Applying for your first mortgage can be intimidating enough. Then you get some terms and sayings thrown at you that you are not sure exactly what they mean, but are afraid to ask cause you don’t want to sound ignorant. Everyone has to start somewhere.
Below are a few of the terms that you will or may hear during your purchase of a home.
The gradual reduction of a debt by means of a regular payment. Repayments of principal and interest in “blended” amounts. The normal amortization period for a mortgage in Canada is 25 years, but can be as short as 5 years or as long as 35 years.
Some lenders require an independent assessment of the value of the home you are buying before agreeing to finance the purchase.
The value placed on land and buildings by a government agency for tax purposes.
A tax or charge levied on property by a taxing authority to pay for improvements such as sidewalks, streets, and sewers.
What the borrower owns. This could include real estate, savings, vehicles, RRSPs, GICs, stocks, bonds, etc.
ASSUMPTION (of mortgage)
Buyer assuming responsibility of seller’s existing mortgage at the interest rate and terms as laid out in the original mortgage documents.
A mortgage that combines the amount owing on an existing mortgage with additional funds being advanced. The interest rate would be a combination of the rate on the old loan and the rate in effect at the time of the new financing.
Interim financing to bridge the time gap between the closing date on the purchase of a new home and the closing date on the sale of the current home.
Provincial or locally adopted regulations that control the design, construction, repair, quality of building materials, use, and occupancy of any structure under its jurisdiction.
Articles of personal property such as household goods, furnishings, and fixtures that are not permanently affixed to the house.
The restriction or denial of repayment rights until the end of the mortgage term.
The meeting (usually in a lawyer’s office) at which the transfer of title of property passes from the seller to the buyer.
All the charges that are attached to the closing ceremony. These one-time fees include charges for title search and insurance, attorney’s fee, lender and/or broker fee(s).
Canada Mortgage and Housing Corporation, a Crown Corporation which administers the National Housing Act.
If your down payment is less than 20%, you must have mortgage insurance. It insures the lender against the possibility of you defaulting on your mortgage. Canada Mortgage and Housing Corporation is the principal source of mortgage insurance. Genworth also provides mortgage insurance to many of Canada’s financial institutions.
The payment given by the seller of a property to a Real Estate agent for his/her services. The amount is usually a percentage of the sale price and is usually paid at closing.
A letter outlining the amount, terms and conditions under which a lender is willing to offer a mortgage.
Lands or improvements on land that are designated for common use and enjoyment by all occupants, tenants or owners. The lobby, a pool, tennis court or common hallways would all be Common Areas in a condominium or townhouse complex.
The ownership of property by two or more persons, where on the death of one, his share does not automatically go to the other(s) but is credited to his estate.
Interest charged on both the principal amount of a loan as well as on the interest charged in a proceeding period.
CONTRACT OF PURCHASE AND SALE
A written statement by which a buyer agrees to purchase, and a seller agrees to sell a particular piece of property according to the terms set forth in that agreement.
A first mortgage granted by an institutional lender such as a bank or trust company, where the amount of the loan does not exceed 80% of the lending value of the property.
A short term mortgage, usually 6 months or 1 year, that allows a borrower to lock in to a longer term at any time without penalty.
Transfer of ownership of real estate property from one individual to another.
CREDIT BUREAU REPORT
A report by a credit reporting agency that maintains a history of timely, or untimely, repayment of debt. The lender’s primary source of information regarding the credit history of a borrower
Failure to meet certain contractual obligations, such as mortgage payments. Default can lead to foreclosure.
A sum of money that is required to be paid with an offer to purchase as a symbol of the purchaser’s commitment.
The option to make twice the normal regular payment at a regular payment due date.
The amount of cash put forward by the buyer toward the purchase price of real estate.
The difference between the value of a property and the amount of financing on that property.
FIXED RATE MORTGAGE
The interest rate remains the same for the term of the mortgage.
Court action taken by a mortgagee when a borrower has defaulted.
GROSS DEBT SERVICE RATIO (GDS)
The percentage of annual gross income of the mortgagor that is required to maintain annual mortgage payments, property taxes, heat and Condo fees if applicable.
HIGH RATIO MORTGAGE
A mortgage loan that exceeds the normal limit of 80% LTV (loan to value) of a conventional mortgage. Typically made possible by a mortgage insurance plan, e.g. CMHC or Genworth.
A inspection of the property done by professionals. Home Inspectors will go over the whole house from the ceiling to the foundation looking for any problems that may arise or have happened in the past.
INTER ALIA or BLANKET MORTGAGE
“Inter Alia” is Latin for “Amongst other things”. An Inter Alia Mortgage is a mortgage that is secured by more than one property. A single mortgage document is executed and registered against each property that is used as security.
The price paid to rent money. The rate of interest over a period of time for a specific amount of money, usually expressed as a percentage.
INTEREST ADJUSTMENT DATE
The date on which the mortgage really begins, usually the first of the month. The interest owed for the number of days between the closing date and the last day of the month is paid on the closing date by cheque or by deduction from the mortgage advance and covers
Property held by two or more persons with an undivided interest. If one owner dies, the property passes automatically to the other(s).
LEASE TO PURCHASE OPTION – RENT TO OWN
Buying a piece of property by renting for a specified period, usually one year, with the provision that you will purchase the property at the end of that period for a predetermined sale price.
Outstanding debts of an individual. Mortgages, loans, credit card balances.
A charge registered against a property.
LTV (Loan to value)
The ratio between the mortgage loan amount and the value of the property usually expressed as a percentage, i.e. 75% LTV. The value of the property for lending purposes is the purchase price or appraised value, whichever is lower.
The value of a property based on what the market will bear. Determined by a comparison of the subject property to others in a similar area that have sold recently.
A conveyance of property to a creditor, as security for payment of a debt, redeemable on the payment or discharge of the debt at a specified date.
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The lender of mortgage funds.
The borrower of mortgage funds.
The value of ones assets minus their liabilities.
A mortgage which allows for extra payments, principal reductions or full payment at anytime without penalty.
The ability to transfer your mortgage including rate and terms, from your existing property to a new property.
A mortgage application that has been sent to a mortgage company for a rate hold. This has not been viewed in detail by the lender or the mortgage insurer.
A clause in a mortgage agreement that allows you to pay off all or a percentage of the mortgage before the maturity date.
A fee charged by a lender when the borrower prepays all or a part of a mortgage in excess of the regular payments allowed by the mortgage terms.
A mortgage application that has been sent to a mortgage company with the required paper work (Job letters, Pay Stubs, ect.) This has been reviewed by a underwriter and fits the banks guidelines. This has not been reviewed by the mortgage insurer.
The money borrowed, not including any accrued interest.
A ratio that is calculated by a lender to decide how much a buyer can borrow.
A lenders commitment to offer to hold a specific rate for a certain length of time. Rate commitments can vary from 30 to 180 days.
To pay in full and discharge a mortgage with the proceeds of a new mortgage.
A mortgage registered against real property which is already encumbered with one mortgage. Date and time of registration determines which is first and which is second.
A charge (usually monthly) by a Strata Corporation to cover the costs of maintenance, repair, cleaning etc. of common areas. This fee will usually include a reserve to cover major repairs such as reroofing and heating system replacement.
TAX HOLD BACK
When your property taxes are included with your mortgage payments, your lender will withhold funds from your disbursement to cover interim or final taxes payable to the municipality. The amount depends on the month that the mortgage was funded and the dates when interim and final taxes are due. Tax hold backs are used to pay for the current year’s taxes while your monthly tax installments are accumulated in an account to pay the tax bills for the following year.
The length of time a mortgage has been committed for. The interest rate usually remains constant during this term unless the commitment states otherwise.
TOTAL DEBT SERVICE RATIO (TDS)
Percentage of gross annual income of a borrower required to maintain annual payments of mortgage, property taxes, heat and other debts such as loans, credit card payments, child support and leases.
The assessment of loan applications based on: the value of real property, a borrowers credit worthiness and ability to pay and the lending guidelines of the lender.
VARIABLE RATE MORTGAGE
A mortgage where the interest rate varies during the term of the mortgage, usually based on the prime bank rate or the GIC rate of the lender.
WEEKLY AND BI-WEEKLY PAYMENTS
You can usually choose to make your mortgage payments once a week or once every two weeks. This accelerates the reduction of your mortgage because you are making the equivalent of one extra monthly payment per year.
A document to voluntarily relinquish certain rights or privileges.
Inspection of a property by the prospective buyer before closing the mortgage.
Protects the home buyer against outside claims to a property.
The ratio of investment income to the total amount invested over a given period of time; also known as “return on investment” or ROI.
Local government control over development within an area of land.