In Toronto, the real estate market has seen a continuous sales boom, thanks to favourable economic factors and large consumer demand. A mortgage can help you purchase a house in Toronto without paying the full purchase price beforehand. Since mortgages typically involve long-term payment plans, you should learn how mortgages work and the different terminologies used in mortgage lending.
10 Popular Mortgage Terms You Should Recognize
1. PreapprovalA preapproval is a document from the lender that informs a borrower how much they have been approved for in a home loan. Lenders usually evaluate the borrower's income, credit score, and assets to determine how much they can borrow.
2. ForeclosureForeclosure is a legal process in which a lender sells a mortgaged property after the borrower fails to meet the mortgage's terms to pay a borrower's defaulted loan.
3. AppraisalAn appraisal is the evaluation of a home by a licensed appraiser to determine its current market value. An appraisal provides the mortgage lender with an assurance that you're not applying for more than the home's value.
4. Down PaymentA down payment is the portion of the purchase price that a borrower pays upfront toward the home. Most mortgage lenders require some down payment and often list it as a percentage of your loan's value.
5. EscrowEscrow is an account set up by a lender where the home buyer pays for various property-related expenses such as homeowner's insurance and property taxes. Although some lenders incorporate escrow payments to the monthly mortgage dues together with interest and principal, you can opt to make these payments directly without using escrow.
6. AmortizationAmortization is the reduction of the amount owed by making consistent monthly payments. Each payment a borrower makes, part of it goes toward the principal and the other toward the interest.
7. Closing CostsClosing costs are the fees paid to the lender when a home is refinanced or purchased. Closing fees include the appraisal fee, loan origination fee, title search and title insurance fees, pest inspection fees, and taxes.
8. Home Owner's InsuranceHomeowner's insurance protects you against financial losses if your home or its contents get damaged or destroyed by unexpected hazards. Some of the perils covered include fires, windstorms, and burglary.
9. Balloon MortgageA balloon mortgage is a loan type where the borrower makes small payments for a given period (usually 5-7 years) and then makes a final, larger-than-usual payment at the end of the loan term.
10. EquityEquity is the fair market value of a home minus the outstanding balance of any existing mortgage.
Buying a home is an exciting investment – and the more you learn before buying your home – the better decisions you'll make! Now that you've learned the most commonly used mortgage terms, reviewing mortgage options should be a walk in the park. If you need help with buying a home in Toronto, contact the experts at GTA SELLING Real Estate to get more information about the real estate market in Toronto.