Knowing the Lingo – Key Terms for Your First Mortgage
The mortgage process can be overwhelming. Knowing the key terms that are part of it can help reduce confusion and help guide your first conversation with your mortgage broker.
Length of time over which the mortgage will be repaid.
Length of time that the mortgage contract conditions and interest rate is fixed.
Costs in addition to the purchase price of the home that are payable on closing day. See the Process & Costs worksheets for more details.
The portion of the home price that is not financed by the mortgage loan. It must come from the buyer’s own funds or other eligible sources before securing a mortgage.
The difference between the price for which a home could be sold and the total debts registered against it.
Fixed / Variable Mortgage Interest Rate
A fixed rate is a locked-in rate that will not increase for the term of the mortgage. A variable mortgage interest rate can fluctuate based on market conditions, but the mortgage payment remains unchanged.
High-ratio mortgage / Conventional Mortgage
A high ratio mortgage is a mortgage loan higher than 80% of the lending value of the property. A conventional mortgage is a mortgage loan up to a maximum of 80% of the lending value of the property.
Open / Closed Mortgage
An open mortgage is a flexible mortgage that allows you to pay off your mortgage in part or in full before the end of the term. A closed mortgage, in some cases, cannot be paid off in whole or in part before the end of the term. In other cases, the lender may allow for partial prepayment of a closed mortgage in the form of an increased mortgage payment or a lump sum prepayment.
If you break your mortgage contract early, likely if you choose to sell your home or refinance it, you will have to pay the lender a penalty called a break penalty (also called a prepayment penalty). The amount will depend on a variety of factors including whether you chose a fixed or variable rate mortgage, the terms of your contract, and how much time is remaining on your term.