How often have you considered the mortgage terminology you use on a regular basis – or how confusing that terminology can be to your clients who are not experts in the industry? For example, ‘executing a mortgage’ may sound deadly to your clients, but reminding them that it’s just standard mortgage terminology that refers to signing the document at the closing of the sale can eliminate those fears. Given that mortgage paperwork is part of the package of documentation involved in purchasing a home, your clients may encounter some mortgage terminology that requires explanation.
So, for those of us who may just forget what it’s like not to know these common terms, here’s a list of five examples of confusing mortgage terminology and how you can explain some of these terms to clients in a way they can understand:
1. Amortization and Term
Amortization – The length of time it takes to fully repay a mortgage. Most mortgages are amortized over 25 years, meaning that with monthly payments (a blend of interest and principal payments), the original amount of the purchase and all the interest should be paid off within 25 years.
Term – The length of time you are committed to a mortgage rate, lender and conditions set out by the lender. This can be anywhere from six months to ten years.
WARNING: Make sure your clients are not confusing amortization with term!
2. Loan to Value or LTV – This is most easily explained as the percentage owed against a home compared to the home’s value.
3. Gross Debt Service Ratio or GDS
The percentage of gross income that is the maximum payment allowed annually in principal, interest and property taxes.
4. Gross Income
Employment or investment earnings before taking off taxes or other deductions.
5. “More or less”
Found in most purchase agreements across Canada, this term can be super confusing for clients. Without going into detail about historical measurements, it is easiest to explain “more or less” as covering any slight variations from the stated size.
By helping your clients navigate mortgage terminology, not only will your reputation as an expert in mortgages grow, but your business will also grow with all the referrals you are bound to get you’re your existing roster of better-informed, better-educated clients.
Consider coming up with a cheat sheet that explains these mortgage terms to keep in your office or to share on your social media – a little education goes a long way towards helping your clients navigate the mortgage process.
When clients are looking to you as the expert, you need to deliver – and that doesn’t just mean with common mortgage terminology!
Purview For Mortgage Brokers has the tools you need to succeed: http://brokers.purview.ca/.