phonto (003)

When getting a new Mortgage a lot of information is being passed to you. We have compiled a list of Mortgage terminology that may help you better understand what you are signing up for!

Agreement of Purchase and Sale – 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).

Amortization Period – The time over which all regular payments would pay off the mortgage.

Appraisal – 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.

Appraisal Value – An estimate of the market value of the property.

Borrower: An individual who requests a loan from a bank.

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 Title – A document setting out instruments registered against the title to the property.

Closed Mortgage: A mortgage that cannot be prepaid or renegotiated before the term’s end, unless the lender agrees and/or the borrower is willing to pay an interest penalty.

Closing Costs: Fees associated with the purchase of a home, in addition to the purchase price of the home. Closing costs – such as legal fees, transfer fees, and disbursements – are payable on the closing day of the mortgage.

Closing Date – The date on which the sale of a property becomes final and the new owner usually takes possession.

Conditional Offer – An offer to purchase subject to conditions. These conditions may relate to financing, or the sale of an existing home. Usually a time limit in which the specified conditions must be satisfied is stipulated.

Conventional Mortgage – A mortgage that does not exceed 80% of the purchase price of the home.

Counteroffer: When the seller has amended something on your original offer, such as the price or closing date. If a counteroffer is presented, you have a specified amount of time to accept or reject it.

Credit Report: The main report a lender (bank) uses to determine whether you can repay the loan. It includes information about your ability to handle your debt obligations and your current outstanding obligations.

Debt-Service Ratio – The percentage of the borrower’s gross income that will be used for monthly payments of principal, interest, taxes, heating costs and condominium fees.

Deed (Certificate of Ownership) – The document signed by the seller transferring ownership of the home to the purchaser. This document is then registered against the title to the property as evidence of the purchaser’s ownership of the property.

Default: Failure to fulfill the terms of a mortgage loan agreement. This could result in legal recourse taken against the borrower by the Lender

Deposit: Money placed in trust by the purchaser when an Offer to Purchase is made. The money is held by the real estate representative or your lawyer/notary, and is paid to the vendor when the sale is closed.

Depreciation: The decrease in value of something over time.

Down Payment: The portion of the home price that is not financed by the mortgage loan. Minimum of 5% of the purchase price. The buyer must pay the down payment from his/her own funds or other eligible sources before securing a mortgage

Equity – The difference between the market value of the property and any outstanding encumbrances.

Fire Insurance – Before a mortgage can be advanced, the purchaser must have arranged fire insurance. A certificate or binder from the insurance company may be required on closing.

Fixed-Rate Mortgage – A mortgage for which the rate of interest is fixed and will not fluctuate for a specific period of time (the term).

Foreclosure – A legal procedure whereby the lender eventually obtains ownership of the property after the borrower has defaulted on payments.

Gross Debt Service (GDS) Ratio – The percentage of gross income required to cover monthly payments associated with housing costs.

Gross Household Income: Gross household income is the total salary, wages, commissions and other assured income, before deductions, by all household members who are co-applicants for the mortgage.

High Ratio Mortgage – A mortgage that is greater than 80% of the property’s value. This mortgage will have to be insured by a mortgage insurer such as CMHC

Holdback – An amount of money required to be withheld by the lender during the construction or renovation of a house to ensure that construction is satisfactorily completed at every stage.

Inspection – The examination of the house by a building inspector selected by the purchaser. This is generally optional but definitely recommended

Interest Rate: The amount charged by a lender for borrowing money (annual percentage).

Interest Rate Differential Amount (IRD) – An IRD Amount is a prepayment charge that may apply if you pay off your mortgage principal prior to the maturity date or pay the mortgage principal down beyond the prepayment privilege amount. The IRD amount is equivalent to the difference between your annual interest rate and the posted interest rate on a mortgage that is closest to the remainder of the term less any rate discount you received, multiplied by the amount being prepaid, and multiplied by the time that is remaining on the term.

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.

Lender: An organization that lends money to a borrower.

Lump Sum Prepayment: An extra payment made to reduce the balance of your mortgage, with or without penalty.

Maturity Date – The day the mortgage agreement comes to an end. Ideally you will want to visit your mortgage broker a few months in advance of this date to discuss any available options.

Mortgagee and Mortgagor – The lender is the mortgagee and the borrower is the mortgagor.

Mortgage Approval/Commitment Letter: A written notice from the mortgage lender (bank) to the borrower that approves a specific amount of mortgage funds.

Mortgage Life Insurance – A form of reducing term insurance available on mortgages.

Mortgage Loan Insurance: If you have a high-ratio mortgage (more than 80% of the lending value of the property) your lender will probably require that you purchase mortgage loan insurance, which is available from CMHC or a private company.

Mortgage Payment: A regularly scheduled payment that is often includes both principal and interest.

Mortgage Term – The number of years or months over which you pay a specified interest rate.

Open Mortgage – A mortgage which can be prepaid or paid in full at any time, without restriction or penalty.

Payment Frequency – The frequency at which the regular mortgage payments are made. They can be weekly, every other week, twice a month or monthly.

P.I.T. – Principal, interest and taxes.

Porting – An optional available on many closed term mortgages This allows you to move to another property without having to pay a penalty to do so.

Prepayment Charge – A fee to borrowers when the borrower prepays all or part of a closed mortgage more quickly than is allowable according to the terms of the mortgage agreement.

Prepayment Option – The ability to prepay all or a portion of the principal balance.

Principal – The amount of money borrowed for a new mortgage.

Refinancing – Renegotiating your existing mortgage agreement. May include increasing the principal or paying out the mortgage in full.

Renewal: At the end of a mortgage term, your mortgage may be renewed with new terms and conditions. You are not required to renew with the same lender and should visit your mortgage broker to ensure you are getting the best deal before renewing.

Security – In the case of mortgages, real estate offered as collateral for the loan.

Term: The length of time that mortgage conditions including interest rate are in effect.

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 – A mortgage for which the rate of interest may change if other market conditions change. This is sometimes referred to as a floating rate mortgage.

Vendor: The individual who is selling a property (also called the seller).