Mortgage terms can be confusing, but you don’t have to be an expert to understand! We’ve laid it out plain and simple in our guide:
Mortgage
When a bank or creditor lends you money at interest in exchange for ownership of a property. Having a mortgage allows the lender to take possession of the property if you don't repay the loan on time.
Lender
An organization or person that lends money. At Mortgages Made Easy, we compare rates from 30+ lenders, including the big banks, so you always get the best deal.
Escrow Account
A third-party account that receives and disburses money and/or property on behalf of the two principal parties involved in the transaction. Having a neutral third party ensures that neither the buyer nor the seller gets the short end of the stick!
Down Payment
The initial payment when something is bought on credit. You then finish paying for it later, usually by paying a certain amount every month.
Insured Mortgage
You can get mortgage life insurance to protect your family and estate. You can also get mortgage insurance, which protects the lender should you default on your mortgage.
Open Mortgage
You can repay an open mortgage as quickly as you see fit. Open mortgages have no prepayment restrictions and tend to be available for short terms (typically five years or less).
Closed Mortgage
Closed mortgages are more structured than open mortgages. A closed mortgage cannot be paid in full, refinanced or re-negotiated before the end of the term without incurring a penalty.
Variable Mortgage
With a variable mortgage, your regular payments remain constant; however, your interest rate may change based on market conditions. This means the amount of principal you pay off each month could increase or decrease depending on the interest rate.
When rates on variable interest rate mortgages decrease, more of your regular payment is applied to your principal. If rates increase, more of your payment will go toward the interest.
Fixed Mortgage
A fixed-rate mortgage means your interest rate remains unchanged for the duration of the term. Fixed rate mortgages cannot be refinanced or re-negotiated without incurring penalty.
Interest Rate Differential (IRD)
The IRD is a penalty. For example, if you refinance or re-negotiate a fixed mortgage, you’ll be charged an amount equal to 3 months’ interest on what you still owe, or the IRD. You may also be charged if you pay off your mortgage before the end of your mortgage term, or pay the mortgage principal down beyond the amount of your prepayment privileges.
Mortgage Pre-approval
Confirmation of the amount you qualify to borrow and protection from rate increases for up to 120 days. As a mortgage pre-approval also allows you to know your borrowing capacity, you’ll be able to plan your monthly payments and get more credibility as a buyer.
There’s a lot more where that comes from
Not sure what kind of mortgage for you? Ready to get pre-approved for your mortgage? Still have questions for us? Book a free consultation, and we’ll help you figure it all out.
