Amortization – The total period of time over which your mortgage is financed: any time from 6 months to 10 years, with 25-years being the traditional amortization period and 30 years being the maximum term.
Assumability – The ability of another party to take over/assume your mortgage (i.e. if you sold your house and the buyer wanted to take over your mortgage payments because your mortgage rate is lower than the current the rate). Even if a mortgage is assumable, the borrower MUST qualify to the satisfaction of the mortgage lender.
Appraisal – Inspecting a property to determine value, usually for mortgage lending purposes. A qualified appraiser physically inspects the property and takes note of its condition and special features. The appraiser then assesses the value taking into consideration the value comparable properties in the area. This value may or may not be the same as the purchase price of the home.
Blend and Extend – This is the process of adding to the term of your existing mortgage and combining the old and new rate into a new blended rate on a weighted basis. This is a good way of avoiding prepayment penalties if you are moving and increasing the size of your mortgage.
Blended payment – Usually refers to a payment that includes principal and interest.
Closing Costs – Closing costs are fees associated with the purchase of your home (additional to the purchase price itself). They can include include property transfer taxes, legal fees, and moving expenses and appraisal fees.
Closed Mortgage – A mortgage that allows little to no option of paying off your mortgage early. Borrowers are penalized for early payments.
CMHC – Canada Mortgage and Housing Corporation (CMHC) operates a Mortgage Insurance Fund that protects approved lenders from losses resulting from borrower default. CMHC insurance can insure for loans where the mortgage amount is greater than 80% of the value of the property, and insures for a variety of other specialty lending situations. A premium is charged for the insurance.
Commitment – A mortgage commitment is a document where the lender agrees to lend the borrower money under a set of specified conditions, for example, receiving income verification (employment letter, pay stubs, tax information), appraisal, copies of MLS listing, and proof of down payment.
Conventional Mortgage – A mortgage amount that is less than 80% of the property value and generally requires insurance by CMHC or Glenworth or AIG.
Discharge – The process of a lawyer removing a mortgage from title registered at the Land Titles office.
Debt-Service Ratio – The percentage of the borrower’s gross income that will be used for total monthly payments including mortgage principal and interest; taxes; heating costs; and strata fees, if any.
Deposit – A sum of money put down by the purchaser when making a formal offer. The vendor?s agent, broker, lawyer or notary holds the funds in trust until the closing of the transaction.
Equity – The value the owner has in a property over and above all mortgages against the property. It is usually the difference between the market value of the property and any outstanding encumbrances.
Fixed-Rate Mortgage – A mortgage that has a fixed interest rate for the term of the mortgage.
Foreclosure – When the lender takes legal action to obtain ownership of the property because the borrower is in default of the loan agreement.
Gross Debt Service (GDS) Ratio – The percentage of gross income required to cover monthly payments associated with housing costs. Most lenders recommend that the GDS ratio be no more than 32% of your gross (before tax) monthly income.
High Ratio Mortgage – A mortgage granted to an applicant who has put down less than 20% of the total purchase price as down payment. Unlike conventional mortgages, high ratio mortgages require a one-time default insurance fee.
Holdback – Money withheld by the lender during the construction or renovation of a house to ensure that construction is satisfactorily completed at every stage.
Inter Alia Mortgage – A single mortgage covering more than one property. The term is latin for “amongst other things”.
Interest Adjustment Date – The date from which interest is calculated when mortgage funds are advanced before a regular payment cycle. For example if a mortgage is advanced April 29th and regular monthly payments commence May 1st, there will be an interest adjustment for 3 extra days.
IRD (Interest Rate Differential) – A common prepayment penalty method where the difference between current interest rates and the mortgage interest rate is charged for the remainder of the term. IRD is generally only applicable if current interest rates are lower than that of the original mortgage and are intended to compensate the lender for the difference in interest income it will receive.
Interim Financing – Short-term financing to help a buyer bridge the gap between the closing date on the purchase of a new home and the closing date on the sale of the current home.
Maturity Date – The last day of the mortgage term.
Mortgage Insurance – Mortgage life insurance and mortgage disability insurance are both available and should be considered by all buyers. If mortgage insurance is declined, it is common practice to have a waiver signed to protect all parties.
Mortgagee and Mortgagor – The lender is the mortgagee and the borrower is the mortgagor.
Mortgage Term – The length of time the current mortgage agreement applies between mortgagee and mortgagor -usually range from six months to 10 years.
Open Mortgage – A mortgage that can be prepaid at any time, without penalty. Interest rates are usually higher for open mortgages.
Payment Frequency – How often you want to make payments: every week, every other week, twice a month or monthly.
P.I.T. – Principal, interest and taxes. These make up the regular payment on a mortgage if the lender is including property taxes in your mortgage payments.
Porting – This means that you can take your mortgage with you to another qualifying property while maintaining your existing interest rate and avoiding prepayment penalties.
Prepayment Charge – A fee charged by the lender when the borrower prepays any part of a closed mortgage beyond what is allowed in prepayment privileges set out in the mortgage agreement.
Prepayment Privileges – Lenders generally allow some prepayments without penalty. For example, 20% per year lump sum, plus 20% increase in regular payment, but this will vary based on the mortgage agreement.
Principal – The amount of money borrowed for a new mortgage.
Property Transfer Tax – Provincial Tax due when a property changes hands. The 2008 provincial budget increased the first time buyers? exemption threshold to $425,000. The rate for homes beyond that threshold is calculated at 1% of the first $200,000 and 2% thereafter.
Refinancing – Renegotiating your existing mortgage agreement. You may be increasing the principal, paying out the mortgage in full or arranging a new mortgage.
Renewal – At the end of a mortgage term, a mortgage can be renewed if the terms and conditions are acceptable to both the lender and the borrower. Otherwise, the lender will be repaid in full and the borrower will arrange financing elsewhere. It is never advisable to renew automatically without having your mortgage broker review available options.
Term – The length of the current mortgage agreement (terms and conditions such as interest rate and prepayment privileges). This is different from amortization, which is the length of time it will take to pay off the mortgage in full.
Title Insurance – Title insurance is different from all other types of insurance. Policies are available for lenders AND for homeowners. Lenders often request title insurance to protect their interests if a property survey is not available (title insurance is usually faster and less expensive than getting a new survey done). A homeowner policy protects your ownership or title against losses incurred as a result of undetected or unknown title defects, for as long as you own your home. Even if you are the rightful owner of your home, there are instances such as real estate title fraud, when your title can come into question (view More Information at First Canadian Title).
Total Debt Service (TDS) Ratio – The percentage of gross income needed to cover monthly payments for housing and all other debts and financing obligations.
Variable Rate Mortgage – When the interest rate of a mortgage floats with the prime rate.