simplifying the terminilogy....(Part I)

Have you ever been to a mechanic to have your vehicle fixed only to get lost in his or her translation of what is wrong?

How about a Doctor's office and his diagnosis of your bruised ankle sounding like some death sentence?

Or what about when you go to order a medium black coffee from Starbucks and they repeat your order as a Grande Columbian dark roast that's about a 5 on the roasting chart????

I mean come on I get it, but seriously for one minute, just put yourself in the layman's shoes.

That's where I try to make a point of keeping things simple for clients.

But even then, sometimes you forget.

Hence over the next couple of days I will break down some of the mystique of our terminology....

As an industry insider, you can get lost sometimes in who you are speaking to. It's ok to use the acronyms when talking to an underwriter (the person on the Lending side of the equation who weighs the risk of the deal and determines the conditions to lending), but not the best practice when talking to a first time home buyer.

So today I am going to summarize a few common terms that sometimes get overlooked, or taken for granted....

Amortization:  Simply put, the length of time that your mortgage or loan payment will be split up over. So if we took an amortization of 30 years, your mortgage would be calculated on 360 months of repayment.

Blended payment:  This simply means that your payment has 2 components. The first part being the principal portion and the second the interest portion. The principal goes to lowering the balance on your mortgage and the interest goes to the bank or lending institution as the price for doing business.

Sometimes you hear the following 2 items. There is a reason behind why we ask you so many darned questions...

GROSS DEBT SERVICE RATIO – 32%
GDSR is the ratio of your gross income, reduced to 32% of that amount that can be allocated to mortgage debt, property taxes, ½ condo fees, an allocation towards heat (very important in Canada). i.e. $50,000.00 gross income = $4,166.00 per month = $1,330.00 applicable monies


$1,330.00 - $75.00 heat – monthly taxes – ½ condo fees = balance allowance for mortgage payments

TOTAL DEBT SERVICE RATIO - 40%
TDSR is the ratio of your gross income, reduced to 40% of that amount that can be allocated to (see above) mortgage debt, property taxes, ½ condo fees an allocation towards heat and all other outside committed payments.

Outside Committed Payments (auto loans, auto leases, credit card payments, lines of credit, student loan payments, loans, alimony, child support payments, personal guarantees on other person’s loans – i.e. son’s motorcycle loan, personal guarantee on daughter’s mortgage)


i.e. $50,000.00 gross income =$4,166.00 per month = $1,330.00 applicable monies

$1,330.00 - $75.00 heat – monthly taxes – ½ condo fees – all monthly committed payments = balance allowable for mortgage payments.

These calculations determine, in the eyes of Lenders, your ability to service the mortgage debt load.

And last on the docket for today's blog is.....

Term:  This is the time frame that you can lock your interest rate in for. If you choose a 5 year fixed term @ 3.59% (today's rate), you get that rate secured to your mortgage for the next 60 months worth of payments.

Did you know on average, most Canadians refinance before their 5 year term is up? Somewhere between years 2 and 3.

You are not stuck with only a 5 year option. You can choose any of the following terms...

6 months, 1 year, 2 year, 3 year, 4 year, 5 year, 7 year, 10 year

There are more options and that is why you need a professional to help you choose. You need to weigh all your options and have a plan in place to fit your needs and lifestyle.

My website has a few links to other areas of mortgage financing that you may need some more information on. feel free to click through and read. www.kevynoyhenart.ca

Join me on Monday when I follow up this blog with my next round of magic code words decodified....

Same bat time...same bat channel!

Enjoy the weekend unless you choose otherwise.

Kevyn