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Mortgage Glossary

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A B C D E F G H I M O P S T V

Agreement of Purchase and Sales

The legal contract a purchaser and a seller go into. We recommend that you have your offer prepared by a professional realtor that has the knowledge and experience to satisfactorily 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.

Assumption Agreement

A legal document signed by a buyer that requires the buyer 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.

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.

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 Mortgage

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 deposit, Canada Savings Bond, or automobile, that you offer as security for a loan.

Commitment letter (or “mortgage approval)

A written notification from a lender to a borrower that says a mortgage loan of a specific amount is approved under specific terms and conditions.

Conventional Mortgage

A mortgage loan equal to or less than 80% of the value of a property. (That is, where the down payment is at least 20%.) Conventional mortgages don’t usually require mortgage loan insurance.

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).

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.

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.

Gross Debt Service Ratio (GDS)

It is one of the 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 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.

High-Ratio Mortgage

A mortgage loan for more than 80% of the value of a property. (That is, where the down payment is less than 20%.) A high-ratio mortgage usually has to be insured against default with mortgage loan insurance provided by CMHC or a private company.

Home Equity Line of Credit

A personal line of credit secured against the borrower's property. Generally, up to 75% of the purchase price or appraised value of the property is allowed to be borrowed with this product.

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 once is not paying any principal

Mortgage

A mortgage is a loan that uses a piece of 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 money using a mortgage.

Mortgagor

The person who borrows the money using a mortgage.

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. *some conditions may apply

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.

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. We can have this arranged for you at no cost to you.

Term

The period of time 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 once 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 card debts, other mortgages, etc.), and this sum is then divided by the gross income of the applicants. Ratios up to 40 % are acceptable.

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.