Mortgages
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One of the first steps in the process of buying your home is finding out how much you can afford. Contact me for help identifying potential lenders and pre-qualifying for your loan. Mortgage brokers want to be your source for mortgage advice providing help, advice and ongoing guidance. They simplify the financial side of home ownership.
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Mortgage Glossary
A
AGREEMENT OF PURCHASE AND SALE
The legal contract between a purchaser and a seller. A professional REALTOR® has the knowledge and experience to best protect you with the most suitable clauses and conditions.
AMORTIZATION PERIOD
The number of years it takes to repay the entire amount of the financing based on a set of fixed payments.
APPRAISAL
The process of determining the market value of a property.
ASSETS
What you own or can call upon. Often used in determining net worth or in securing financing.
ASSUMPTION AGREEMENT
A legal document signed by a buyer that requires the buyer to assume responsibility for the obligations of an existing mortgage. If someone assumes your mortgage, make sure that you get a release from the mortgage company to ensure that you are no longer liable for the debt.
B
BLENDED PAYMENTS
Equal payments consisting of both an interest and a principal component. Typically, while the payment amount does not change, the principal portion increases, while the interest portion decreases.
C
CANADA MORTGAGE AND HOUSING CORPORATION (CMHC)
CMHC is a federal Crown corporation that administers the National Housing Act (NHA). Among other services, they also insure mortgages for lenders that are greater than 80% of the purchase price or value of the home. The cost of that insurance is paid for by the borrower and is generally added to the mortgage amount. These mortgages are often referred to as ‘Hi-Ratio’ mortgages.
CLOSED MORTGAGES
A mortgage that cannot be prepaid or renegotiated for a set period of time without penalties.
CLOSING DATE
The date on which the new owner takes possession of the property and the sale becomes final.
COLLATERAL
An asset, such as term of deposit, Canada Savings Bond, or automobile, that you offer as security for a loan.
CONVENTIONAL MORTGAGE
A mortgage up to 80% of the purchase price or the value of the property. A mortgage exceeding 80% is referred to as a ‘Hi-Ratio’ mortgage and the lender will require insurance for that mortgage.
CREDIT SCORING
A system that assesses a borrower on a number of items, assigning points that are used to determine the borrower’s credit worthiness.
D
DEMAND LOAN
A loan where the balance must be repaid upon request.
DEPOSIT
A sum of money deposited in trust by the purchaser on making an offer to purchase. When the offer is accepted by the vendor (seller), the deposit is held in trust by the listing real estate broker, lawyer, or notary until the closing of the sale, at which point it is given to the vendor. If a house does not close because of the purchaser’s failure to comply with the terms set out in the offer, the purchaser forgoes the deposit, and it is given to the vendor as compensation for the breaking of the contract (the offer).
E
EQUITY
The difference between the market value of the property and any outstanding mortgages registered against the property. This difference belongs to the owner of that property.
F
FIRST MORTGAGE
A debt registered against a property that has first call on that property.
FIXED-RATE MORTGAGE
A mortgage for which the interest is set for the term of the mortgage.
G
GROSS DEBT SERVICE RATIO (GDS)
It is one of the mathematical calculations used by the lenders to determine a borrower’s capacity to repay a mortgage. It takes into account the mortgage payments, property taxes, approximate heating costs, and 50% of any maintenance fees, and this sum is then divided by the gross income of the applicants. Ratios up to 32% are acceptable.
GUARANTOR
A person with an established credit rating and sufficient earnings who guarantees to repay the loan for the borrower if the borrower does not.
H
HIGH-RATIO MORTGAGE
A mortgage that exceeds 80% of the purchase price or appraised value of the property. This type of mortgage must be insured. To avoid the cost of the insurance, a 1st mortgage up to 80% is arranged and a 2nd mortgage for the balance (up to 90% of the purchase price).
I
INTEREST ADJUSTMENT DATE (IAD)
The date on which the mortgage terms will begin. This date is usually the first date of the month following the closing. The interest cost for those days from the closing date to the first of the month are usually paid at closing. That is why it is always better to close your deal towards the end of the month.
INTEREST-ONLY MORTGAGE
A mortgage on which only the monthly interest cost is paid each month. The full principal remains outstanding. The payment is lower than an amortized mortgage since one is not paying any principal.
M
MORTGAGE
A mortgage is a loan that uses a piece of the real estate as a security. Once that loan is paid-off, the lender provides a discharge for that mortgage.
MORTGAGEE
The financial institution or person (lender) who is lending the mortgage.
MORTGAGOR
The person who borrows the money using a mortgage.
O
OPEN MORTGAGE
A mortgage that can be repaid at any time during the term without any penalty. For this convenience, the interest rate is between 0.75-1.00% higher than a closed mortgage. A good option if you are planning to sell your property or pay-off the mortgage entirely.
P
P.I.T.
Principal Interest, and property tax due on a mortgage. If your down payment is greater than 25% of the purchase price or appraised value, the lender will allow you to make your own property tax payments.
PORTABLE MORTGAGE
An existing mortgage that can be transferred to a new property. One would want to port their mortgage in order to avoid any penalties, or if the interest rate is much lower than the current rates.
PREPAYMENT PENALTY
A fee charged a borrower by the lender when the borrower prepays all or part of a mortgage over and above the amount agreed upon. Although there is no law as to how a lender can charge you the penalty, a usual charge is the greater of the Interest Rate Differential (IRD) or 3 months interest.
PRIME
The lowest rate a financial institution charges its best customers.
PRINCIPAL
The original amount of a loan, before interest.
R
RATE COMMITMENT
The number of days the lender will guarantee the mortgage rate on a mortgage approval. This can vary lender to lender anywhere from 30 to 120 days.
RENEWAL
When the mortgage term has concluded, your mortgage is up for renewal. It is open at this time for prepayment in part or in full, then renew with the same lender or transfer to another lender at no cost.
S
SECOND MORTGAGE
A debt registered against a property that is secured by a second charge on the property.
SWITCH
To transfer an existing mortgage from one financial institution to another.
T
TERM
The period of time that the financing agreement covers. The terms available are: 6 month,1,2,3,4,5,6,7,10 year terms, and the interest rates will be fixed for whatever term one chooses.
TOTAL DEBT SERVICE (TDS) RATIO
It is the other mathematical calculations used by lenders to determine a borrower’s capacity to repay a mortgage. It takes into account the mortgage payments, property taxes, approximate heating costs, and 50% of any maintenance fees, and any other monthly obligations (i.e. personal loans, car payments, lines of credit, credit cards debts, other mortgages, etc.), and this sum is then divided by the gross income of the applicants. Ratios up to 40% are acceptable.
V
VARIABLE RATE MORTGAGE
A mortgage for which the interest rate fluctuates based on changes in prime.
VENDOR TAKE BACK (VTB) MORTGAGE
A mortgage provided by the vendor (seller) to the buyer.