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Thursday, June 1, 2017

I Don't Understand





 
Many of us will remember the television show, Mork and Mindy .
 Imagine that you have just moved to Canada and you overhear a conversation, “ I was watching NBC and they said that the FBI arrested a terrorist at IGA”
 You probably wouldn’t understand what they said because we all use acronyms used We often replace the long descriptions for many organizations, institutions and government bodies with the initials or short forms in conversations. The show was based on Mork, an alien, misunderstanding terms, expressions and common traditions that we have in our society. It made for a funny show but it’s not so funny if you are new to Canada or want to make the largest purchase in your life.
. Imagine this same person speaking to a realtor or a mortgage broker when they started using abbreviations for words used in their industry. As a public service to any of you who may have recently arrived from a foreign county or another planet, I am going to define a few expressions that we all take for granted.

AMORTIZATION – How long you have to pay off the mortgage on a home. Typically in Canada you have 25 years. In Japan it can be 99 years. Payments are spread out equally over the specified time period . If they were not you would have huge payments in the first few years and very small ones in the last6 months of your mortgage term.
DOWN -  short for down payment. A deposit of 5% minimum is required for a home purchase.
FLEX DOWN – a borrowed down payment program, where the repayment of the loan is included in the debt calculations.
PULL – “He pulled my credit before the loan approval “ – a pull is a credit bureau report inquiry.
TRADE LINES -  a trade line is a credit card or cellphone  account, a loan or mortgage that appears on your credit report.
DEROGS – short for derogatory , referring to late payments on your credit report.
20/20 – refer to your ability to repay 20% of the mortgage balance or increase your payment by 20% without incurring a penalty.
MIC – short for a Mortgage Investment Corporation – a group of investors who will lend you the money for a mortgage if a traditional lender will not due to unusual circumstances.
TERM – although mortgages have 25 year amortizations, Canadians traditionally take terms of 1- 5 years and then renegotiate their mortgages. 1-5 years is the TERM.
DEFAULT – failing to pay your mortgage on time puts your mortgage into DEFAULT
FORECLOSURE – If your mortgage is in default you can make your payments up or the lender will put your home in FORECLOSURE and you will lose your home.
OPEN MORTGAGE – a mortgage where you can pay out the mortgage at any time during the term.
CLOSED MORTGAGE –a mortgage where you have agreed to pay the lender for a specified period of time . If you wish to terminate the mortgage, a penalty will have to be paid.
PIT – principal, interest and taxes – an amount  used to calculate how much  you  can afford to pay monthly on your home .  Often  heat is also included in this calculation (PITH) .
High Ratio – a mortgage where the buyer has less than 20% for the down payment and needs to pay CMHC fees to insure it.
CONVENTIONAL – a mortgage where the buyer has 20% or more down payment or equity in their home.
While I have not covered all the terms you may encounter I hope that I have covered most of them.
If you find yourself talking to a mortgage broker who is using business expressions you should feel free to remind them that you are not in the industry and would like to the terms explained. Any broker worth their salt will be very happy to explain these terms to you.

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