Mortgage Terms

In part one of a two part blog I would like to take a quick look at some commonly used but not necessarily understood mortgage terms.

Mortgage – an undertaking to pay money or perform some other obligation secured by a charge (commonly called a mortgage) of land as security for that payment or performance.

Mortgagor – the borrower and on occasion the guarantor (see below).

Mortgagee – the lender (Bank, Trust company, Private lender etc).

Conventional Mortgage – these are the most common form of mortgages and the ones most often used. The mortgage itself contains a promise to pay the debt, the terms of the debt and creates a charge on the title. These are also un-insured mortgages.

Insured Mortgage – similar to a conventional mortgage, however due to the high loan to value ratio (see explanation below) these mortgages are insured by a third party mortgage insurer. Therefore if the borrower defaults, the insurer will pay any balance not recovered through the foreclosure process. This insurance is for the benefit of the lender, not the borrower.

Covenant – are promises or undertakings. The most common one; is the promise to pay.

Covenantor – the people who make the promise or undertaking, usually the borrower, but can also be a guarantor (see below).

Guarantor – a person who promises to pay if the borrower (covenantor) does not pay.

Loan to Value ratio (LTV) – a simple equation that measures the amount borrowed against the value of the property. As an example a loan of $300,000 secured by a mortgage against a property with a value of $400,000 would have a LTV ratio of 75%.

Well that’s all for now, look for more terms next week.

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