ad.

Mortgage formulas Equations used to derive common measures used in the mortgage market, such as monthly payment, balance, and APR.

Mortgage insurance premium The up-front and/or periodic charges that the borrower pays for mortgage insurance. There are different mortgage insurance plans with differing combinations of up-front, monthly and annual premiums. The most widely used premium plan is a monthly charge with no upfront premium. For a sample of monthly premiums, see Sample Mortgage Insurance Premiums.

Mortgage insurance cancellation Canceling a mortgage insurance policy. Read Canceling Private Mortgage Insurance (I), and Canceling Private Mortgage Insurance (II).

Mortgage lender The party who disburses funds to the borrower at the closing table. The lender receives the note evidencing the borrower’s indebtedness and obligation to repay, and the mortgage which is the lien on the subject property.

Multiple Listing Service (MLS) A service that allows real estate professionals to see properties being sold by other agents.

Mortgage payment The monthly payment of interest and principal made by the borrower.

Mortgage referrals Advice on where to go to get a mortgage. See

Mortgage scams Deceptive and exploitative schemes by lenders, brokers, home sellers and sometimes even borrowers.

Mortgage shopping Trying to find the best deal on a mortgage.

Mortgage suitability The doctrine that mortgage lenders should be held liable for providing loans that are not suitable for the borrower.

Negative amortization A rise in the loan balance when the mortgage payment is less than the interest due. Sometimes called “deferred interest.” It is explained in detail in How Does Negative Amortization on a Mortgage Work?  Negative amortization arises most frequently on ARMs.

Negative Homeowners Equity The condition of owing more on the house than the house is worth.

Note A document that evidences a debt and a promise to repay. A mortgage loan transaction always includes both a note evidencing the debt, and a mortgage evidencing the lien on the property, usually in two documents.

Open Mortgage A mortgage that can be prepaid at any time without penalty.

Partial prepayment Making a payment larger than the scheduled payment as a way of paying off the loan earlier. See Prepayment.

Payment adjustment interval The period between payment changes on an ARM, which may or may not be the same as the interest rate adjustment period. Loans on which the payment adjusts less frequently than the rate may generate negative amortization.

Payment period The period over which the borrower is obliged to make payments. On most mortgages, the payment period is a month, but on some it is biweekly.

Payment rate The interest rate used to calculate the mortgage payment, which is usually but not necessarily the interest rate.

Per diem interest Interest from the day of closing to the first day of the following month. In some cases, however, the borrower can get a credit at closing by making the first payment a month earlier.

Pre-approval A commitment by a lender to make a mortgage loan to a specified borrower, prior to the identification of a specific property. It is designed to make it easier to shop for a house. Unlike a pre-qualification, the lender checks the applicant’s credit.

Prepayment A payment made by the borrower over and above the scheduled mortgage payment. If the additional payment pays off the entire balance it is a “prepayment in full”; otherwise, it is a “partial prepayment.” For articles on prepayment, see Mortgage Prepayment (Paying Off Early).

Prepayment penalty A charge imposed by the lender if the borrower pays off the loan early. The charge is usually expressed as a percent of the loan balance at the time of prepayment, or a specified number of months interest.

Pre-qualification Same as qualification.

Price-gouging Charging interest rates and/or fees that are excessive relative to what the same borrowers could have found had they shopped the market.

Primary residence The house in which the borrower will live most of the time, as distinct from a second home or an investor property that will be rented.

Principal The portion of the monthly payment that is used to reduce the loan balance. See Amortization

Qualification The process of determining whether a prospective borrower has the ability, meaning sufficient assets and income, to repay a loan. Qualification is sometimes referred to as “pre-qualification” because it is subject to verification of the information provided by the applicant. Qualification is short of approval because it does not take account of the credit history of the borrower. Qualified borrowers may ultimately be turned down because, while they have demonstrated the capacity to repay, a poor credit history suggests that they may be unwilling to pay.

Qualification rate The interest rate used in calculating the initial mortgage payment in qualifying a borrower. The rate used in this calculation may or may not be the initial rate on the mortgage. On ARMs, for example, the borrower may be qualified at the fully indexed rate rather than the initial rate.

Qualification ratios Requirements stipulated by the lender that the ratio of housing expense to borrower income, and housing expense plus other debt service to borrower income, cannot exceed specified maximums, e.g., 28% and 35%. These may reflect the maximums specified by CMHC and GENWORTH; they may also vary with the loan-value ratio and other factors.

Qualification requirements Standards imposed by lenders as conditions for granting loans, including maximum ratios of housing expense and total expense to income, maximum loan amounts, maximum loan-to-value ratios, and so on. Less comprehensive than underwriting requirements, which take account of the borrower’s credit record.

Rate caps Limitations on the size of rate adjustments on an ARM.

Rate See Interest Rate.

Refinance Paying off an old loan while simultaneously taking a new one. This may be done to reduce borrowing costs under conditions where the borrower can obtain a new loan at an interest rate below the rate on the existing loan. It may be done to raise cash, as an alternative to a home equity loan. Or it may be done to reduce the monthly payment.

Renewal When a mortgage agreement is re-negotiated at the end of its term with the same lender. A renewal comes with new rates and conditions.

Required cash The total cash required of the home buyer to close the transaction, including down payment, points and fixed dollar charges paid to the lender, any portion of the mortgage insurance premium that is paid up-front, and other settlement charges associated with the transaction such as title insurance, taxes, etc.

Reverse mortgage A loan to an elderly home owner on which the balance rises over time, and which is not repaid until the owner dies, sells the house, or moves out permanently.

Second mortgage A loan with a second-priority claim against a property in the event that the borrower defaults. The lender who holds the second mortgage gets paid only after the lender holding the first mortgage is paid.

Self-employed borrower A borrower who must document income using tax returns rather than information provided by an employer. This complicates the process somewhat.

Servicing Administering loans between the time of disbursement and the time the loan is fully paid off. This includes collecting monthly payments from the borrower, maintaining records of loan progress, assuring payments of taxes and insurance, and pursuing delinquent accounts.

Sub-prime borrower A borrower with poor credit, who can borrow only from sub-prime lenders who specialize in dealing with borrowers who have poor credit. Such borrowers pay more than prime borrowers, and are sometimes taken advantage of. Not all borrowers who deal with sub-prime lenders, however, are sub- prime borrowers. Some could obtain loans from mainstream lenders if they properly shop the market.

Sub-prime lender A lender who specializes in lending to sub-prime borrowers.

Sub-prime market The network of sub-prime lenders, mortgage brokers, warehouse lenders and investment bankers who make possible the delivery of loans to sub-prime borrowers

Term The period used to calculate the monthly mortgage payment. The term is usually but not always the same as the maturity.

Title insurance Insurance against loss arising from problems connected to the title to property.

Total housing expense Housing expense plus Monthly debt service.

Total expense ratio The ratio of housing expense plus current debt service payments to borrower income, which is used (along with the housing expense ratio and other factors) in qualifying borrowers

Total interest payments The sum of all interest payments to date or over the life of the loan. This is an incomplete measure of the cost of credit to the borrower because it does not include up-front cash payments, and it is not adjusted for the time value of money.

Total Debt Service Ratio (TDS) The percentage of the borrower’s gross annual income required to cover monthly mortgage payments, housing costs and all other debts.

Underwriting The process of examining all the data about a borrower’s property and transaction to determine whether the mortgage applied for by the borrower should be issued. The person who does this is called an underwriter.

Underwriting requirements The standards imposed by lenders in determining whether a borrower qualifies for a loan. These standards are more comprehensive than qualification requirements in that they include an evaluation of the borrower’s creditworthiness. The interest rate and points quoted by wholesale lenders to mortgage brokers and correspondent lenders.

Variable Rate Mortgage When the rate of interest for a mortgage varies based on the lenders Prime lending rate.

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