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What is a Mortgage?
A mortgage is a long-term loan taken out to buy property or land. You repay the loan plus interest over a
period of anything up to 35 years.
A mortgage is the biggest, most expensive financial
product most people ever take out, so its important to
understand the terms and pick the right mortgage for
you. Also, since a mortgage is secured against the
property, if you dont keep up with your mortgage
repayments your lender can repossess your home.
Get the wrong one and even if you dont lose your
property you could end up paying tens of thousands of
pounds more than you need to in interest and fees.
Meaning
Mortgage Loan means using a property as a security to pay off a debt. The term,
mortgage, means the legal device used for paying of the debt, but it is also
commonly used to refer to the debt secured by the mortgage, which is called the
mortgage loan. In Many countries Mortgages are strongly associated with real
estate rather than any other property (such as ships) and in some cases only land
may be mortgaged. Applying for a mortgage is seen as the standard method by
which individuals or businesses can purchase residential and commercial real estate
without the need to pay off the full value immediately
History of Mortgages
You may think mortgages have been around for hundreds of years -- after all, how could anyone ever
afford to pay for a house outright? It was only in the 1930s, however, that mortgages actually got their
start. It may surprise you to learn that banks didn't forge ahead with this new idea; insurance companies
did. These daring insurance companies did this not in the interest of making money through fees and
interest charges, but in the hopes of gaining ownership of properties if borrowers failed to keep up with
the payments.
It wasn't until 1934 that modern mortgages came into being. TheFederal Housing Administration (FHA)
played a critical role. In order to help pull the country out of the Great Depression, the FHA initiated a new
type of mortgage aimed at the folks who couldn't get mortgages under the existing programs. At that time,
only four in 10 households owned homes. Mortgage loan terms were limited to 50 percent of the
property's market value, and the repayment schedule was spread over three to five years and ended with
a balloon payment. An 80 percent loan at that time meant your down payment was 80 percent -- not the
amount you financed! With loan terms like that, it's no wonder that most Americans were renters.
FHA started a program that lowered the down payment requirements. They set up programs that offered
80 percent loan-to-value (LTV), 90 percent LTV, and higher. This forced commercial banks and lenders
to do the same, creating many more opportunities for average Americans to own homes.
The FHA also started the trend of qualifying people for loans based on their actual ability to pay back the
loan, rather than the traditional way of simply "knowing someone." The FHA lengthened the loan terms.
Rather than the traditional five- to seven-year loans, the FHA offered 15-year loans and eventually
stretched that out to the 30-year loans we have today.
Another area that the FHA got involved in was the quality of home construction. Rather than simply
financing any home, the FHA set quality standards that homes had to meet in order to qualify for the
loan. That was a smart move; they wouldn't want the loan outlasting the building! This started another
trend that commercial lenders eventually followed Before FHA, traditional mortgages were interest-only
payments that ended with a balloon payment that amounted to the entire principal of the loan. That was
one reason why foreclosures were so common. FHA established the amortization of loans, which meant
that people got to pay an incremental amount of the loan's principal amount with each interest payment,
reducing the loan gradually over the loan term until it was completely paid off.
On the next page, we'll break down the components of the modern monthly loan payment and explain the
important concept of amortization.
A mortgage that has a fixed interest rate for the entire term of the loan. The distinguishing
factor of a fixed-rate mortgage is that the interest rate over every time period of the
mortgage is known at the time the mortgage is originated. The benefit of a fixed-rate
mortgage is that the homeowner will not have to contend with varying loan payment
amounts that fluctuate with interest rate movements.
With a fixed-rate mortgage, the interest rate stays the same for a set period of time. This means that
for every month during this set period, your mortgage repayments will remain the same.
This is in contrast to a variable-rate mortgage, which will go up or down in relation to the Bank of
England base rate, or your lender's standard variable rate (SVR).
The term of a fixed-rate mortgage usually lasts between two to five years, but can be much longer.
When this period comes to an end, your lender will typically transfer you automatically onto its SVR.
Adjustable-Rate Mortgages
The interest rate for an adjustable-rate mortgage varies over time. The initial
interest rate on an ARM is set below the market rate on a comparable fixed-rate
loan, and then the rate rises as time goes on. If the ARM is held long enough, the
interest rate will surpass the going rate for fixed-rate loans.
ARMs have a fixed period of time during which the initial interest rate remains
constant, after which the interest rate adjusts at a pre-arranged frequency. The
fixed-rate period can vary significantly - anywhere from one month to 10 years.
Shorter adjustment periods generally carry lower initial interest rates.
ARM Terminology
ARMS are significantly more complicated than fixed-rate loans, so exploring the
pros and cons requires an understanding of some basic terminology. Here are
some concepts borrowers need to know before selecting an ARM.
Adjustment Frequency - This refers to the amount of time between interestrate adjustments (e.g. monthly, yearly, etc.).
Adjustment Indexes - Interest-rate adjustments are tied to a specific index,
or benchmark, such as the interest rate on certificates of
deposit or Treasury bills, or the LIBOR rate.
Margin - When you sign your loan, you agree to pay a rate that is a certain
percentage higher than the adjustment index. For example, your adjustable
rate may be the rate of the one-year T-bill plus 2%. That extra 2% is called
the margin.
Caps - This refers to the limit on the amount the interest rate can increase
each adjustment period. Some ARMs also offer caps on the total monthly
Variable rate
With a variable rate mortgage, your interest rate can go up or down each month, depending on external
factors. There are two main types:
Tracker
These have an interest rate that tracks either the Bank of England base rate or your lenders own
standard interest rate.
If you choose a mortgage that tracks the base rate, your interest rate, and the amount you repay each
month, will change if the Bank of England changes the base rate. For example, a tracker mortgage might
be 1% above base rate. If the base rate is 0.5%, youll pay 1.5%. So, if the base rate rises to 2%, youll
pay 2.5%.
If your mortgage tracks your lenders standard rate known as the standard variable rate or SVR what
you pay is based purely on your lenders whim. In general, SVRs go up and down in line with the base
rate and the lender is allowed to change the rate whenever it sees fit.
Discount
This is a variable rate mortgage that tracks the lenders SVR, but several percentage points lower. For
example, the discount might be 1% off the SVR. So if the lenders SVR is 3%, youll pay 2%.
A variable rate mortgage may suit you if you want to pay less now and are prepared to risk the chance of
your monthly repayments rising if the interest rate you are tracking moves upwards. Read more in our
dedicated guides totracker and discount mortgages
A Deposit
You need to save a deposit to get a mortgage, and the bigger the better. If you save a 10% deposit, your
mortgage will be 90% of the propertys value. This is known as the loan-to-value (LTV).
In general the lower the LTV, the better the interest rate youll be eligible for.
2.
3.
Proof of Affordability
Mortgage lenders will check if you can afford your mortgage. To do this they look at your income and
outgoings. If youre employed they will want to see your payslips, and if youre self-employed theyll want
to see your accounts for several years. Then they will look at your other financial commitments and
decide how much they will lend to you.
4.
A Potential Home
Your mortgage lender may well give you a mortgage in principle before you have chosen your dream
home. But they wont release the funds until theyve carried out a valuation of the property you want to
buy. This is so they can make sure it is worth what you intend to pay for it, so they can be sure theyd get
their money back if they had to end up repossessing your home.
1.
Repayment This means you pay off some of the capital and some of the interest each month.
So that, at the end of the term, youll own your property outright.
2.
Interest-only - This means you just pay off the interest each month so your repayments will be
smaller. But, the big drawback here is that at the end of the term youll still owe the capital you borrowed.
For this reason mortgage lenders will insist you have a plan in place such as an investment to repay
the capital.Interest-only is also more expensive in the long-run as you are paying interest on the full loan
for the entire length of the mortgage. In contrast, with a repayment mortgage the amount of interest you
are paying slowly falls as you repay the capital.
If you fall behind on your monthly mortgage payments, this is known as arrears. If you dont pay off your
arrears when requested by your mortgage lender, it may eventually repossess your home.
Bank of India - BIO Star Mortgage Scheme: Bank of India Mortgage Scheme
provides high quality financial product to fulfill the various requirements of the
customers
Union Bank of India - Union Mortgage Scheme: Union Bank of India Mortgage
Scheme offers a variety of financial products for the individual customers of various
types
Loans are provided for the purchase of four wheeled vehicles and two wheelers
Loans are provided for the purpose of repayment of the previous loans
Loans are provided for meeting the expenses pertaining to medical, educational
and marriage purposes
Loans are provided for undertaking renovation and repair works of the residential
property
Loans are provided for the purpose of purchasing land plots, houses, construction
of houses
Loans are provided for meeting the needs for commercial, trade and other
business activities
Loans are provided for the requirements of the professionals for any kind of
activities such as education, house construction or purchase
Loan against
property
documents:
For Salaried:
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The individual applying for the loan will not be able to request any
amount. It is the property that will determine the extent of the loan: it has to
be in the condition that it is required to be in as per the prevalent rules and
standards of the country.
Loan Against property has stricter income norms, which also constitute
the eligibility norms in case of LAP, than Home Loans.
The money Lenders carry out valuation of the property independently.
They tend to value it at a lower rate than the actual market value.
Since the use of the Loan against property is unknown, the lender is at a
higher risk of getting a return and tends to charge more than other loans like
education loan, home lone etc., where the purpose of the loan is fixed.
Just as everything in this world has its advantages and disadvantages, Loan
against property has its pros and cons too. It has low interest rate
simultaneously there is a risk of property being evaluated lower than the actual
market price. Generally LAP is resorted to when the loan amount needed is more
than what can be possibly generated by unsecured loans since the value of a
property appreciates continuously and the repayment term required is longer
than that for any other loans by 5 years.
homes.
would be unable to buy a home and would be unable to own their own home. Many people are handed down their
homes and many people do not have mortgages on their home, however the majority of these people received their
homes in an inheritance. The percentage of people who can afford to buy a home outright is very small. The vast
majority of "homeowners" today, have a mortgage on their home.
The concept of a mortgage loan was conceived many years ago because banks saw an opportunity to make a great deal
of money off of people who wanted to buy homes. The bank has the resources to lend to the money so people could
buy their homes, and they charge interest to the borrowers as their price to borrow the money. When a person pays
back their loan over the full course of their mortgage term, they will have paid back many times over what their
original loan amount was. This concept is very grating to some people, but in reality, it is the only way that most
people are able to buy a home.
Mortgages are very diverse in that they can come in many forms. You can take out a mortgage for a single person
home, or a multiple family home. Many people also are charged different interest rates and have different loan
repayment terms. Many people are also able to pay varied fees and charges that are associated with their loan. All of
these details may change dramatically from one loan to another, but the basic concept of having a mortgage on a
home, does not change at all.
Mortgages are one of the most basic financial instruments because they are so prevalent. Mortgage lenders have
sprung up around the world because in today's market, people are simply unable to buy a home without having a
mortgage to do so. This means that people are prevented from ever owning a home if they do not qualify for a
mortgage. This also means that people will not be able to fulfill their goals of owning a home if it were not for a
mortgage. A mortgage is a very freeing concept because it allows people to get the home that they want and to reach
their goals through the help of a bank and the mortgage that they offer.
M O R TG A G E S
amount that you borrow so it will really add up. Therefore you need to make sure that youshop around to get the best
possible deal.
The other big reason that your mortgage is the most important loan that you will have is that you are going to have it
for a long time. Most people will take thirty years to pay off their mortgage. Since you are going to be paying it for that
many years it is important that you get the right mortgage. If you do make a bad choice in this regard you will find
that it is very difficult to get out of the deal and take a new mortgage. At the very least it costs a lot of money to change
your mortgage.
Your mortgage is almost certainly going to be the most complicated loan that you will ever take out so it is important
to make sure that you understand it. Most loans are fairly simple to understand but this is not the case with a
mortgage. It is important to make sure that you completely understand what you are agreeing to before you sign a
mortgage. Unfortunately predatory lending has become a problem when it comes to mortgages so if you aren't careful
you may find yourself stuck with a mortgage that is not good for you.
Because your mortgage is so important you need to make sure that you get the best one that you possibly can. This
means that you are going to want to shop around. Getting the lowest interest rate possible is important since it will
save you a great deal of money. There are other things besides the interest rate that you are going to want to look at
when you are choosing a mortgage. These would include the closing costs and any fees that may be charged. It is also
important to pay attention to any prepayment penalties since this will affect your ability to refinance should you need
to.
Comparison chart
Interest
rate
Interest
rate risk
Affordabili
ty
Adjustable Rate
Mortgage
Buying a home is one of the biggest financial events your life and, unless you're very fortunate, you'll
have to take a trip to the bank to be able to afford one. Getting a mortgage is your pathway to home
ownership, but it can be laden with jargon, pitfalls and smallprint that could put you off course.
At Which?, we know how important it is to find the right mortgage deal at the right price. That's why
we've created our mortgage comparison service, which lets you search through hundreds of mortgage
deals and compare costs with just the click of a button.
And this is all complemented by Which?'s unique customer satisfaction scores, which show you how
thousands of real mortgage customers rate the service they've been getting from their lender, to help
you choose a great deal from a great company.
A repayment mortgage guarantees you'll pay it off by the end of the term
You can take your mortgage out on either a repayment basis on an interest-only basis. Visit
the mortgage calculators offered by Which? Mortgage Advisers to find out what your repayments
would be at different interest rates, see how much you could borrow and work out how much you can
afford to spend on a mortgage.
For full information on the differences between interest-only and repayment mortgages, see
our interest-only vs repayment mortgages section.
Repayment mortgages
These can also be called 'capital and interest' repayment mortgages.
You gradually pay off the amount you borrowed over the term of the loan, together with interest. You
make one payment each month to your lender. Part of it goes towards repaying the interest that your
lender charges and part goes towards repaying some of the money you originally borrowed.
Repayment mortgages guarantee that the whole loan is repaid by the end of the term, making them a
low-risk option.
The Which? mortgage comparison tables let you search all available deals from lenders large and small
to choose the best deals based on quality of service as well as cost and benefits.
Go further: Which? mortgage comparison table - compare the best deals on the market
Interest-only mortgages
With interest-only schemes you only pay back the mortgage interest during its term. Your payments to
your lender will go towards repaying the interest charged - you don't actually repay any of the money
you originally borrowed (the capital).
This means you should simultaneously make other arrangements for paying back the capital. This
typically involves paying a separate monthly amount into an investment (such as a stocks and shares
Isa).
However, there is no guarantee that the investment will grow enough to pay off the mortgage in full at
the end of the term. If the gamble doesn't pay off, you will face a shortfall when you come to repay
your mortgage.
You also end up paying more interest overall on an interest-only mortgage as you are paying interest
on the whole loan for the whole term.
Endowments
In the past, interest-only mortgages were more commonly linked with endowment policies as a
repayment vehicle.
Endowments are classed as 'risky' products because theyre investments related to the performance of
the stock market. Theres always the possibility that if the stock market doesnt grow enough, your
investment might not become big enough to pay off the total amount of your mortgage.
Many people still have either, all or part of an existing mortgage that is dependent on an endowment
policy. Some are facing shortfalls on their mortgage when it matures because their endowment won't
be providing as much as was promised.
Because of their poor history, endowments are now rarely, if ever, recommended for interest-only
mortgages.
If your endowment policy hasnt increased enough to pay off your mortgage, you will need to find
some other way to pay off this part of your mortgage.
Make sure you take mortgage fees into account when choosing a deal
Make sure you take mortgage fees into account when choosing a deal.
The fees you have to pay when you take out a mortgage, including arrangement and valuation fees,
can add thousands to its overall cost, so make sure you take these into account when you are
choosing a mortgage rather than looking at just the headline interest rate.
Arrangement fees
These fees are called various names by mortgage lenders, such as booking fee, completion fee or
administration fee, but they are all fees you have to pay to set up the mortgage. Some lenders will
charge more than one of these fees for a particular deal.
The table below shows average arrangement fee charged by lenders over the last three months.
The cost of arrangement fees
Date
Average fee
December 2014
1,567
November 2014
1,601
October 2014
1,588
December 2013
1,571
Table notes
Data source: Moneyfacts
Avoid adding this fee to your mortgage as you will have to pay interest on it for the life of the loan.
Higher-lending charge
This is sometimes charged if you are borrowing a high proportion of the propertys value. See the
previous page of this guide for more on higher-lending charges.
Exit fees
Many lenders charge an exit fee for closing your mortgage account when you pay your mortgage off or
switch lender. You should not have to pay more than was stated on your original mortgage contract.
If you've paid an exit fee in the last six years that was higher than the fee in your contract, challenge
your mortgage lender. Complain to the Financial Ombudsman Service if it fails to deal with your
complaint satisfactorily within eight weeks.
Mortgage APR
All of the compulsory fees paid when you take a mortgage are included in the APR. The APR is
expressed as a percentage and appears whenever you compare mortgages. We explain how it works
in our two-minute explainer video at the top of the page. If you want to know more about mortgages
in general, watch our video guide to mortgages.
First-Time Buyers
If youve never owned a house before, you are a first-time buyer (FTB). Many lenders offer special deals
for FTBs in order to help you onto the property ladder (and turn you into a long-term customer). So be
on the look out for mortgages designed specifically for FTBs.
Remortgaging
This is when you take out a new mortgage to pay off an existing one. The most common reason to do
this is to save money. For example, you might be on a two-year fixed rate and find your payments go up
(normally to the lenders SVR) after the fixed period ends. At this point you may want to consider
remortgaging to get a cheaper rate. Some people also remortgage in order to borrow a larger amount
so they can pay off their debts or pay for home improvements.
Porting
This means moving your mortgage from one property to another allowing you to move home without
remortgaging. Not all mortgages allow porting, so if it is something you think you may need check the
terms and conditions before you take out a mortgage.
Loan-To-Value (LTV)
Youll see this thrown around a lot when you are looking for a mortgage. It means the amount of money
the bank is lending you as a percentage of the value of your home. So, if your home is worth 200,000
and youve got a 40,000 deposit, you
need to borrow 160,000 or 80% of the value of your home. This means youre LTV is 80%.
Fixed-rate mortgage loans have the same interest rate for the entire repayment term.
Because of this, the size of your monthly payment will stay the same, month after
month, and year after year. It will never change. This is true even for long-term financing
options, such as the 30-year fixed-rate loan. It has the same interest rate, and the same
monthly payment, for the entire term.
Adjustable-rate mortgage loans (ARMs) have an interest rate that will change or
"adjust" from time to time. Typically, the rate on an ARM will change every year after an
initial period of remaining fixed. It is therefore referred to as a "hybrid" product. A
hybrid ARM loan is one that starts off with a fixed or unchanging interest rate, before
switching over to an adjustable rate. For instance, the 5/1 ARM loan carries a fixed rate
of interest for the first five years, after which it begins to adjust every one year, or
annually. That's what the 5 and the 1 signify in the name.
and their families. Similar to the FHA program, these types of mortgages are guaranteed by the
federal government. This means the VA will reimburse the lender for any losses that may result
from borrower default. The primary advantage of this program (and it's a big one) is that
borrowers can receive 100% financing for the purchase of a home. That means no down
payment whatsoever.
Learn more: VA loan eligibility requirements
USDA / RHS Loans
The United States Department of Agriculture (USDA) offers a loan program for rural borrowers
who meet certain income requirements. The program is managed by the Rural Housing Service
(RHS), which is part of the Department of Agriculture. This type of mortgage loan is offered to
"rural residents who have a steady, low or modest income, and yet are unable to obtain
adequate housing through conventional financing." Income must be no higher than 115% of
the adjusted area median income [AMI]. The AMI varies by county. See the link below for
details.
Learn more: USDA borrower eligibility website
Combining: It's important to note that borrowers can combine the types of mortgage types
explained above. For example, you might choose an FHA loan with a fixed interest rate, or a
conventional home loan with an adjustable rate (ARM).
A conforming loan is one that meets the underwriting guidelines of Fannie Mae or
Freddie Mac, particularly where size is concerned. Fannie and Freddie are the
two government-controlled corporations that purchase and sell mortgage-backed
securities (MBS). Simply put, they buy loans from the lenders who generate them, and
then sell them to investors via Wall Street. A conforming loan falls within their maximum
size limits, and otherwise "conforms" to pre-established criteria.
A jumbo loan, on the other hand, exceeds the conforming loan limits established by
Fannie Mae and Freddie Mac. This type of mortgage represents a higher risk for the
lender, mainly due to its size. As a result, jumbo borrowers typically must have excellent
credit and larger down payments, when compared to conforming loans. Interest rates
are generally higher with the jumbo products, as well.
This page explains the different types of mortgage loans available in 2014. But it only provides a
brief overview of each type. Follow the hyperlinks provided above to learn more about each
option. We also encourage you to continue your research beyond this website. Education is the
key to making smart decisions, as a home buyer or mortgage shopper.
Your mortgage broker can advise you which mortgage product is the best product for
your situation. The amortization of a mortgage is the age of a mortgage. When you can only
afford to put 5%-19% as down payment, you are limited to shorter amortization period of 25
years.
You may choose a longer amortization period if you have more than 20% for downpayment.
The longer the amortization, the lower your monthly mortgage payments will be.
The mortgage loan term signifies the rate along with the number of years you decide to
have a mortgage agreement with your financial institution. Mortgage conditions are from
one year to five-years. A number of establishments may offer shorter or longer mortgage
loan.
You could pay back all or a part of your mortgage with an open mortgage
loans without having any penalties however a closed mortgage loans restricts your
prepayment privilege, nonetheless a closed mortgage generally provides a lower interest
rate than an open mortgage.
http://www.promortgageteam.ca/different-types-of-mortgages
There are two credit-reporting agencies in Canada, TransUnion and Equifax. The most
common agency used by lenders is Equifax. Some lenders may use both agencies when
processing credit application to detect any discrepancies or error. Federal and provincial law
regulates both agencies. An individual or company can only review your file after obtaining
written permission from you.
Credit report
Your credit file is created when first you apply for any kind of credit (be it for a credit card or
a student loan). When you apply for any kind of credit for the first time, your financial
institution will submit your information electronically to both credit agencies (Equifax and
TransUnion). If you did not have a file at all, a file will be created for you. If you had a file
with the credit agencies already, an inquiry will be registered in your file.
The inquiry includes the financial institution name and the date you applied for the credit. If
you were granted a credit, the credit will be registered in your file and if you were declined,
your score will drop a bit as a result of that decline. Your credit report or credit file contains
information about your credit history, your personal information like, your date of birth, social
insurance number, your address, and your occupation.
It will also contain any judgment, bankruptcy or lien placed on your property. You can
always order a copy of your credit report by sending a request to above agencies.
For more info, visit Equifax or Transunion for your personal credit check.
Credit score.
Your credit file has a number called score. Your credit score is a reflection of your payment
history, any derogatory comment and how you use your credit.
Your score fluctuates depending on different activity and information registered on your file.
So, it does not stay the same unless you never use any type of credit or nothing has been
changed on your file.
The higher the score the least risky you are to lenders and the lower the score the more risk
you posses. Generally speaking, lenders put some emphasis on credit score; however,
there are situations that they make exceptions on low credit score. A common myth about
credit score is that every inquiry drops your credit score.
This is not accurate information. Inquiries have minimal effect on your score and some
inquiries have no impact at all. However too many credits request in a short period of time
will prompt lenders to question and wonder if you have any financial difficulty. Furthermore,
credit-reporting agencies do not punish borrowers if they are shopping for the best rate.
A good score that is acceptable by most lenders is 680. But as mentioned above, credit
score fluctuate every month and a borrower with a lower score could increase it by a few
smart transactions.
Using these simple methods keeps your credit at its best rating with the
reporting agencies.
Reduce your balance on credit cards and line of credit to 50% of the limit
After a short period, your credit score will gradually improve. Always tell the truth as to why
your credit was damaged. Disclose up front to all potential lenders prior to having a credit
report pulled.
http://www.promortgageteam.ca/your-credit-file
Mortgage glossary
To help you understand the home buying process better, here is a list of common home
buying and mortgage terms.
A
A
Agreement of Purchase and Sale A legal agreement that offers a certain price for
a home. The offer may be firm (no conditions attached), or conditional (certain conditions
must be fulfilled before the deal can be closed).
Amortization Period The actual number of years it will take to pay back your
mortgage loan, or the time over which all regular payments would pay off the mortgage.
This is usually 25 years for a new mortgage, however can be greater, up to a maximum of
35 years.
Anniversary Many mortgage products allow you to make payments against the
principal on the anniversary of the mortgage.
Appraisal The process of determining the value of property, usually for lending
purposes. This value may or may not be the same as the purchase price of the home.
Appraisal Value An estimate of the market value of the property.
Assumability Allows the buyer to take over the sellers mortgage on the property.
Top
B
Blended Payments Payments consisting of both a principal and an interest
component, paid on a regular basis (e.g. weekly, biweekly, monthly) during the term of the
mortgage. The principal portion of payment increases, while the interest portion decreases
over the term of the mortgage, but the total regular payment usually does not change.
Top
C
Canada Mortgage and Housing Corporation (CMHC) A Crown corporation
that administers the National Housing Act for the federal government and encourages the
improvement of housing and living conditions for Canadians. CMHC is one of two sources
for high-ratio mortgage insurance. The National Housing Act (NHA) authorized Canada
Mortgage and Housing Corporation (CMHC) to operate a Mortgage Insurance Fund which
protects NHA Approved Lenders from losses resulting from borrower default.
Capped Rate An interest rate with a pre-determined ceiling, usually associated with a
variable-rate mortgage.
Certificate of Location or Survey A document specifying the exact location of the
building on the property and describing the type and size of the building including additions,
if any.
Certificate of Search or Abstract of Title A document setting out instruments
registered against the title to the property, e.g. deed, mortgages, etc.
Closed Mortgage A mortgage agreement that cannot be prepaid, renegotiated or
refinanced before maturity, except according to its terms. A closed mortgage locks you into
a specific payment schedule. A penalty usually applies if you repay the loan in full before the
end of a closed term.
Closing Costs Various expenses associated with purchasing a home, payable on the
closing date. These costs can include, but are not limited to, legal/notary fees and
disbursements, property land transfer taxes, as well as adjustments for prepaid property
taxes or condominium common expenses, if any.
Closing Date The date on which the sale of a property becomes final and the new
owner usually takes possession.
CMHC or Genworth Financial Canada Insurance Premium Mortgage
insurance insures the lender against loss in case of default by the borrower. Mortgage
insurance is provided to the lender by CMHC or Genworth and the premium is paid by the
borrower.
Conditional Offer An offer to purchase subject to conditions. These conditions may
relate to financing, or the sale of an existing home. Usually a time limit in which the
specified conditions must be satisfied is stipulated.
Condominium Fee A fee paid by the condo owner that is allocated to pay building
expenses.
Conventional Mortgage A mortgage that does not exceed 80% of the purchase
price of the home. Mortgages that exceed this limit must be insured against default, and are
referred to as high-ratio mortgages (see below).
Convertible Mortgage - A mortgage that you can change from short-term to longterm.
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D
Deed (Certificate of Ownership) The document signed by the seller transferring
ownership of the home to the purchaser. This document is then registered against the title
to the property as evidence of the purchasers ownership of the property.
Default - Failure to abide by the terms of the mortgage; may result in legal action such
asforeclosure.
Deposit A sum of money deposited in trust by the purchaser when making an offer to be
held in trust by the vendors agent, broker, lawyer or notary until the closing of the
transaction.
Down Payment - The buyers cash payment toward the property; the difference
between the purchase price and the mortgage loan.
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E
Easement - The right to use anothers property for a specific purpose (e.g. a shared
driveway).
Encroachment - A physical intrusion from one property to an adjoining property.
Equity The interest of the owner in a property over and above all claims against the
property. It is usually the difference between the market value of the property and any
outstanding encumbrances.
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F
Fire Insurance Before a mortgage can be advanced, the purchaser must have
arranged fire insurance. A certificate or binder from the insurance company may be required
on closing.
Firm Offer An offer to buy the property as outlined in the offer to purchase with no
conditions attached.
Fixed-Rate Mortgage A mortgage for which the rate of interest is fixed for a specific
period of time (the term).
Foreclosure A legal procedure whereby the lender eventually obtains ownership of the
property after the borrower has defaulted on payments.
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G
GEMI: GE Capital Mortgage Insurance Company of Canada, a private mortgage insurance
company; one of two sources of high-ratio mortgage insurance.
Gross Debt Service (GDS) Ratio The percentage of gross income required to
cover monthly payments associated with housing costs. Most lenders recommend that the
GDS ratio be no more than 32% of your gross (before tax) monthly income.
Gross Household Income Gross household income is the total salary, wages,
commissions and other assured income, before deductions, by all household members who
are co-applicants for the mortgage.
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H
High Ratio Mortgage If you dont have 20% of the lesser of the purchase price or
appraised value of the property, your mortgage must be insured against payment default by
a Mortgage Insurer, such as CMHC.
Holdback An amount of money required to be withheld by the lender during the
construction or renovation of a house to ensure that construction is satisfactorily completed
at every stage.
Home Equity The difference between the price for which a home could be sold (market
value) and the total debts registered against it.
Home Insurance - Insurance to cover both your home and its contents in the event of
fire, theft, vandalism, etc. (also referred to as property insurance). This is different from
mortgage life insurance, which pays the outstanding balance of your mortgage in full if you
die.
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I
Inspection - The process of having a qualified home inspector identify potential strengths
and weaknesses in the property you are interested in so that you may have a good idea of
its functional condition.
Interest Adjustment - The amount of interest due between the date your mortgage
starts and the date the first mortgage payment is calculated from. Avoid it by arranging to
make your first mortgage payment exactly one payment period after your closing date.
Interest Rate - The value charged by the lender for the use of the lenders money,
expressed as a percentage.
Interest Rate Differential Amount (IRD) An IRD amount 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 amount 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 we can now charge
when re-lending the funds for the remaining term of the mortgage. For more information,
click on compensation amounts.
Interim Financing Short-term financing to help a buyer bridge the gap between the
closing date on the purchase of a new home and the closing date on the sale of the current
home.
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L
Land Transfer Tax, Deed Tax, or Property Purchase Tax - A fee paid to the
municipal and/or provincial government for the transferring of property from seller to buyer.
Legal Fees and Disbursements - Some of the legal costs associated with the sale
or purchase of a property. Its in your best interest to engage the services of a real estate
lawyer (or a notary in Quebec).
Lien - A claim for money owed by a property owner to a supplier or contractor.
Listing Agreement - A legal agreement between the listing broker and the seller
describing the property for sale and stating the services to be provided and the terms of
payment. A commission is generally payable to the broker upon closing.
Lump-Sum Payment - An extra payment that you make to reduce the amount of your
mortgage. This is the same as pre-paying, which you cannot do if you have a closed
mortgage.
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M
Maturity Date Last day of the term of the mortgage agreement, at which time you can
pay off the mortgage or renew it.
MLS - Multiple Listing Service, trademarks owned by the Canadian Real Estate
Association. They are used in conjunction with a real estate database service, operated by
local real estate boards, under which properties may be listed, purchased, or sold.
Mortgage - A loan that you take out in order to buy property. The collateral is the property
itself.
Mortgage Broker - A person or company offering mortgage products from several
financial institutions.
Mortgage Critical Illness Insurance Mortgage Critical Illness Insurance is
available as an enhancement to Mortgage Life Insurance. Mortgage Critical Illness
Insurance is underwritten by the Canada Life Assurance Company. Complete details of
benefits, exclusions and limitations are contained in the Certificate of Insurance. It is
recommended for all mortgagors. It can pay off your mortgage if you are diagnosed with lifethreatening cancer, heart attack or stroke.
Mortgage Insurance - Applies to high-ratio mortgages. It protects the lender against
loss if the borrower is unable to repay the mortgage.
Mortgagee and Mortgagor The lender is the mortgagee and the borrower is the
mortgagor.
Mortgage Life Insurance A form of reducing term insurance recommended for all
mortgagors. If you die, have a terminal illness, or suffer an accident, the insurance can pay
the balance owing on the mortgage. The intent is to protect survivors from the loss of their
homes.
Mortgage Rate - The percentage interest that you pay on top of the loan principal.
Mortgage Term The number of years or months over which you pay a specified
interest rate. Terms usually range from six months to 10 years.
Moving expenses - The cost of hiring packers, movers, or renting a van.
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O
Offer to Purchase - A legally binding agreement between you and the person who
owns the house you want to buy. It includes the price you are offering, what you expect to
be included with the house, and the financial conditions of sale (your financing
arrangements, the closing date, etc.).
Open Mortgage A mortgage which can be prepaid at any time, without penalty.
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P
Payment Frequency The choice of making regular mortgage payments every week,
every other week, twice a month or monthly.
P.I.T. Principal, interest and taxes. Together, these make up the regular payment on a
mortgage if you elect to include property taxes in your mortgage payments
Porting This allows you to move to another property without having to lose your existing
interest rate. You can keep your existing mortgage balance, term and interest rate plus save
money by avoiding early discharge penalties.
Pre-Approved Mortgage - Qualifies you for a mortgage amount before you start
shopping.
Pre-Approved Mortgage Certificate - A written agreement stating that you will get
a mortgage for a set amount of money at a set interest rate.
Prepaid Property Tax and Utility Adjustments - The amount you will owe if the
person selling you the home has prepaid any property taxes or utility bills.
Prepayment Charge A fee charged by the lender when the borrower prepays all or
part of a closed mortgage more quickly than is set out in the mortgage agreement.
Prepayment Option The ability to prepay all or a portion of the principal balance.
Prepayment charges may be incurred on the exercise of prepayment options.
Principal The amount of money borrowed for a new mortgage.
Property Survey - A legal description of your property and its location and dimensions
(usually required by your mortgage lender).
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R
REALTOR - Trademark identifying real estate professionals in Canada who are
members of the Canadian Real Estate Association, and as such, who subscribe to a high
standard of professional service and to a strict code of ethics.
Refinancing Renegotiating your existing mortgage agreement. May include increasing
the principal or paying out the mortgage in full.
Renewal At the end of a mortgage term, the mortgage may roll over on new terms and
conditions acceptable to both the lender and the borrower. This is known as renewing a
mortgage. Otherwise, the lender is entitled to be repaid in full. In this case, the borrower
may seek alternative financing.
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S
Sales Taxes - Taxes applied to the purchase cost of a property. Some properties are
exempt from sales tax and some are not. For instance, residential resale properties are
usually GST exempt, while new properties require GST.
Service Charges Extra costs incurred when hooking up hydro, gas, phone, etc. to a
new address.
Second Mortgage Additional financing, which usually has a shorter term and a higher
interest rate than the first mortgage.
Security In the case of mortgages, real estate offered as collateral for the loan.
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T
Term The length of the current mortgage agreement. A mortgage may be amortized over
a long period (such as 40 years) with a shorter term (six months to five years or more). After
the term expires, the balance of the principal then owing on the mortgage can be repaid or a
new mortgage agreement can be entered into at the then current interest rates.
Total Debt Service (TDS) Ratio The percentage of gross income needed to cover
monthly payments for housing and all other debts and financing obligations. The total
should generally not exceed 37% of gross monthly income.
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V
Variable Rate Mortgage A mortgage for which the rate of interest may change if
other market conditions change. This is sometimes referred to as a floating rate mortgage.
Vendor Take-Back Mortgage - When the seller provides some or all of the mortgage
financing in order to sell the property.
Introduction of TMB
The history of Tamilnad Mercantile Bank Ltd., the then Nadar Bank Ltd.,
dates back to 1921. The thought of establishing a bank under the
guidance of the able Nadar business community was mooted out in the
Anniversary of Nadar Mahajana Sangam held at Tuticorin in 1920. The
proposal was effected soon. The bank was registered on May 11, 1921as
The Nadar Bank Ltd.
A group of dedicated men with shrewd acumen and sound integrity had
been constituted as Board of Directors and they elected Shri M.V.
Shanmugavel Nadar as Chairman on Nov 04, 1921. The bank was opened
by Shri T.V. Balagurusamy Nadar, the then President of the Nadar
Mahajana Sangam and the bank threw open its door to the public on Nov
11, 1921 at 9am in Ana Mavanna Building at South Raja Street, Tuticorin.
http://www.tmb.in/about_profile/answer_to_all_your_questions_abo
ut_us.html
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Margin
50%.
Security
Land and Building property for value not less than 200% of the loan amount.
Collateral: Agricultural land should not be taken as collateral security. Third party
security should not be accepted except those of the family members.
Personal guarantee of mortgager should be obtained
Other Conditions
Registration of Memorandum of Title Deeds under the respective States Stamp Act
should be insisted upon and it should be mandatory.
In respect of property situated in other states where law for Registration of
Memorandum of Deposit of Title Deeds under the respective states stamp Act is not
enacted, registered mortgage should be insisted upon.
Insurance
Insurance for the full market value of the property with the Bank Clause.
Rate of Interest
BR + 5.75% (16.35% p.a.).
Current Base Rate for Lending (BR) is 10.60% p.a.
Penal Interest
Any irregularity or default in repayment will attract penal interest of 2.00% p.a. over
and above the above rate of interest on the balance outstanding.
Processing Charges
Term Loan: 1.00% of Limit sanctioned without any maximum cap.
Working Capital [Fund and Non-Fund Based]: 0.50% of the loan amount without
maximum cap.
Documentation
All the above Terms and Conditions are subject to change and
sanctioning of the loans is at the sole discretion of the Bank. Service Tax
on All Service Charges extra wherever applicable.
Achievements:
The Tamilnad Mercantile Bank has a series of achievements and awards to its credit. In
the Financial Year 2008-2009, the bank has received a few recognitions and
appreciations. To begin with, the bank topped the list among 15 other banks in terms of
performance in accordance to its Savings Bank Account in 2008. This was certified by a
recognized agency of the Indian Banks Association.
Apart form this; the Tamilnad Mercantile Bank was also awarded the Dun & Bradstreet's
Banking Awards for the best Indian Banks of the year 2009. The award was given for the
Private sector bank in the rural category.
Both Salaried as well as Self-Employed people can avail Mortgage Loan, irrespective of
the income.
The general factors taken into account while determining the eligibility of loan against
property are listed below:
1. Income
2. Age (Min. 21 Years)
3. Property Valuation
4. Existing Liabilities (if any)
5. Current Work Experience
6. Financial Documents
7. Number of Dependants
You can get a LAP up to 80% of the registered value of your property depending on the
Banks policy and the property type and valuation.
The value of the property would be determined through a valuation conducted by the
Loan Provider.
What is the difference between a Home Loan and Loan against Property?
There is a huge difference between a Home Loan and a Loan against property. Home
Loan is taken only for the purpose of buying a residential property whereas a Loan
against Property can be taken for any purpose.
1. Application
2. Processing
3. Documentation
4. Verification/Valuation
5. Sanctioning of the Loan
6. Disbursement
Yes, a nominal fees and charges are to be paid to the Bank depending upon their term
and conditions.
What are the documents required for applying for a loan against property?
For Salaried:
1. Application form with photograph
2. Identity and Address Proof
3. Latest Salary Slips
4. Form 16
5. Bank Statements (Last 6 months)
6. Processing fee cheque
For Self-Employed:
1. Application form with photograph
2. Identity and Address Proof
3. Proof of business existence & Education Qualifications.
4. Last 3 years ITR
5. Last 3 years P&L and Balance Sheet
6. Bank Statements (Last 6 months)
7. Processing fee cheque
How much time does the Bank take to disburse the loan?
The processing of the loans usually takes 7 to 10 working days once all the documents
are submitted. It also depends upon your profile and documentation.
Yes the property has to be insured against fire, flood, earthquakes and other appropriate
hazards during the tenor of the loan.
The repayment of loan is done through Equated Monthly Installments. It can be paid
through Post Dated Cheques (PDC) or Electronic Clearance System (ECS)
The loan against property can be pre-paid along with the pre-payment charges. Usually
the bank charges 2% of the principal pre-paid.
Advantages of a mortgage
A mortgage makes home ownership affordable:
Buying a home is likely to be the biggest purchase youll
ever make and a mortgage will be your largest debt.
Because you can spread the repayments on your home
loan over so many years, the amount youll pay back
every month is more manageable, and affordable!
Traditionally, when people take out their first mortgage,
theyve tended to opt for a 25 year term. However, there
are no rules about this and as we are living longer and the
retirement age is going up, 30-year mortgages are
becoming more common. This can help bring your
Advantages
Your mortgage payments will remain the same, even if
interest rates changed. This makes it great for budgeting.
Disadvantages
You are tied in for the length of the deal, so if interest
rates fall you cant take advantage of them. For example,
if you opt for a five year fixed-rate deal, you will be tied in
until the fixed term ends. If you want to get out of the
mortgage before then, youll be charged a hefty penalty
often thousands of pounds.
So before you apply for a fixed rate mortgage, think about
how long you are happy to be locked in for.
Tracker mortgage
The interest rate on a tracker mortgage is linked to the
Bank of England base rate. So if the base rate changes,
your mortgage rate will change.
The base rate is currently 0.50%, so if you took a tracker
mortgage with a rate that is 2% above the base rate youll
be paying an interest rate of 2.50% . If the Bank of
England put the base rate up to 1%, your mortgage rate
would increase to 3.00%. This would add about 25 a
month to the repayments on a 100,000 mortgage.
As with fixed rate mortgages, trackers are available over
different terms: most commonly two or five years. With
these deals, youll be charged a penalty if you want to get
out of the mortgage during the term.
You can also get lifetime, or term, trackers and these are
often completely penalty free so they are very flexible and
can be a great option if you dont want to be tied into your
mortgage.
Advantages
The rates on the leading tracker mortgages tend to be
lower than on fixed rate deals.
Although trackers are variable rate mortgages, its easy to
understand what rate youll be paying because they are
directly linked to the base rate. Therefore, the rate, and
your monthly payments, will only change if the Bank of
England changes the base rate.
Disadvantages
You dont have the same security with a tracker that you
get with a fixed mortgage because the rate is variable.
This means you have to be prepared for the fact that your
monthly repayments could go up and its really important
to make sure youll be able to still afford your mortgage if
this happens. If money is tight and you need to budget
carefully, a fixed rate mortgage will probably be a better
option.
Discount mortgage
Trackers arent the only type of variable mortgage.
Discounts are another. However, unlike trackers the
interest rate isnt linked to the Bank of England base rate.
Instead, its linked to the lenders standard variable rate
(SVR) and this is a significant difference because lenders
can change their SVR even if there has been no change
There is a range of different types of mortgages on the market, so the choice can seem baffling
Advantages
As with tracker mortgages, the rates tend to be lower than
those on fixed rate mortgages. And because discounts are
variable, the rate could fall as well as rise. If the rate were
to fall, your monthly mortgage payment would reduce.
Disadvantages
The way discount mortgages are priced isnt as
transparent as tracker mortgages. Because the rate is
linked to the SVR, not the base rate, the lender can
theoretically change the rate at any time. So you may find
your monthly mortgage payments rises when youre not
expecting it.
Before you take a discount mortgage out, make sure
youd still be able to afford your repayments if the rate was
to go up. If it would be a struggle, opting for the security of
a fixed rate would be a better option.
Offset mortgage
This is a more complicated mortgage as it links your
savings to your mortgage debt.
Rather than earning interest on your savings, that money
is set against your mortgage so you pay less interest on
that debt. For example, say you have a 100,000
mortgage and 20,000 in savings, you would only be
charged interest on 80,000 of the mortgage. However,
your monthly mortgage repayments will have been
calculated as if the debt was 100,000. This means you
end up paying more than you need off your mortgage
each month. As a result you clear your mortgage off more
quickly and save yourself thousands of pounds in interest.
Some lenders give the option of reducing the monthly
payments so that they are calculated on the mortgage
amount once your savings are factored in. So with the
example above, your repayments would be based on a
80,000 mortgage. This can be good if you want to save
money now, but it wont help if you are considering an
offset to pay your mortgage off more quickly.
If you are considering an offset, you will have the choice
of fixed or variable rate products, so consider the
advantages and disadvantages of those as discussed
above. Also, some offset providers will let you link your
current account to your mortgage as well as your savings.
Advantages
As well as enabling you to knock years off your mortgage
and save you thousands of pounds in interest, offset
mortgages also offer a significant tax benefit.
The interest you pay on your mortgage will depend on what type of home loan you pick
Whichever type of mortgage you have, the interest can be calculated daily, monthly, quarterly or
annually. Daily interest is best as the amount of interest is calculated on the outstanding balance
every day. As your balance falls, so does the amount of interest youre paying.
With the others your balance is only reduced at the end of
the month, quarter or year. With annual interest, for
example, the interest is still calculated daily but its based
on the previous years balance, so it takes a year before
the capital amount is reduced.
APR:
All mortgages have an APR (annual percentage rate). The
APR is calculated to factor in the total interest cost over
the 25-year term, plus any fees.
In theory this should help you to compare deals.
But mortgage APRs can be a bit confusing because they
only give you the average cost if you were to keep your
mortgage for the full 25 years, which is pretty unlikely.
You might, for example, have a two-year fixed rate
mortgage at 1.65%, which then moves to the Standard
Variable Rate (SVR) of 4.49%. This would give you an
APR of 4.2% - but youd never actually pay that rate.
So its always better to simply compare the initial rate
youll pay and also check what the SVR will be when that
rate comes to an end.
Early repayment charges (ERC):
Most mortgage deals tend to have a short life. For
instance, fixed rate, discount and tracker mortgages
usually only run for between two and five years, though it
is possible to find deals over 10 years. Whatever the term,
if you come out of the deal before it ends, you will have to
pay an Early Repayment Charge which, in most cases, is
charged as a percentage of the loan. These can add up to
thousands of pounds so make sure you think carefully
about how long you tie in for in the first place.
Exit fee:
An exit fee is charged for closing your mortgage account
for example, if you switch to another lender or remortgage
to another deal with the same lender. But it can also be
charged when you just finish paying off your mortgage.
Also known as a mortgage completion fee, deeds release
fee or exit administration fee, the cost can now ring in at
between 50 and 200.
If you arent certain what sort of rent any property you are
interested in might generate, contact lettings agents in the
area and ask how much you might be able to charge. Its
also worth scouring local property magazines and
newspapers to give you an idea of the sort of rents similar
properties command.
Compare rates
Most of the major banks and building societies offer buyto-let mortgages, and a number of specialist lenders
provide them too. But never just opt for the first buy-to-let
mortgage you find, as rates vary widely and you may be
able to find a much cheaper deal elsewhere.
Always compare several different deals before applying
and, if youre uncertain, speak to a specialist buy-to-let
mortgage broker to ensure you find the right deal to suit
you. Remember to check any arrangement fees too, as
these can add substantially to the overall cost of any
mortgage deal.
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Adjustable-rate mortgages
Advantages
Feature lower rates and payments early on in the loan term. Because lenders can use
the lower payment when qualifying borrowers, people can buy larger homes than they
otherwise could buy.
Allow borrowers to take advantage of falling rates without refinancing. Instead of having
to pay a whole new set of closing costs and fees, ARM borrowers just sit back and watch
the rates -- and their monthly payments -- fall.
Help borrowers save and invest more money. Someone who has a payment that's $100
less with an ARM can save that money and earn more off it in a higher-yielding investment.
Offer a cheap way for borrowers who don't plan on living in one place for very long to
buy a house.
Disadvantages
Rates and payments can rise significantly over the life of the loan. A 6 percent ARM can
end up at 11 percent in just three years if rates rise sharply.
The first adjustment can be a doozy because some annual caps don't apply to the initial
change. Someone with an annual cap of 2 percent and a lifetime cap of 6 percent could
theoretically see the rate shoot from 6 percent to 12 percent a year& after closing if rates in
the overall economy skyrocket.
ARMs are difficult to understand. Lenders have much more flexibility when determining
margins, caps, adjustment indexes and other things, so unsophisticated borrowers can
easily get confused or trapped by shady mortgage companies.
On certain ARMs, called negative amortization loans, borrowers can end up owing more
money than they did at closing. That's because the payments on these loans are set so low
(to make the loans even more affordable) that they cover only part of the interest due. The
remainder gets rolled into the principal balance