A
Amortization
A term used to describe the period of time over which the entire mortgage is to be paid assuming regular payments.
Appraisal
An independent assessment of the property by a qualified individual.
Assuming a mortgage
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.
B
Blend and Extend
Some mortgage lenders may allow you to extend the length of your mortgage before the end of your term and or increase your mortgage amount. They do this by blending your old inerest rate and the new term rate. This is called a blend and extend early renew option.
C
Capped rate
An interest rate with a pre-determined ceiling - usually associated with a variable-rate mortgage.
Closed mortgage
restricts how much you can payoff during the term of the mortgage but usually have much lower interest rates than an open mortgage. Most often to payout your mortgage during the term you will be subject to a penalty of three months interest or the Interest Rate Differential (IRD) whichever is higher. It is very important to know your prepayment privileges before getting into a mortgage.
Closing costs
Costs that are in addition to the purchase price of a property and which must be paid on the closing date. Examples include legal fees, land transfer taxes, and disbursements.
Closing Date
This date is specified in your offer and is the date that the home purchase will be finalized. The mortgage will be registered and title transferred. The purchaser will officially receive the keys and the vendor will receive the money from the sale.
Commitment Letter
A written commitment from a lender to lend mortgage funds to the borrower as long as certain conditions are met within a specified time period before closing. A key component of the commitment is the "rate hold", where a lender may hold a rate for a defined period, such as 90 or 120 days.
Conventional mortgage
A mortgage where the borrower is contributing more than 20% or more of the value of the property as the down payment.
Credit Report (Equifax, TransUnion)
A credit report is a report detailing a person's financial history specifically related to their ability to repay borrowed money. It is used by a lender to determine a loan applicant's creditworthiness. You can acces a copy of your credit report from Equifax online -
Credit Score
A statistically derived numeric expression of a person's creditworthiness that is used by lenders to access the likelyhood that a person will repay his or her debts. A credit score is based upon, among other things, a person's past credit history. Credit scores range from 300 - 850 and the higher the score the better.
D
Debt service ratio
The percentage of the borrower's income used for monthly payments of principal, interest, taxes, heating costs and condo fees (if applicable) as well as their current liabilities.
Default
A homeowner is 'in default' when he or she breaks the terms of a mortgage agreement, usually by not making required mortgage payments or by not making payments on time.
Down payment
The money that you pay up-front for a house. Down payments typically range from 5%-20% of the total value of the home.
E
Equity
The difference between the market value of a property and the amount owed on the property. This difference is the amount a homeowner actually owns outright.
F
First Mortgage
A mortgage registered before all others on title. Gives the lender a primary lien/charge against your house and property that has precedence over all other mortgages. Priority is determined by the date and time registered, so a first mortgage was literally and legally registered "first".
G
Gross Debt Service Ratio
The percentage arrived at by dividing your monthly shelter costs (principal, interest, property taxes, heating and half of condo fees) by your gross monthly income and multiplying by 100. This is used by all lenders as a yardstick by which to measure the ability of a borrower (or borrowers) to make mortgage payments. For example, most lenders require that this ratio be no more than 32% for a particular application, while others allow higher limits.This is also the maximum qualifying GDS for most default insurance applications.
H
High ratio mortgage
A mortgage where the borrower is contributing less than 20% of the value of the property as the down payment.
Home inspection
A visual inspection of the major components of a home by a qualified individual, who will give the home buyer a true and unbiased picture of the home's condition. The scope and detail may vary, but most reports indicate the specific problem and the cost to repair. Unfortunately, no licensing is required, and this service is not specifically regulated other than by general consumer protection legislation. The best safeguard against inadequate work is to ask for the resume of the Inspector, and if possible check references from previous customers.
Home insurance
Insurance to cover both your home and its contents (also referred to as property insurance). This is different from mortgage life insurance, which pays the outstanding balance of your mortgage in full if you die.
Home Owners Grant
The home owner grant reduces the amount of property tax you pay for your principal residence. The grant is available to qualified BC residents that pay property taxes to a municipality or the province in a rural area.
I
Interest adjustment
The amount of interest due between the date your mortgage starts and the date the first mortgage payment is calculated from. Sometimes there is a gap between the closing date of your home purchase and the first payment date of your mortgage.
Interest
is the money paid regularly at a particular rate for the use of money or for delaying the repayment of a debt.
Interest Rate
The percentage interest that you pay on top of the loan principal. For example, you may take out a mortgage of $100,000 at a rate of 12%. Your monthly payments will consist of a portion of the original $100,000, plus 12% interest.
Interest Rate Differential (IRD)
A penalty for early prepayment of all or part of a mortgage outside of its normal prepayment terms. This is usually calculated as "the difference between the existing rate and the rate for the term remaining, multiplied by the principal outstanding and the balance of the term".
L
Legal fees
This is a fee charged by your lawyer or notary for the completion and registration of your mortgage and property.
Lump sum payment
An extra payment that you make to reduce the amount of your mortgage. This is the same as pre-paying, which you cannot do if you have a closed mortgage.
Lien
This is a claim made against a property for the payment of a debt or obligation related to the property or its owners.
Loan-to-Value Ratio (LTV)
The loan to value ratio (LTV) tells you how much of a property is being financed. It is a way to tell how much equity you have in a property.
Example.
Assume you buy a home worth $100,000. If your mortgage is for $80,000, then your loan to value ratio is 80% (because your loan of $80,000 is 80% of the home's total value).
M
Mortgage
A loan that you take out in order to buy property. The collateral is the property itself.
Mortgagee/mortgagor
Mortgagee is the lender; mortgagor is the borrower.
Mortgage broker
A company or individual who helps the homeowner find the right financing to buy a property. A broker does not actually lend money but seeks out a lender and arranges the mortgage terms. This may include negotiating with the lender for the best possible deal for the homebuyer.
Mortgage default
means the borrower has not done everything the borrower is required to do under the mortgage agreement. The most common default is missed or late payments.
Mortgage default insurance
In Canada, if you are contributing between 5% and 20% of the value of the property as the down payment, you will be required to pay for Mortgage Default Insurance. This is an insurance policy that compensates a mortgage lender (a bank) for losses caused by a mortgage default. This will be included in your mortgage and does not need to be paid upfront.
Mortgage life insurance
This form of insurance pays the outstanding balance of your mortgage in full if you die. This is different from home or property insurance, which insures your home and its contents.
Mortgage payment
is the combination of principal & interest that has been amortized over a specific amount of time. You are obligated to make these payments to the lender until the end of your mortgage term.
Mortgage term
The length of time the interest rate is guaranteed for a mortgage. Mortgage terms normally rate from six months to five years or more, after which you can repay the balance of the principal owning or re-negotiate the mortgage at current rates.
Moving expenses
The cost hiring of packers, movers or renting a van.
Multiple Listing Service (MLS)
A computerized listing of the properties available in your area, including information and pictures of each property.
O
Offer to purchase/conditional offer
A written contract outlining the terms under which the buyer agrees to purchase the property. There may be conditions attached to the offer, for example: offer being subject to arranging the mortgage or selling a home.
Open mortgage
A mortgage which you can pay off, renew or refinance at any time without penalty. The interest rate for an open mortgage is usually higher than a closed mortgage rate.
P
Porting
Transferring an existing mortgage from one home to a new home when you move. This is known as a "portable" mortgage.
Pre-approved mortgage certificate
A written agreement that you will get a mortgage for a set amount of money at a set interest rate. Getting a pre-approved mortgage lets you shop for a home without worrying how you'll pay for it.
Pre-paid property tax and utility adjustments
The amount you will owe if the person selling you the home has pre-paid any property taxes or utility bills. The amount to reimburse them will be calculated based on the closing date.
Pre-payment
Repaying part of your mortgage ahead of schedule. Depending on your mortgage agreement, there may be a penalty for pre-paying.
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.
Pre-payment Penalty
If your mortgage is not fully open, you may be charged a penalty if you want to pay off all or part of your mortgage before the end of the fixed term. The normal prepayment penalty is the greater of three months' interest or the Interest Rate Differential (IRD) on the amount to be prepaid.
Principal
is the sum of money lent or invested on which interest is paid.
Property survey
A legal description of your property and its location and dimensions. An up-to-date survey is usually required by your mortgage lender. If not available from the vendor, your lawyer can obtain the property survey for a fee.
Property Tax
When you own or lease a property or manufactured home in B.C., property taxes must be paid yearly for each property. Property taxes are due at the beginning of July every year. The money raised from the property taxes you pay is used to fund local programs and services.
Property Transfer Tax
This is a one-time fee that you will be responsible for paying at the time you purchase your property. You pay the tax based on the fair market value or purchase price of the property at the date of registration, unless you qualify for an exemption. It is calculated by taking 1% of the first $200,000 and 2% of the remaining amount. Property transfer tax should not be confused with annual property taxes. Annual property taxes are paid yearly for each property you own.
R
Refinancing
Increasing the amount of your current mortgage, at a new interest rate. The term of the new mortgage must be equal to or greater than the term remaining on your current mortgage.
Renewal/Renewing
Once the original term of your mortgage expires, you have the option of renewing it with the original lender or paying off all of the outstanding balance.
Registered Retirement Savings Plan (RRSP)
A federal plan which allows taxpayers to put money into an RRSP, that amount will count as a tax deduction for that year. Anytime you take money out of an RRSP, you will be taxed on that amount at the end of the year.
S
Sales taxes
Taxes applied to the purchase cost of a property. Some properties are sales tax exempt (GST and/or PST), and some are not. For instance, residential resale properties are usually GST exempt, while new properties require GST. Always ask before signing an offer.
Service charges
The extra costs payable for hooking up hydro, gas, phone, etc. to a new address.
Switch
This is the term applied to changing lenders at the end of a term, when the mortgage becomes "open". Most lenders will now pay all of the costs of a "switch." (as well as giving them a reduced rate to lure them away from a competitor)
T
Term
is the length of time you are committed to a mortgage rate, lender, and conditions set out by the lender. At the end of the term your mortgage will be due and you can either pay it out or renew with a lender.
Title
is a word lawyers use to describe the right of ownership to land. When you purchase a home, title is transferred to you, the new home owner.
Title Insurance
Title insurance is an insurance policy that protects you, the home owner, against challenges to the ownership of your home or from problems related to the title to your home. The policy provides coverage against losses due to title defects, even if the defects existed before you purchased your home. A title defect is a problem with the title which prevents free and clear ownership.
Total Debt Service Ratio (TDS)
The percentage arrived at by dividing your monthly shelter costs (principal, interest, property taxes, heating and half of condo fees) PLUS all other monthly debt obligations by your gross monthly income and multiplying by 100. This is used by all lenders as the "upper limit" yardstick by which to measure the ability of a borrower (or borrowers) to make mortgage payments. For example, most lenders require that this ratio be no more than 40% for a particular application, with some as low as 37%. 40% is also the maximum qualifying TDS in most applications for default insurance.
V
Variable Rate
is an interest rate that varies as market interest rates change. Mortgage payments either change with fluctuations in the prime rate, or the portion of your monthly payment that goes towards interest may go up or down each month