Mortgage Acronyms Decoded

Mortgage Acronyms Decoded

Written by Caitlin Wood
Last Updated March 17, 2016

When dealing with mortgage professionals it is not uncommon to become confused with the amount of acronyms they use. But confusing or not, being unfamiliar with mortgage acronyms could lead to a costly error that you do not want to make.

In the industry, mortgage acronyms have become so common that they are used more often than the words themselves. At times, it can seem as if mortgage professionals are speaking their own language. When you consider that buying your home will likely be the largest and potentially the most important purchase you will ever make (concerned about making such a large commitment?), it should be your number one goal to understand fully what your mortgage professional is telling you. This will make the whole process go a lot smoother and hopefully prevent you from becoming frustrated.

Here are ten of the most popular mortgage acronyms that you need to know before you start your home buying journey.

ARM

Always remember that loans with adjustable mortgage rates (ARM) can fluctuate, unlike loans that have fixed-rates where the payments and interest rates remain consistent for the duration of the loan. Typically, the interest rate on an ARM is fixed for anywhere from the first three to ten years. After that, it can be subject to change. At this point, rate and payment are calculated to be consistent with current rates. It’s important to remember how your ARM will alter your monthly payments.

DTI

A debt to income ratio (DTI) calculates the proportion of your income that goes towards paying off your debts, such as credit cards and student loans. Generally, lenders will require your DTI to be below fifty-five percent of your monthly take home income (keep in mind that all lenders have different requirements).

GFE

A good faith estimate (GFE) is a crucial document that lays out all the necessary details of your loan. Details such as: type of loan, interest rate, amount, appraisal, closing costs, credit report fees, title and escrow fees etc. Keep in mind that lenders are required, by law, to provide you with a GFE.

HELOC

A home equity line of credit (HELOC) is a loan or a line of credit that is taken out against the equity that your home has.

Need help leveraging your home’s equity? Read this article.

LOX

A letter of explanation (LOX) is a short letter explaining any harmful information that was found in your credit history or on loan application. Details that could harm your chances of receiving your loan could include late payments.

LTV

A loan to value ratio (LTV) is the variance between the market value of your house and the value of your mortgage. Generally, lenders look for a LTV of eighty percent. It’s important to know, lenders also offer unique programs for those who need a greater LTV.

MIP

Mortgage insurance premium (MIP) is a fee that can be found in your monthly mortgage payment. It insures lenders that have funded loans with an LTV that is higher than eighty percent.

PITI

PITI stands for principal, interest, taxes and insurance. It is a type of mortgage payment that includes all of the above in one payment.

It’s always a good idea to be as prepared as possible when starting the mortgage process. There are a lot of terms to be learned, papers to read and documents to sign and getting a head start will make the whole process go a lot smoother and hopefully guarantee that no important information goes over your head (check out the top 5 mortgage mistakes to avoid). While we recommend entering the home buying process with some understanding of what’s going on, we also recommend that you ask your mortgage professional or lender should you have any questions. They are there to help guide you through the process.


Rating of 5/5 based on 1 vote.

Caitlin is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security. One of the main ways she’s built good financial habits is by budgeting and tracking her spending through the YNAB budgeting app. She also automates her savings so she never forgets to put aside a portion of her income into her TFSA. She believes investing and passive income is key to earning financial freedom. She also uses her Aeroplan TD credit card to collect Aeroplan points so that she can save money when she travels.

Click on the star to rate it!

How useful was this post?

Research & Compare

Canada's Loan Comparison Platform

Largest Lender Network In Canada

Save time and money with Loans Canada. Research and compare lenders before you apply. Share your experiences with Canada's top lenders.

Make Smarter Borrowing Decisions

Whether you have good credit or poor credit, building financial awareness is the best way to save. Find tips, guides and tools to make better financial decisions.

Save With Loans Canada

Special Offers

Build Credit With Refresh Financial

Build Credit With Refresh Financial
Popular

Build credit while spending money with the Refresh Financial VISA card.

View Offer
Build Credit For $7/Month

Build Credit For $7/Month
Popular

With KOHO’s prepaid VISA card you can build a better credit score for just $7/month.

View Offer
Make No Payments Until 2022

Make No Payments Until 2022
Ends Soon

Borrow up to $50,000 from our partner, Fairstone, and don’t pay until 2022*

View Offer
Industry Spotlight

What's happening with Canada's credit industry?

goPeer — Helping Consumers Achieve Financial Freedom by Connecting Canadians Looking For Financing With Canadians Looking to Invest

goPeer — Helping Consumers Achieve Financial Freedom by Connecting Canadians Looking For Financing With Canadians Looking to Invest

goPeer is Canada's first consumer peer to peer lending platform and connects creditworthy Canadians looking for a loan with everyday Canadians looking...

Read Post
Locator
Find The Best Rate
In Your Region
OR
Best Personal Loan Provider by Greedy Rates
Icon

Confidential & risk-free

All consultations and conversations with Loans Canada and its partners are confidential and risk-free. Speak with a trusted specialist today and see how we can help you achieve your financial goals faster. Loans Canada and its partners will never ask you for an upfront fee, deposit or insurance payments on a loan. Loans Canada is not a mortgage broker and does not arrange mortgage loans or any other type of financial service.

When you apply for a Loans Canada service, our website simply refers your request to qualified third party providers who can assist you with your search. Loans Canada may receive compensation from the offers shown on its website.

Only provide your information to trusted sources and be aware of online phishing scams and the risks associated with them, including identity theft and financial loss. Nothing on this website constitutes professional and/or financial advice.

Your data is protected and your connection is encrypted.

Loans Canada Services Are 100% Free. Disclaimer

Keep Track Of Your Credit Score

Subscribe with Credit Verify to monitor your credit rating and get your free credit score.