In Part 1 of this series, we walked you through common mortgage terms such as amortization, assets and liabilities, closed and high ratio mortgages, terms, variable rates, and bridge financing. 

In Part 2, we'd like to show you a few more of these common terms to help you understand your mortgage paperwork and options.

Cash Back Mortgage 

This type of mortgage is particularly helpful if you need extra funds at closing on your new home purchase. A cash back mortgage is an option usually granted on a fixed-rate mortgage and pays out a lump sum of cash at closing. These funds are intended to be used for moving, legal fees, or post-construction add-on features to your home such as landscaping or basement development.

Maturity Date 

The maturity date on your mortgage refers to the end of your current mortgage term, which could be anywhere from one year to (most commonly) five, or even seven. If on the date your mortgage term matures you still have a balance owing, you have the option to pay off the balance in cash or renew your mortgage for a new term. At this time, you're free to shop around with other lenders as well to obtain the best possible interest rate and conditions for your new term.

Portability 

If your mortgage is set up as portable, you can carry the same mortgage you obtained for your current house into your new home. Normally, when you sell your existing home your mortgage is closed and you receive a payout for the difference between what you owed on your mortgage and what you sold your home for (minus any fees or liens). 

When porting your mortgage, you simply carry your existing mortgage payments and term into the new home. This type of mortgage can only be carried to a home that is valued the same or higher than the home you are in now.

This type of mortgage comes with conditions, however, and may mean you take on a blended rate, or a second mortgage if your new home purchase price was higher than the value of your existing home. The second mortgage will be merged into the first once the term comes up for renewal.

Pre-Approval 

When home buyers are ready to begin their new home search, it's ideal to visit a lender to obtain a pre-approval for a mortgage. This process does a quick analysis of your financial status to determine a mortgage amount you'd qualify for. This approval is based on current market interest rates, your credit rating, and the down payment you will be contributing.

The interest rate denoted in your pre-approval is typically guaranteed for a period of 120 days, but can be lower depending on the lender.

Pre-Payment 

Pre-payment is the homeowner's payment of mortgage principle prior to the end of the agreed upon term. Depending on your mortgage agreement, this may come with penalties based on how much time you have left on your term. Typically, you will be charged a penalty equal to three months of interest or a certain percentage of the balance owing. The penalty should be outlined in your mortgage documents.

Some mortgages allow the homeowner to make additional payments to their mortgage on top of regularly scheduled payments. These options could include increasing the payment amount, doubling a monthly payment, or paying a lump sum toward the principal balance of the mortgage. Refer to your mortgage agreement to determine if you're allowed to make these additional payments.

Self-Employed Mortgage 

Those home buyers that are self-employed know exactly how difficult it has been in the past to obtain a mortgage. Since approvals are partially based on your net income, the self-employed get the short end of the stick because they tend to write off as much as they can to lower their taxable income. But this also works against them when they're applying for a mortgage, as their net income is usually too low to qualify.

Now, there's a special mortgage product available specifically for these applicants. A self-employed mortgage approval is based on your Notice of Assessment from CRA, plus your T1 generals, and you will need to provide your proof of Incorporation. Your credit score plays a large part in your qualification as well, so you'll want to make sure your score is appealing to lenders (700 or higher, typically).

Before you sign any legal document, including your mortgage agreement, you'll want to be informed of all the terms and definitions related to these documents. We hope these two articles have started you on the road to understanding your paperwork and the options available to you. 

Stay tuned for more helpful tips.

Photo credits: hands, couple, application