Glossary

Below is a list of basic mortgage terms that you might find useful.

Amortization Period: The actual number of years it will take to repay a mortgage in full. This period is usually longer than the loan's term. For example, a mortgage may have a five-year term and a 25-year amortization period.

Appraised Value: An estimate of the market value of the home and property that you pledge as security for the mortgage. This value may be more or less than the purchase price of the property.

A.P.R.: Annual Percentage Rate. The yearly cost of a mortgage, including interest and all added costs associated with a given mortgage, expressed as a percentage.

Assets: The things of value (investments, cash, property, cars etc..) that you own.

Assumable Mortgage: The A mortgage which a qualified buyer can take over from the current owner of a property upon its sale. Assuming a mortgage can provide a buyer with a below market interest rate, (if rates are now higher), as well as saving on the legal costs of creating and registering a whole new mortgage. "Assumption" entails a simple amendment to the mortgage document registered on title.

Blended Rate Mortgage: A mortgage that combines the amount you owe under an existing mortgage with additional mortgage money you require. The interest rate for the new amount borrowed is a "blend" (or combination) of the interest rate of the "old mortgage" and the interest rate for the additional amount to be borrowed.

CMHC: The Canada Mortgage and Housing Corporation is a federal Crown corporation that administers the National Housing Act. CMHC provides mortgage default insurance for high ratio mortgages.

Carrying Costs: The expenses of living in, and maintaining a home and property. This includes mortgage payments, property taxes, heating, repairs etc.

Closed Mortgage: A mortgage that generally may not be prepaid, or renewed early, unless the borrower is willing to pay an interest penalty, which is the greater of three months' interest or the interest rate differential.

Closing Date: The date the purchase of the property becomes final and the new owner takes possession.

Conventional Mortgage: A first mortgage of up to 75% of the property's appraised value or purchase price, whichever is lower.

Deed: A legal document that evidences ownership of the property to the buyer.

Default: Failure to repay an outstanding debt as agreed.

Deposit: A sum of cash that is required to be paid to the vendor by the purchaser. This money is a symbol of the purchaser's commitment to buy. If the offer is accepted, the deposit is applied to the down payment. If the buyer later turns down the offer, the deposit may or may not be returned.

Down payment: The amount of money put forward by the buyer toward the purchase price of a home.

Equity: The difference between the price for which a property could be sold and the total amount owing on it.

Estoppel certificate: A certificate that outlines a condominium corporation's financial and legal state. Does not apply in Quebec .

First Mortgage: A mortgage that is registered first against the property. This mortgage has to be paid first in the event of sale or default.

Fixed Rate Mortgage: A mortgage for which the rate of interest is fixed for the term (i.e. a set period of time).

GE Capital Mortgage Insurance Company of Canada (GEMI): A private mortgage insurance company. GEMI is one potential source of mortgage insurance for high-ratio mortgages.

Gross Debt Service Ratio: The percentage of your gross monthly income that can be used to pay the housing costs, including the monthly mortgage payment (principal and interest), heating costs and property taxes (and condominium fees when applicable).

High Ratio Mortgage: A mortgage for more than 75% of either or both a property's appraised value and purchase price. In other words, the down payment amount is less than 25% of the purchase price/appraised value.

Interest: It is the amount paid on the money borrowed.

Liabilities: What you owe. For example: taxes, mortgages, car loans and credit card balances.

Maturity Date: The last day of the term of your mortgage agreement. The mortgage must be paid in full, or the agreement renewed, by this date.

Mortgage: A mortgage is both a loan used to purchase or refinance a home and a security for the repayment of the loan.

Mortgage Default Insurance: Government-backed or privately-backed insurance protecting the lender against the borrower's default on high-ratio mortgages.

Mortgage Life Insurance: Insurance that pays off the mortgage debt should you die.

Mortgage Payment: The regular installments made towards paying back the principal and paying interest on a mortgage.

Mortgagee: The lender.

Mortgagor: The borrower.

Multiple Listing Service (MLS): A computer-based system for relaying information to real-estate agents about properties for sale.

Portable mortgage: The current rate, term, and mortgage amount may be applied to pay for your new home after the sale of your existing home. If you meet the normal lending criteria, you can take your existing mortgage with you when you buy a new home.

Pre-Approved Mortgage: Most lenders will pre-approve a mortgage for a set maximum amount prior to your finding a house. This option can help you establish an affordable price range.

Pre-Payment Privileges: The right to repay periodically more than the scheduled principal payment. Historically this was limited to a single annual payment on the anniversary date of no more than 10% of the original principal. In recent years, however, prepayment privileges have become more lenient, reflecting peoples' desire to pay their mortgages off on an accelerated basis.

Principal: The amount initially borrowed under the mortgage.

Realtor: A real estate professional who is a member of a local real estate board and the Canadian Real Estate Association.

Second Mortgage: A mortgage granted when there is already a mortgage registered against the property. If the borrower defaults and the property is sold, the second mortgage is paid after the first.

Security: Property (assets) offered as backing for a loan. In the case of mortgages, the property you are purchasing or refinancing forms the security for the loan.

Survey: A document providing details of a property's boundaries, measurements and structures. It will also describe any easements, rights-of-way, or encroachments made by either your property or by adjoining properties onto your property.

Term: The length of time a lender will lend mortgage funds to a borrower. Most lenders offers fixed rate terms of 1,3,5 and 10 years and a 5-year variable rate mortgage. After this period, you can either repay the balance (the remaining principal plus interest) of the mortgage, or renew the mortgage for another term. The total amortization of a mortgage is usually made up of several terms.

Title: The legal evidence of ownership to a property.

Title Insurance: Title insurance protects your investment against fraud, forgery, title defects and survey problems. This insurance offers greater coverage than a traditional solicitor's opinion and is accepted by lending institutions in lieu of a survey.

Title Search: A detailed examination of the registered title documents to ensure there are no liens or other encumbrances (claims) on the property, and no question regarding the seller's statement of ownership.

Total Debt Service (TDS) Ratio: The percentage of a borrower's gross (before tax) monthly income needed to cover payments for housing costs (principal, interest, taxes, condominium fees, heating costs) and all other debts and obligations (typically loans and credit cards).

Variable Rate Mortgage: A mortgage for which the rate of interest fluctuates as money market rates change.

Vendor: The seller in a real estate transaction.


 


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