A legal agreement that offers a certain price for a home. The offer may be firm (no conditions attached), or conditional (certain conditions must be fulfilled before the deal can be closed).
The time over which all regular payments would pay off the mortgage. This is usually 25 years for a new mortgage, however can be greater, up to a maximum of 30 years. Mortgages with shorter amortizations are available as well. A longer amortization lowers your monthly interest payments and allows you to have increased cash-flow on a month to month basis; however, with a longer amortization you’ll be paying more interest.
Annual Property Taxes
These are the property taxes due each year for the subject property. This money is paid to the municipality to which the property belongs.
The process of determining the value of property, usually for lending purposes. This value may or may not be the same as the purchase price of the home.
The appraised value of your property is the ‘market value’ of your home as deemed by an appraiser. Mortgage lenders will use the appraised value of your home to estimate the market value of the property in order to make a decision as to how much they may be willing to loan to you against the value of your home.
Annual Percentage Rate (APR)
Annual Percentage Rate represents the total cost of your loan or mortgage including the interest, principal and any additional fees such as legal fees or appraisal fees on your home. The APR is typically higher than your interest rate because it includes the additional fees required.
Payments consisting of both a principal and an interest component, paid on a regular basis (e.g. weekly, biweekly, monthly) during the term of the mortgage. The principal portion of payment increases, while the interest portion decreases over the term of the mortgage, but the total regular payment usually does not change.
Breaking Your Mortgage
Breaking your mortgage is to opt out of your mortgage before the agreed upon term is finished. Banks and lending institutions will typically charge you the greater of two penalties: three (3) months interest or an IRD (Interest Rate Differential) penalty. Home-owners often break a mortgage to try and take advantage of lower interest rates in the market. A qualified Mortgage Professional should be able to determine if breaking your mortgage is worth it for you.
Canada Mortgage and Housing Corporation (CMHC)
The National Housing Act (NHA) authorized Canada Mortgage and Housing Corporation (CMHC) to operate a Mortgage Insurance Fund which protects NHA Approved Lenders from losses resulting from borrower default.
Certificate of Location or Survey
A document specifying the exact location of the building on the property and describing the type and size of the building including additions, if any.
Certificate of Search or Abstract of Title
A document setting out instruments registered against the title to the property, e.g. deed, mortgages, etc.
Various expenses associated with purchasing a home. These costs can include, but are not limited to, legal/notary fees and disbursements, property land transfer taxes, as well as adjustments for prepaid property taxes or condominium common expenses, if any.
A closed mortgage is a mortgage that cannot be fully repaid before the end of your term without incurring some kind of penalty. Open mortgages, those that can be repaid before the end of a term without penalty are available, however; these open mortgages typically come with a higher interest rate than that of closed mortgages.
The big day! The closing date is the day in which your housing purchase or refinance takes place. A lending institution will grant you the agreed upon funds and sellers transfer home-ownership (and the keys!) to the buyer.
A conventional mortgage is a mortgage where the total mortgage amounts to 80% or less of the property’s value. Putting a down-payment of 20% or higher puts you into the ‘conventional mortgage’ category – you also avoid paying any mortgage loan insurance costs.
Convertible Mortgage A convertible mortgage is a variable rate mortgage that can be ‘locked-in’ or converted into a fixed rate mortgage without penalties.
Cost of Borrowing
The total costs of obtaining your mortgage. These costs typically include your appraisal fees as well as any other charges required to close your mortgage. These costs are included in your Annual Percentage Rate.
A deed is a document confirming the ownership of a particular property.
Your down payment is the amount of money you have on hand to put towards the payment of your home. The larger your down payment, the smaller your mortgage amount will be. In Canada, a minimum of 5% down payment is typically required. Mortgages greater than 80% of a home’s value are referred to as ‘high-ratio mortgages’ and require that the borrower pay for mortgage default insurance. Buyers with 20% or greater of a down payment typically do not have to pay for mortgage default insurance.
Some lenders allow home-owners to renew their mortgage up to 120 days before their maturity date (the end of their term). However; be sure to find out what’s available to you on the market before agreeing to an early renewal.
This is the estimated value of your home. You may use the value of comparable homes in your area or your municipalities annual property tax assessment to
An estoppel certificate is a legal document that shows the various finances and legal status of a condominium corporation. It is important that your lawyer reviews this document to help advise you on the financial health of any condominium you might plan on moving into.
The first mortgage is the mortgage that takes precedence above any other mortgages or loans registered against your home. If there are any other mortgages registered against your property and you should sell your home or default on your mortgage, the first mortgage must be paid out with the money made available from the property.
A guarantor is the person who agrees to make repayments on a mortgage if the borrower of that mortgage does not do so. Some lenders may require a guarantor depending on your particular situation and borrowing request.
High Ratio Mortgage
A high ratio mortgage is a mortgage greater than 80% of the value of a property. High ratio mortgages require that the borrower pays mortgage default insurance.
Home equity, or the equity in your home, is the difference between the value of your home and what you owe on it.
The prime rate is an interest rate set by banks and lending institutions based on the Bank of Canada’s overnight lending rate. The Prime Rate usually moves in lock-step with the overnight lending rate. Variable rate mortgage holders should pay attention to the prime rate.
The interest rate is the percentage amount based upon the amount of your principle mortgage that you will be paying over the life of your loan. Remember, the quicker you pay off your mortgage, the less interest you pay overall.
Interest Rate Adjustment
Payments on a Variable Rate Mortgage (VRM) can vary throughout its term depending on what happens with the Prime Rate of your lender – that’s why it’s called “variable”. On your mortgage funding date, the initial interest rate is set, locking in the interest rate spread. Every three months after that (referred to as the Interest Rate Adjustment Date), the interest rate on your VRM is subject to review and possible adjustment, either up or down, if the Prime Rate changes. If there is a change in your Interest Rate, we will mail you an update outlining your new rate and the change in your payment.
Loan to Value (LTV) Ratio
The ratio of the principal amount of a mortgage to the value of the property.
For example, if your property is worth $100,000 and you made a down payment of $25,000, your mortgage amount will be $75,000 and your LTV is 75%.
The LTV helps determine whether or not mortgage default insurance is required. LTV of 80% or less will be a conventional mortgage and will generally not need mortgage default insurance. LTV of more than 80% will be a high-ratio mortgage and will need mortgage default insurance. Other circumstances may also cause you to need mortgage default insurance.
Lump Sum Payment
The best mortgages allow home-owners to pay off their mortgage faster using prepayment options. Each mortgage year, home-owners can make one-time or on-going lump sum prepayments equal to a certain of their original mortgage balance without penalty.
The maturity date is the last day of the term of your mortgage. Any outstanding balance is due on this date. However, if you have an outstanding balance you will usually have the opportunity to renew your mortgage with a new principal amount, interest rate, term and amortization.
A mortgage is a loan that is secured by property.
Mortgage Default Insurance
Mortgage Default Insurance pays the lender if the borrower defaults on making payments. This insurance is required by law for high ratio mortgages (those for an amount greater than 80% of the value of the property) and may be required under other circumstances.
Mortgage Life Insurance
Creditor insurance that pays off the remaining mortgage debt in the event of a borrower’s death.
Mortgage Loan Insurance
Mortgage Loan Insurance pays the lender in the event the mortgage borrower defaults on making payments. Such insurance is required by law for high ratio mortgages (those for an amount greater than 80% of the value of the property) and may be required under other circumstances.
For more information about Mortgage Loan Insurance or to calculate the premium, you can visit CMHC or Genworth websites at: www.cmhc.ca or www.genworth.ca or www.canadaguaranty.ca.
At funding or when renewed, a mortgage is set for a pre-determined amount of time or term. If the mortgage is terminated before its maturity date, either through sale of the home, early renewal or discharge, there may be penalties. The applicable penalties would be equal to the greater of the interest rate differential or 3 months interest plus any applicable fees related to the discharge request.
The lending institution or bank providing you the mortgage on your home.
The borrower of the mortgage.
The listing of a particular property from Multiple Listing Service (MLS) which includes the particular details of a property. Typically the most pertinent details are property taxes, maintenance fees and measurements of the property.
A portable mortgage is a mortgage that you can transfer over with you to a new property. The benefit of a portable mortgage is the ability to keep the rate and terms of your current mortgage.
Many lenders will pre-approve a mortgage to a set maximum principal amount before you’ve found the house you want to buy. Pre-Approvals are useful as they can guarantee your interest rate for up to 120 days on fixed term loans and can help you determine your budget for your next housing purchase. A pre-approval won’t cost you anything and can help you hold on to today’s interest rates.
The principal is the amount of money you’ve borrowed for your property. This doesn’t include any interest costs that might be required.
The purchase price is the actual price you’ve agreed upon for the purchase of your new home. This price doesn’t include any closing fees, transfer taxes or interest costs.
This is an asset that is used as collateral for the sake of a loan. In the case of your mortgage, your home is the asset used as security.
The length of the loan. Many lenders offer mortgages with terms up to 10 years. At the end of the term (on the maturity date), you must repay the outstanding principal amount, if any. Usually you have the option then to make the repayment or to renew the mortgage with a new principal amount, interest rate, term and amortization.
The title designates the ownership of a particular property.
Title Insurance is a product that protects you from any fraud, errors or survey matters associated to the title of your property.
Variable Rate Mortgage
A Variable Rate Mortgage is a mortgage of any given term (usually 3 years or 5 years) where the interest rate moves in lock-step with your mortgage lender’s Prime Rate.
Zoning refers to the geographic zone designations allotted by municipalities.