WARNING: This page may BORE you to death! And honestly...how many people are really going to look at this page anyway?
Well, here you go - Mortgage Terms...it's like speaking a different language - one that is full of big words and definitions that don't really explain much. I can't take credit for these definitions - the guys who developed the site put them in. Hopefully you find them useful. I can think of one use for this page...it could be a good treatment for people with insomnia!
Don't say I didn't warn you!
A
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.
Asset Something you OWN that has value. Investments, Cash, Real Property, Automobiles, Recreation Vehicles, etc.
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.
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B
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.
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C
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. CMHC is 1 of 3 Mortgage Insurers in Canada. The other two are,
Genworth, and
Canada Guarantee. Mortgage Insurers are the guys who make the rules...after all, they are insuring the lender's money!
Closed Mortgage A mortgage that cannot be prepaid or renegotiated for a set period of time without penalties.
Closing Date Also referred to as the "Possession 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.
Conventional Mortgage A mortgage up to 80% of the purchase price or the value of the property. A mortgage exceeding 80% is referred to as a "Hi-Ratio" mortgage and the lender will require insurance for that mortgage...enter
CMHC, Genworth, or Canada Guarantee.Credit Scoring A system that assesses a borrower on a number of items, assigning points that are used to determine the borrower's credit worthiness. The equation that is used is a mystery to all - it is a volatile item and subject to constant change. The best advice I can give is, "PAY YOUR BILLS ON TIME!"
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D
Demand Loan A loan where the balance must be repaid upon request. Most RRSP loans are considered Demand Loans.
Deposit This is money put down against the purchase of a home - the deposit forms part of the total Down Payment. The deposit provides the vendor with security while you get your mortgage in order. Should you not qualify for a mortgage or choose not to proceed with the purchase, the deposit is refundable as long as you have not removed your conditions of finance. If you remove your conditions and choose to walk away from the purchase - your deposit may not be returned to you. This is normally used to compensate for "damages" for the vendor - however more often than not it get's paid out to the Real Estate Agent.
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E
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.
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F
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.
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G
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 monthly mortgage payments, property tax, and a utility cost of approx $80.00, 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. Guarantor's are treated the same as the Primary or Co-Borrower and shares the same responsibilities.
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H
High-Ratio Mortgage A mortgage that exceeds 80% of the purchase price or appraised value of the property. This type of mortgage must be insured. To avoid the cost of the insurance you must have a minimum of 20% Down Payment.
Home Equity Line of Credit A personal line of credit secured against the borrower's property. Generally, up to 80% of the value of the property is allowed to be borrowed with this product.
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I
Interest Adjustment Date (IAD) The date on which the mortgage term will begin. For example, if this date is for the 1st of the following month, then the interest cost for those days from the closing date to the first of the month are usually paid at closing OR are held back from the proceeds. An IAD is necessary to get your mortgage payment cycle initiated.
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
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M
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.
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Open Mortgage A mortgage that can be repaid at any time during the term without any penalty. For this convenience, the interest rate is normally higher than a closed mortgage. A good option if you are planning to sell your property or pay-off the mortgage entirely.
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P
P.I.T. A Mortgage payment that includes your basic Principle and Interest...AND your Monthly Property Tax.
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. When rates drop, expect the IRD, when rates increase, expect the 3 Months Interest Charge.
Prime Typically we think of the Prime Rate as the "best rate" a lender provides it's customers. However, in the world of mortgage finance, we tend to recognize the Prime Rate as the economic indicator on consumer spending in Canada, that impacts Adjustable/Variable Rate Mortgages. The Bank of Canada sets the Prime Lending Rate. Not to be confused with the Bench Mark Rate - which is a rate used to qualify clients at a "potential" renewal rate for any mortgage less than a 5 year term with a Fixed rate. Adjustable rate mortgages would fall under this rule as well. Bench Mark qualifying only pertains to High Ratio mortgages.
Principal The original amount of a loan, before interest.
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R
Rate Commitment The number of days the lender will guarantee the mortgage rate on a mortgage approval. This can vary from lender to lender anywhere from 30 to 120 days.
Renewal When the mortgage term has concluded, your mortgage is up for renewal. At this time you can stay with your lender if the price is right, or you can SWITCH to a new lender - usually at no cost to you! You may want to consider switching if you are rate sensitive.
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S
Second Mortgage A debt registered against a property that is secured by a second charge on the property.
NOT a recommended practice. Switch To transfer an existing mortgage from one financial institution to another. We can have this arranged for you, usually at no cost.
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T
Term The period of time you agree to commit to the lender for your mortgage.
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 monthly mortgage payments, property tax, a utility cost, 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 42% are acceptable.
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V
Variable Rate Mortgage A mortgage for which the interest rate fluctuates based on changes in prime. Typically this is more accurately called an Adjustable Rate Mortgage.
Vendor Take Back (VTB) Mortgage A mortgage provided by the vendor (seller) to the buyer...We don't recommend this type of transaction.
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