Seven mortgage related terms made simple

by Mike on March 25, 2013

Mortgage Made easy

After struggling with some mortgage related documentation (I thought should of been simple but wasn’t) here in the last week I came up with some inspiration to share some common mortgage related terms and to both educate myself and my readers with some basic mortgage knowledge. There are plenty of mortgage heavy websites to choose from out there but tonnes of complicated terms and wording which doesn’t make mortgage related stuff any easier to comprehend or understand. Who hasn’t been confused by obtaining and working your way though mortgage documents before?


Mortgage made easy – know the basic stuff

Note credit for all the definitions is from the folks at

Capital – Capital is an extremely vague term and its specific definition depends on the context in which it is used. In general, it refers to financial resources available for use.

Interest – The charge for the privilege of borrowing money, typically expressed as an annual percentage rate.

Interest Rate – The amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets. Interest rates are typically noted on an annual basis, known as the annual percentage rate (APR). The assets borrowed could include, cash, consumer goods, large assets, such as a vehicle or building. Interest is essentially a rental, or leasing charge to the borrower, for the asset’s use. In the case of a large asset, like a vehicle or building, the interest rate is sometimes known as the “lease rate”. When the borrower is a low-risk party, they will usually be charged a low interest rate; if the borrower is considered high risk, the interest rate that they are charged will be higher.

Mortgagee – An entity that lends money to a borrower for the purpose of purchasing a piece of real property. By accepting a mortgage on the real property, the lender creates security in the full repayment of the loan in the future.

Mortgagor – An individual or company who borrows money to purchase a piece of real property. By granting the lender an interest in the property, which allows it to lend the funds with an accurate assessment of risk, the mortgagor provides the lender with a guarantee for the full repayment of the loan. Also known as a “chargor”.

Legal Lending Limit – The aggregate maximum dollar amount that a single bank can lend to a given borrower. The legal limits differ for different types of banks. The Financial Institutions Act of 1989 mandated that all savings and loan institutions must adhere to the same limits set forth for national banks

Liability – Outside of accounting and finance this term simply refers to any money or service that is currently owed to another party. One form of liability, for example, would be the property taxes that a homeowner owes to the municipal government.

I found it amazing that sometimes its the simple things that tripped me up when I was trying to read and understand the documentation from my lender. My mind seemed to grasp the complicated stuff about how it all worked but got stuck on the simple mortgage related terms!


Mortgage Knowledge –  Mortgage related termsstudy up.

I know Ive told you before but knowledge and education is power in any financial related endeavor. Whether it be credit card negotiation or shopping a little bit smarter than everyone else, mortgages are no different. You need to arm yourself with the right information, the right mortgage knowledge and go into the meeting or discussion with clear intent.  Here are a couple of tips;

  • Do your homework by learning the current mortgage rates in your area or location. Know what all the competition is offering before you ask the question of a broker or bank. Use the internet, current financial sections in your paper or even ASK your associates what kind of deals they may have made.
  • Sit down with a piece of paper and a pen with your family / partner and work out what you want from the deal. Whats the best possible deal you can think of. Whats the worst possible deal you can afford and make work with your financial situation. Somewhere between those two offers is something your going to be comfortable with but if you go in without an objective in mind how will you know to take action or not?


How is your mortgage knowledge?

What experiences have you had with lenders, mortgages and generally going through this process? Good? Bad? Share your experiences with my readers so that we can all get become more educated and financially smart.


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***Photo thanks to Mortgagebrokersouthampton & Diana Parkhouse***

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