Understanding Mortgage Terms

Getting a mortgage loan is probably the largest financial commitment you will ever have to make. There are many industry terms used in the marketplace today and it is important that you are armed with the knowledge to get the mortgage that is right for you. Get to know the following terms and make an informed decision about your mortgage!

“…brush up on your Mortgage term vocabulary BEFORE you take that first step…”

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Glossary

AMORTIZATION
The gradual reduction of a debt by means of a regular payment. Repayments of principal and interest in “blended” amounts. The normal amortization period for a mortgage in Canada is 25 years, but can be as short as 5 years or as long as 25 years.

APPRAISAL
Lenders require an independent assessment of the value of the home you are buying before agreeing to finance the purchase.

ASSESSED VALUE
The value placed on land and buildings by a government agency for tax purposes.

ASSESSMENT
A tax or charge levied on property by a taxing authority to pay for improvements such as sidewalks, streets, and sewers.

ASSETS
What the borrower owns. This could include real estate, savings, vehicles, RRSPs, GICs, stocks, bonds, household goods, etc.

ASSUMPTION (of mortgage)
Buyer assuming responsibility of seller’s existing mortgage at the interest rate and terms as laid out in the original mortgage documents.

BLENDED MORTGAGE
A mortgage that combines the amount owing on an existing mortgage with additional funds being advanced. The interest rate would be a combination of the rate on the old loan and the rate in effect at the time of the new financing.

BRIDGE FINANCING
Interim financing to bridge the time gap between the closing date on the purchase of a new home and the closing date on the sale of the current home.

BUILDING CODES
Provincial or locally adopted regulations that control the design, construction, repair, quality of building materials, use, and occupancy of any structure under its jurisdiction.

CHATTEL
Articles of personal property such as household goods, furnishings, and fixtures that are not permanently affixed to the house.

CLOSED MORTGAGE
The restriction or denial of repayment rights until the end of the mortgage term.

CLOSING
The meeting (usually in a lawyer’s office) at which the transfer of title of property passes from the seller to the buyer.

CLOSING COSTS
All the charges that are attached to the closing ceremony. These one-time fees include charges for title search and insurance, attorney’s fee, lender and/or broker fee(s).

C.M.H.C.
Canada Mortgage and Housing Corporation, a Crown Corporation which administers the National Housing Act.

C.M.H.C. INSURANCE
If your down payment is less than 25% , you must have mortgage insurance. It insures the lender against the possibility of you defaulting on your mortgage. Canada Mortgage and Housing Corporation is the principal source of mortgage insurance. G.E. Capital also provides mortgage insurance to many of Canada’s financial institutions.

COMMISSION
The payment given by the seller of a property to a Real Estate agent for his/her services.The amount is usually a percentage of the sale price and is usually paid at closing.

COMMITMENT LETTER
A letter outlining the amount, terms and conditions under which a lender is willing to offer a mortgage.

COMMON AREAS
Lands or improvements on land that are designated for common use and enjoyment by all occupants, tenants or owners. The lobby, a pool, tennis court or common hallways would all be Common Areas in a condominium or townhouse complex.

COMMON TENANCY
The ownership of property by two or more persons, where on the death of one, his share does not automatically go to the other(s) but is credited to his estate.

COMPOUND INTEREST
Interest charged on both the principal amount of a loan as well as on the interest charged in a preceeding period.

CONTRACT OF PURCHASE AND SALE
A written statement by which a buyer agrees to purchase, and a seller agrees to sell a particular piece of property according to the terms set forth in that agreement.

CONVENTIONAL MORTGAGE
A first mortgage granted by an institutional lender such as a bank or trust company, where the amount of the loan does not exceed 75% of the lending value of the property.

CONVERTIBLE MORTGAGE
A short term mortgage, usually 6 months or 1 year, that allows a borrower to lock in to a longer term at any time without penalty.

CONVEYANCE
Transfer of ownership of real estate property from one individual to another.

CREDIT BUREAU REPORT
A report by a credit reporting agency that maintains a history of timely, or untimely, repayment of debt. The lender’s primary source of information regarding the credit history of a borrower

DEFAULT
Failure to meet certain contractual obligations, such as mortgage payments. Default can lead to foreclosure.

DEPOSIT
A sum of money that is required to be paid with an offer to purchase as a symbol of the purchaser’s commitment.

DOUBLE-UP
The option to make twice the normal regular payment at a regular payment due date.

DOWNPAYMENT
The amount of cash put forward by the buyer toward the purchase price of real estate.

EQUITY
The difference between the value of a property and the amount of financing on that property.

FIXED RATE MORTGAGE
The interest rate remains the same for the term of the mortgage.

FORECLOSURE
Court action taken by a mortgagee when a borrower has defaulted.

GROSS DEBT SERVICE RATIO (GDS)
The percentage of annual gross income of the mortgagor that is required to maintain annual mortgage payments, property taxes and hydro.

HIGH RATIO MORTGAGE
A mortgage loan that exceeds the normal limit of 75% LTV (loan to value) of a conventional mortgage. Typically made possible by a mortgage insurance plan, e.g. CMHC or GE Capital.

INTER ALIA MORTGAGE
“Inter Alia” is Latin for “Amongst other things”. An Inter Alia Mortgage is a mortgage that is secured by more than one property. A single mortgage document is executed and registered against each property that is used as security.

INTEREST
The price paid to rent money. The rate of interest over a period of time for a specific amount of money, usually expressed as a percentage.

INTEREST ADJUSTMENT DATE
The date on which the mortgage really begins, usually the first of the month. The interest owed for the number of days between the closing date and the last day of the month is paid on the closing date by cheque or by deduction from the mortgage advance and covers

JOINT TENANCY
Property held by two or more persons with an undivided interest. If one owner dies, the property passes automatically to the other(s)

KLEASE TO PURCHASE OPTION
Buying a piece of property by renting for a specified period, usually one year, with the provision that you will purchase the property at the end of that period for a predetermined sale price.

LIABILITIES
Outstanding debts of an individual. Mortgages, loans, credit card balances.

LIEN
A charge registered against a property.

LTV (Loan to value)
The ratio between the mortgage loan amount and the value of the property usually expressed as a percentage, i.e. 75% LTV. The value of the property for lending purposes is the purchase price or appraised value, whichever is lower.

MARKET VALUE
The value of a property based on what the market will bear. Determined by a comparison of the subject property to others in a similar area that have sold recently.

MORTGAGE
A conveyance of property to a creditor, as security for payment of a debt, redeemable on the payment or discharge of the debt at a specified date.

MORTGAGE BROKER
Trained professionals with a wealth of knowledge and experience to find the mortgage that best suits your needs, at the best rate available, from a large selection of lenders that include most major banks, trust companies, credit unions. A mortgage broker works for you, not for the lender. Many financial institutions pay finders fees to mortgage brokers who refer business to them making it possible for you to get the best mortgage product at no cost to you.

MORTGAGEE
The lender of mortgage funds.

MORTGAGOR
The borrower of mortgage funds

NET WORTH
The value of ones assets minus their liabilities.

OPEN MORTGAGE
A mortgage which allows for extra payments, principal reductions or full payment at anytime without penalty.

PORTABILITY
The ability to transfer your mortgage including rate and terms, from your existing property to a new property.

PREPAYMENT CLAUSE
A clause in a mortgage agreement that allows you to pay off all or a percentage of the mortgage before the maturity date.

PREPAYMENT PENALTY
A fee charged by a lender when the borrower prepays all or a part of a mortgage in excess of the regular payments allowed by the mortgage terms.

PRINCIPAL
The money borrowed, not including any accrued interest.

QUALIFYING RATIO
A ratio that is calculated by a lender to decide how much a buyer can borrow.

RATE COMMITMENT
A lenders commitment to offer to hold a specific rate for a certain length of time. Rate commitments can vary from 30 to 180 days.

REFINANCE
To pay in full and discharge a mortgage with the proceeds of a new mortgage.

SECOND MORTGAGE
A mortgage registered against real property which is already encumbered with one mortgage. Date and time of registration determines which is first and which is second.

STRATA FEE
A charge (usually monthly) by a Strata Corporation to cover the costs of maintenance, repair, cleaning etc. of common areas. This fee will usually include a reserve to cover major repairs such as reroofing and heating system replacement.

TAX HOLD BACK
When your property taxes are included with your mortgage payments, your lender will withhold funds from your disbursement to cover interim or final taxes payable to the municipality. The amount depends on the month that the mortgage was funded and the dates when interim and final taxes are due. Tax hold backs are used to pay for the current year’s taxes while your monthly tax installments are accumulated in an account to pay the tax bills for the following year.

TERM
The length of time a mortgage has been committed for. The interest rate usually remains constant during this term unless the commitment states otherwise.

TOTAL DEBT SERVICE RATIO (TDS)
Percentage of gross annual income of a borrower required to maintain annual payments of mortgage, property taxes, hydro and other debts such as loans, credit card payments, child support and leases.

UNDERWRITING
The assessment of loan applications based on: the value of real property, a borrowers credit worthiness and ability to pay and the lending guidelines of the lender.

VARIABLE RATE MORTGAGE
A mortgage where the interest rate varies during the term of the mortgage, usually based on the prime bank rate or the GIC rate of the lender.

WEEKLY AND BI-WEEKLY PAYMENTS
You can usually choose to make your mortgage payments once a week or once every two weeks. This accelerates the reduction of your mortgage because you are making the equivalent of one extra monthly payment per year.

WAIVER
A document to voluntarily relinquish certain rights or privileges.

WALK-THROUGH
Inspection of a property by the prospective buyer before closing the mortgage.

WARRANTY DEED
Protects the homebuyer against outside claims to a property.

YIELD
The ratio of investment income to the total amount invested over a given period of time; also known as “return on investment” or ROI.

ZONING
Local government control over development within an area of land.

Mortgage regulations have changed significantly over the last few years, making your options wider than ever.  Subtle changes in the way you approach mortgage shopping, and even small differences in the way you structure your mortgage, can cost or save you literally thousands of dollars and years of expense.

Get the Right Information – Whether you are about to buy your first home, or are planning to make a move to your next home, it is critical that you be informed about the factors involved.

Everyday people are inquiring about a mortgage loan, whether it is for their first home or a subsequent financing, but rarely are they properly prepared.  By taking these few minutes to acquaint yourself with the “Mortgage Terms” you can better prepare yourself for this process and possibly save yourself thousands on your mortgage.

P.S. if you would like to get started now please click the following link to fill out a Pre-Qualification Application and we will contact you to schedule your free consultation and get you into the home of your dreams with the best terms available ….regardless of your credit!