The Canadian Bankers Association defines refinancing this way:
“Refinancing means to pay in full the existing mortgage and/or other liens/debts against the property and to arrange for a completely new mortgage with the same lender or a different lender. When you refinance you must pay for the associated application, appraisal and legal costs again, because you are taking out a new loan. If you refinance at the end of your term, you won’t have to pay a pre-payment fee. But if you refinance mid-term, you are breaking the contract and will have to pay a pre-payment fee.”
So there you have it, a clear definition of refinancing, right? Clear as mud. For something a bit simpler check out this refi post…
Now, what other terms should you know when speaking with your lender? The following is a list of buzz words that may come at you during your discussions. Keep this list handy so that you can circle back to it after your call and look up what some of fine print actually means..
GLOSSARY OF BANKING TERMS
ACCERLERATION: A process where the lender calls the entire balance of a mortgage immediately due as a result of a loan default.
ADJUSTABLE RATE MORTGAGE (ARM): A type of home loan where the interest rate charged can fluctuate up or down at different times during the life of your loan.
ADJUSTMENT DATE: The date your payment amount changes on an adjustable rate mortgage.
AMORTIZATION PERIOD: The actual number of years it will take to repay a mortgage in full.
ANNUAL PERCENTAGE RATE (APR): This is the cost of your loan given as a percentage rate. The APR includes the principal, interest and most of the fees charged for the loan. This is a good way to compare loans so you can decide on the best loan for you.
APPRAISED VALUE: An assessment of the market value of a property by a certified appraiser.
BALLOON PAYMENT: Some mortgage loans have lower monthly payments for a certain period of time – usually just interest. They then require you to pay off the remaining balance of the loan in one large payment. This is known as a balloon payment. A mortgage with a balloon payment usually saves you money in the short term; it can be risky because it’s really hard to come up with that much money in one payment. If you get a loan with a balloon payment you really need to plan on how you’re going to come up with that money.
BLENDED PAYMENT: A mortgage payment consisting of both a principal and an interest component, paid regularly during the term of the mortgage. The principal portion increases each month, while the interest portion decreases, but the total monthly payment doesn’t change.
BROKER: The person who assists you in getting your mortgage loan by taking your application and forwarding it to the lender.
CASH OUT REFINANCE: The process of refinancing your mortgage loan for an amount in excess of your outstanding balance. The amount of money left over is typically given to the borrower in the form of a check.
CLOSED MORTGAGE: A mortgage agreement that cannot be prepaid, renegotiated or refinanced before maturity, except with compensation or breakage costs.
CLOSING COSTS: These are miscellaneous costs related to borrowing money. They include things like document preparation, appraisals, title searches, etc. Usually they’re reasonable, but sometimes they’re inflated.
CLOSING DATE: The date on which the sale of property becomes final and the new owner takes possession.
COLLATERAL MORTGAGE: A loan backed by a promissory note and the security of a mortgage on a property. The money borrowed may be used for any reasonable purpose, such as home renovations or a vacation.
COMMITMENT: A written agreement between a borrower and a lender stating the fact terms of your mortgage loan for a future date.
COMPOUND INTEREST: A form of financing that charges interest on unpaid interest in addition to the interest on the unpaid balance of your mortgage loan.
CONDITIONAL OFFER: An offer to buy a property if certain conditions are met, e.g. home inspection.
CONTINGENCY: A condition that has to be met in order to qualify for your mortgage loan, such as paying off a bill.
CONVENTIONAL MORTGAGE: A mortgage that does not exceed 75 per cent of the appraised value or purchase price of the property, whichever is less. Mortgage loan insurance is not required for this type of mortgage.
COSIGNER: Someone who may have to sign your mortgage document agreeing to be financially responsible in the event that you default on your loan.
CREDIT REPORT: There are private companies that gather information about your credit transactions – home loans, car loans, credit cards, etc. These companies keep track of whether or not you pay your bills on time. Lenders will examine your credit report when trying to decide whether or not they’re willing to give you a loan. It’s important for you to be aware of alll the information in your credit report because mistakes can occur. If there is information on your credit report that isn’t accurate it can stop you from getting a loan or affect how much a loan will cost you.
CREDIT SCORE: This is a number value given to all the information in your credit report. The credit reporting agencies that keep track of your loans and payment history use a formula that only they know to assign a number to your credit report. The higher the number, the higher lenders believe are the chances that you’ll repay any money you borrow.
CRITICAL ILLNESS INSURANCE: Is an enhancement to mortgage life insurance offered by some lenders. It provides coverage to assist with paying off a mortgage in the event of critical illness (cancer, heart attack and stroke).
DEFAULT: Failing to make all of the mortgage payments as agreed to in the terms of your mortgage document.
EFFECTIVE INTEREST RATE: The real rate of interest after the effects of compounding are included. More frequent compounding adds up to a higher effective rate.
EQUITY: This is the difference between what your house is worth right now and what you owe on it. Let me give you an example: If your house is worth $300,000 and you owe $100,000 on the balance, you have $200,000 in equity.
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 where the lender obtains ownership of the property after the borrower has defaulted on payment.
GROSS DEBT SERVICE RATIO (GDS): The percentage of gross income required to cover monthly payments associated with housing. Most lenders recommend that the GDS ratio be no more than 32 per cent of your gross (before tax) monthly income.
HIGH RATIO MORTGAGE: If you don’t have the 25 per cent required for a down payment, as is the case with a conventional mortgage, your mortgage must be insured against payment default to a certain maximum by CMHC or an approved private insurer. A high-ratio mortgage is a loan in excess of 75 per cent of the lending value of the property.
INTEREST: Interest is the amount of money lenders will charge you for borrowing their money. Interest is figured as a percentage. Because your credit history directly affects how expensive borrowing money will be it’s really important to maintain a good credit rating.
LIEN: The mortgage lender’s legal claim to the borrower’s property.
MATURITY DATE: Last day of the term of the mortgage agreement.
MORTAGEE: The person borrowing money on a mortgage loan.
MORTGAGOR: The party lending money on a mortgage loan.
MORTGAGE LIFE INSURANCE: Insurance under which the benefits are used to pay off the balance due on a mortgage upon the death of the insured borrower. The purpose is to protect survivors from losing their home or to provide a debt-free inheritance.
MORTGAGE LOAN INSURANCE: For high-ratio mortgages, lenders require mortgage loan insurance. The insurance premium will cost between 0.65 per cent and 3.25 per cent of the amount of the mortgage (additional charges may apply).
OPEN MORTGAGE: A mortgage in which you can repay the loan, in part or in full, at any time prior to maturity without incurring a pre-payment fee.
PRE-PAYMENT FEE: A fee charged by the lender when the borrower prepays all or part of a closed mortgage more quickly than stated in the mortgage agreement.
PRIME RATE: The very lowest rate in a lender charges on a home loan.
PRINCIPAL: The mortgage amount actually borrowed.
REFINANCE: To pay in full and discharge a mortgage and any other registered encumbrances and arrange for a new mortgage with the same or a different lender.
SECOND MORTGAGE: A mortgage granted when there is already a mortgage registered against the property.
SECURITY: Collateral that is used to secure your home loan. This is usually your home, and if you do not repay the mortgage, the lender can foreclose and take your home.
TERM: The length of time a mortgage agreement covers. Payments made may not fully repay the outstanding principal by the end of the term because the amortization period is generally longer.
TITLE: A legal term that refers to the rightful possession and ownership of property.
TOTAL AMOUNT TO REPAY: If you add up all loan fees, points, as well as monthly payments, you’ll come up with the total amount to repay.
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 40 per cent of gross monthly income.
UNDERWRITING: The process of deciding whether or not to approve your mortgage loan application. Factors involved in this decision process include your income and credit history, among other things.
VARIABLE RATE MORTGAGE: A mortgage for which the rate of interest changes as money market conditions change. The regular payments stay the same for a specified period. The amount applied toward the principal, however, changes according to the change (if any) in the rate of interest. Also referred to as a floating rate mortgage.
VENDER-TAKE-BACK: Where the vendor (seller) of a property provides some or all of the mortgage financing in order to sell the property.