Guest column: Mortgage terms explained for regular folks
BY DAN WEBER, FOR THE PROVINCE SEPTEMBER 23, 2010 COMMENTS (1)
Now that real-estate prices in this part of the world have fallen to the point where a family of modest means can buy a modest home in the suburbs for a modest $1.5 million, those of you who haven't yet known the bliss of home ownership may be thinking, "now's the time." Many industry professionals will tell you that's true.
The trouble is, those same professionals will also tell you a lot of other things, and they'll do it using a lot of scary-sounding words like "fiduciary." That's why you need to be prepared to "talk the talk" with these mortgage-wrangling poobahs, and that's why I have put together this glossary based on my own understanding of the key terms you'll come across:
Amortization period: The rest of your godforsaken life.
Assumable mortgage: The kind of mortgage where the bank assumes you have money and assumes you will give it to them each month for the rest of your godforsaken life (see "amortization period," above).
Balloon payment: A payment that keeps getting bigger and bigger until it finally pops in your face and really hurts.
Closing fees: The fees you pay after paying title fees, mortgage registration fees, inspection fees, appraisal fees, bank transfer fees, moving fees, photocopying fees, fee-administration fees and "sign-here-to-pay-fees" fees. The difference is that closing fees are paid to a lawyer. If you do not have a lawyer, one will be appointed for you — for a fee.
Down payment: The amount of money, often borrowed from credulous relatives, that is applied in advance toward the purchase price of the home before the mortgage fun even begins. Typically, a down payment is about 10 per cent of the purchase price. In Vancouver-area housing terms, that translates roughly to the cost of a Stealth bomber — with heated leather seats.
Equity: The value of the property above and beyond what you currently owe on it. This is the amount you are encouraged to borrow against to finance upgrades to the home so that you can increase your equity to the point where you can borrow more to finance further upgrades to the home so you can ... oh, it never ends.
Insurance: An extra fee paid to ensure that your spouse can live in mortgage-free comfort in the event that the rest of your godforsaken life isn't long enough to satisfy the bank. The mortgagee who decides to forgo mortgage insurance coverage may die only after receiving approval in writing from the lending institution.
Maturity date: The hypothetical day in the distant future by which you are supposed to stop behaving like a child and take this repayment thing seriously.
Mortgage broker: A professional who, for a fee, asks the banks what their interest rates are and then tells you.
Realtor: A professional who, for a fee, asks the vendor what the selling price is and then tells you.
Open mortgage: A mortgage assumed among three consenting adults.
Payment frequency: Your timetable for repayment. Every week, every two weeks, twice a month — you have the power to choose how often you make your mortgage payments. Which is kind of like having the power to choose the colour of the iron ball that gets chained to your ankle.
Portable mortgage: A mortgage for a motorhome.
Prepayment option: A clause in the mortgage contract that allows you to pay the entire outstanding balance in full before it is due and not accrue any further int-. . . Ha, ha, ha, ha, ha, ha, ha! Good one! No, seriously — go ahead and put this clause (professionals call it "Clause 6/49") in the contract. Hey, it helps to have dreams.
Refinancing: A renegotiation of terms that occurs when you and the bank decide that the original agreement, while originally structured to be a long-term ironclad contract, is in fact as ephemeral and inconsequential as a Britney Spears marriage. It is at this point that you can, if you have a commendable record of servitude and are a particularly canny finagler, persuade the bank to lend you even more money, at an even higher rate, for an even longer period of your godforsaken life.
Variable interest rate: The rate at which your interest in this whole process varies.
Weber is a Vancouver writer who can be reached at [email protected]
. His website is www.wordmonkeywriter.com
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