Amortization: The gradual elimination of a liability such as a mortgage in regular payments over a specified period of time. Such payments must be sufficient to cover both principal and interest.
Blended Interest Rate: An interest rate offered by a lender that is blended between the previous rate and the new interest rate.
Blended Payment – A mortgage payment that includes principal and interest. It is paid regularly during the term of the mortgage. The payment total remains the same, although the principal portions increases over time and the interest portion decreases.
Bridge/Interim Financing: Financing that “bridges the gap,” usually used between the sale of current home and the purchase of another. When down payment is coming from the sale of current home and the possession date of the new home precedes the sale date, interim financing may be required.
Building Permit – A certificate that must be obtained from the municipality by the property owner or contractor before a building can be erected or repaired. It must be posted in a conspicuous place until the job is completed and passed as satisfactory by a municipal building inspector.
Closing Costs – Costs, in addition to the purchase price of the home, such as legal fees, transfer fees and disbursements, that are payable on the closing date. Closing costs typically range from 1.5% to 4% of a home’s selling price.
Closing Date: The date on which the property legally changes hands, or when the charge is registered against the property and money changes hands.
CMHC: Canada Mortgage and Housing Corporation is a Crown Corporation which provides mortgage insurance to lenders to grant high ratio mortgage loans.
Collateral Mortgage – A mortgage which secures a loan by way of a promissory note. The money which is borrowed can be used to buy a property or for another purpose such as home renovation or for a vacation.
Commitment Letter/Mortgage Approval – Written notification from the mortgage lender to the borrower that approves the advancement of a specified amount of mortgage funds under specified conditions.
Compound Interest: Interest charged not only to the principal sum but also on interest amounts charged in the preceding period.
Conventional Mortgage: A mortgage in which the amount of the loan does not exceed 75% of the value of the property.
Default – Failure to abide by the terms of a mortgage loan agreement. A failure to make mortgage payments (defaulting on the loan) may give cause to the mortgage holder to take legal action to possess (foreclose) the mortgaged property.
Deposit – Money placed in trust by the purchaser when an offer to purchase is made. The sum is held by the real estate representative or lawyer until the sale is closed, and then paid to the vendor.
Downpayment – The portion of the house price the buyer must pay up front from personal resources, before securing a mortgage. It generally ranges from five to 25% of the purchase price.
Easement – A right acquired for access to or over, or for use of, another person’s land for a specific purpose, such as a driveway or public utilities.
Encumbrance – A registered claim for debt against a property, such as a mortgage, an easement or a caveat.
Equity – The difference between the price for which a home could be sold and the total debts registered against it. Market values and improvements to the property also affect equity.
Gross Debt Service (GDS):The ratio of the borrower’s annual income relative to annual mortgage payments, property taxes, condo fees and allowance for heat. Most lenders prefer this not to be higher than 35%.
High Ratio Mortgage: Usually a mortgage that exceeds 80% of the value of the property and is usually CMHC, GENWORTH, or AIG insured.
Holdback – An amount of money withheld by the lender during the progress of construction of a house to ensure that construction is satisfactory at every stage. A standard holdback amount is 10% of the total cost of the building project.
Interest – The cost of borrowing money. Interest is usually paid to the lender in instalments along with repayment of the principal loan amount.
Interest Adjustment Date (IAD) – A date from which interest on the mortgage advanced is calculated for your regular payments. This date is usually one payment period before regular mortgage payments begin. Interest due from the date your mortgage is advanced to the IAD is due on closing.
Lending Value – The purchase price or market value of a property, whichever is less.
Loan to Value Ratio(LVR): The ratio of the amount of the mortgage relative to the value of the property.
Maturity Date: The final day in the term of the mortgage.
Mortgage Broker: The mortgage broker is an intermediary who matches the needs of a borrower with the requirements of a lender. A mortgage broker is usually able to negotiate more favourable rates and terms on your behalf.
Mortgage Life Insurance – This insurance guarantees that if you die your mortgage will be paid in full.
Mortgage Payment – A regularly scheduled payment that is blended to include both principal and interest.
Net Worth – Your total financial worth, calculated by subtracting your total liabilities from your total assets.
Offer to Purchase – A written contract setting out the terms under which the buyer agrees to buy. If accepted by the seller, it forms a legally binding contract subject to the terms and conditions stated in the document.
Open Mortgage: A mortgage that can be repaid prior to the term due date.
P.I.T. – Principal, interest, and taxes.
Port: Taking an existing mortgage with you and applying it to your new property when you move. This is done in place of applying for a new mortgage.
Prepayment Privilege: A clause inserted in a mortgage which give the borrower the privilege of paying off all or part of the mortgage debt ahead of the maturity date.
Prepayment Penalty: The sum of money a lender may require from the borrower to compensate a loss of interest if the mortgage is paid out early. Usually either 3 months interest or the interest rate differential, whichever is greater.
Principal – The amount of money actually borrowed.
Qualifying: The process of qualifying a borrower to ensure they respectfully have the ability and inclination to undertake the mortgage.
Refinance – To pay off a mortgage or other registered encumbrance and arrange for a new mortgage, sometimes with a different lender.
Second Mortgage – An additional mortgage on a property that already has a mortgage.
Sweat Equity: Equity created by an owners work on the property. May also be used as a form of down payment.
Switch Mortgage: Occurs when a borrower moves their mortgage from one institution to another keeping current amortization and loan amounts the same.
Term: The actual length of time for which the money is borrowed. The term can go anywhere between one month to 40 years. At the end of the term, the loan may be renegotiated as to the interest rate, payments and amortization period.
Title – A freehold title gives the holder full and exclusive ownership of land and buildings for an indefinite period of time.
Total Debt Service Ratio (TDSR): The ratio of total annual income relative to a borrowers total payments. GDS payments plus other debts such as bank loans, finance company loans, credit card payments, car payments etc; most lenders prefer this not to exceed 42%. If your credit score is above a 680 beacon score however, you are eligible for a 44% TDSR, without having to factor in a Gross Debt Service (See GDSR).
Transfer – A legal document which is signed by both the vendor and purchaser, transferring ownership. This document is registered to change ownership, and a certificate of title is issued, by the Land Titles Office.
Variable Rate Mortgage: A mortgage strategy where interest rate is based on the prime rate. Payments may fluctuate when prime changes unless they are set at a specified amount that is higher than the minimum payment required. Rates are usually lower than that of the fixed rates, with greater flexibility within the mortgage.
Vendor Take Back Mortgage – Mortgage financing arranged between the seller of the property and the buyer. The title is transferred to the buyer. Often this type of loan is a second mortgage which the seller is willing to arrange at below market rates to ensure the buyer can purchase the house. Most of these arrangements are not renewable or transferable to the next owner of the house.
Zoning Bylaws – Municipal or regional laws that specify or restrict land use.
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