These Are The Terms That Every Canadian Mortgage Holder Should Clearly Understand
ACCELERATED BI-WEEKLY MORTGAGE PAYMENTS
This is when your mortgage payments are made every two weeks (this date won’t always fall on the first day of a month). If you choose accelerated bi-weekly payments, you will make a total of 26 payments a year (totalling thirteen monthly payments).
ADJUSTABLE RATE MORTGAGE
This is also known as an ARM, this is when your mortgage payments change and the interest rate is adjusted periodically based on the prime lending rate.
The interest adjustment date is the date in when the interest will begin to accrue on your mortgage, before payment is made on the mortgage. If you close on the fifteenth but you set up your payments for the first, this period leading up to the first would be the interest adjustment period.
The amortization period refers to the total number of years it would take to pay down the principal balance of your mortgage in full. Amortization periods are commonly 25 years; however you can choose an amortization period of up to 35 years with certain lenders.
An amortization schedule is a table of periodic payments made to a mortgage, showing the payment amount, the amount of interest, the amount of principal and finally the remaining balance after the payment is made. This can help you track your approximate balance throughout your term at any given time.
The appraised value is the current market value of the property as determined by a licensed and qualified appraiser. This report is typically required by the lender to confirm value of the property. Some lenders want a detailed report where some lenders will use a “drive by” to confirm overall condition and will use typical recent sales data of comparable properties. The type of appraisal required is determined by the lender, not the client.
ARTICLES OF INCORPORATION
Articles of incorporation are filed with the Government by a corporation’s owner describing the name, purpose, place of business, and other details of the corporation. This will usually include a certificate of incorporation which lenders will use to confirm the clients means of income.
An asset would be something you own that has value or use. Example: Cash, RRSPs, vehicles, savings, home, land, etc.
An assumable mortgage is a mortgage that may be transferred to another party without changing the terms of the original mortgage. They must qualify as per the lenders policy.
Bridge financing is usually needed when the sale of the buyer’s current home closes after the purchase and close of their new home. May also be referred to as Interim financing, a bridge loan is basically a second mortgage that is paid off immediately following the closing date of the buyer’s current home. The registration of the mortgage and the interest for the bridge period are payable by the client and facilitated through their lawyers office.
A closed mortgage locks you into paying the mortgage for that period of time. The mortgage interest rate is also locked in. The mortgage payment will not change for the term. If you break a closed mortgage, you will be required to pay a penalty.
Costs associated with the completion of your mortgage transaction. Including costs would be lawyer fees, title insurance, appraisal fees, builder fees and at times lender fees.
The closing date is the day title of a home transfers from the seller to the buyer and is clearly stated and agreed to by both parties on the agreement of purchase and sale.
In respect to a mortgage loan, the collateral is usually the property being mortgaged. A security is pledged for the repayment of the mortgage if an individual does not repay.
This means the number of times per year that the interest rate is compounded. Here in Canada, mortgage interest rates are usually compounded twice a year or semi-annually.
A condo fee is the monthly payment collected by the property management company that covers the resident’s share of common area expenses for the upkeep of the building. This is usually calculated by the square footage of the unit and covers such costs as pool maintenance, grounds keeping, window, roof, HVAC etc. Just about everything outside the unit. The more amenities the building has the higher the monthly fee.
A conventional mortgage loan is no more than 80% of the properties appraised value or purchase price (whichever is less). If the mortgage amount exceeds 80% of the value than CMHC mortgage insurance is usually required.
Equifax Canada and Trans Union of Canada are reporting agencies that gather credit information and compiles it into a credit report. The mortgage lenders will acquire and use this to determine your credit worthiness by reviewing history among other details. By signing a credit application you are providing consent for them to do so.
A credit report is a detailed history of an individual’s credit practice.
A credit score is the grade provided to your credit history.
This means the combining of several debts into one new debt that has one payment.
This term refers to failure repay your mortgage. This breach of contract would result in a foreclosure of the property so that the lender can recoup their loss.
The down payment amount would be the difference between the purchase price and the value of the new mortgage loan. The down payment can be from savings, investments, sale of existing property or gifted monies from an immediate family member.
This is the difference between the price that a home could be sold for and the amount still owing on the mortgages. Some lenders will provide a second mortgage behind a first by tapping into this equity and is usually at a higher interest rate.
EQUITY TAKE OUT MORTGAGE
An “ETO” or equity take out is a mortgage loan used to ‘take out’ equity from a property
Most mortgages are a first mortgage in first position. The mortgage holder has the first place claim in the event of default.
FIXED RATE MORTGAGE
The interest rate is fixed for the length of a mortgage term.
This is when the mortgage lender sells the mortgaged property because the borrower has defaulted on his or her mortgage loan. This process takes place and is initiated by the lender.
An immediate family member may gift the down payment in part or whole to the gift receiver. This also states that the gift is genuine and that the gift receiver (or home buyer) is not required to pay back the gift. Parents, grandparents and siblings would be immediate family member.
A high ratio mortgage loan is more than 80% of the properties appraised value or purchase price. Once the mortgage amount exceeds 80% of the value than CMHC mortgage insurance is usually required and is calculated based on term and down payment amount.
This is the percentage of the mortgage loan the lender charges for use of their money. Here in Canada, the mortgage rate is compounded semi-annually, or twice per year.
This would be a letter from your employer stating the length of employment, guaranteed number of hours worked per week with hourly rate or annual salary amount. This letter must be current and clearly disclose employers contact details and usually includes the start date.
This is the borrowers financial obligation currently outstanding, such as credit card debt, personal loans, car payments, mortgage payments, etc.
LICENSED MORTGAGE AGENT
A Licensed Mortgage Agent is the person within a brokerage who delas with clients. A Mortgage Agent will take clients’ applications on behalf of the brokerage, and walk them through the mortgage process.
This is a claim against a property to secure the debt obligation by the lender.
LOAN TO VALUE RATIO (LTV)
This is the ratio of the value of the mortgage loan against the appraised value or purchase price of the property. For example, if someone purchased a home for $500,000 and had $400,000 as a down payment, the mortgage would be $100,000, or 20% of the value of the home (therefore an 80% LTV).
This is the highest price a buyer would pay and the lowest price a seller would accept on a property. Market value could differ from the price that the property could be sold for and is based on supply and demand.
This is the date the mortgage term ends. At this point, you can transfer to a different lender, pay off your mortgage or renew it.
This is the amount of money a mortgage borrower can make on a monthly basis towards a mortgage. This is based on their income, expenses, and the proposed monthly payment.
A mortgage company or lender is a business that provides or services mortgage loans. A mortgage company or lender may be a chartered bank, a credit union, a trust company or other financial institution providing mortgage loans.
A mortgage deed is the document in which the mortgagor transfers an interest in real estate to a mortgagee for the purpose of providing a mortgage.
A mortgage holder is the person or entity who owns the mortgage loan which was extended to a home or property owner, and is the one entitled to enforce the terms of the mortgage.
This is insurance needed for high-ratio mortgages. It protects the mortgage provider in the event that a borrower defaults on their mortgage. There are three in Canada, CMHC(Canadian Mortgage and Housing Corporation), Genworth, and Canada Guarantee.
A mortgage lender is a company or entity that will provide financing for the purchase of real estate.
MORTGAGE LIFE INSURANCE
Mortgage life insurance is insurance that will pay off the mortgage in the event of death or disability. The premium is based on age and mortgage amount and is available through banks or third party insurance companies.
This is the process of applying for a mortgage, the application being underwritten and submitting documents to a mortgage lender or bank for review. The qualification is the standard that the lender will lend money on a mortgage loan.
A mortgage renewal is a new agreement to either extend or renew existing mortgage terms with your current bank or mortgage holder.
A statement issued from your mortgage lender that includes such information as property address, outstanding principal balance, monthly payment, interest rate, mortgage term, etc.
The term is the length of time, usually 1-10 years, in which the mortgage is in effect.
This is the lender, the party that advances the funds for a mortgage.
This is the borrower, the party that uses their property as a security for a mortgage.
NOTICE OF ASSESSMENT
This is also known as an NOA. This is the summary form from Revenue Canada sent to you after your income tax has been filed. It specifies information like what you claimed on your taxes for the year. This also includes the amount of taxes you may owe, paid or the amount of your tax refund.
An open mortgage has no term. This means that you can pay off your mortgage fully or partially at any time without penalty. Open mortgage rates are typically higher than closed mortgage rates.
This is a mortgage that allows the mortgage borrower to transfer their mortgage to a new property with the same lender without penalties. Most are portable but rate is not guaranteed.
A pre-approved mortgage would conditionally qualify you for a loan amount. It may also acts as a rate hold, guaranteeing the interest rate for up to 120.
Should you “break” (or pay off) your mortgage prior to your term expiry, you will have to pay a prepayment penalty to the lender. This is calculated by the lender or bank and is based on what type of mortgage contract you are in with the lender.
Most mortgages allow prepayment privileges. You may double up your payments, paying a certain disclosed percentage of your mortgage principal per year, or increasing your monthly mortgage payments by a certain percentage.
This is the outstanding amount of money borrowed or owing on an existing mortgage.
Prime rate or the prime lending rate to the lowest commercial interest rate charged by a banks at a particular time.
PROPERTY TAX ASSESSMENT
A property tax assessment will place value on real estate for the purpose of taxation.
This is the Agreement of Purchase and Sale
REAL ESTATE AGENT
A licenced person who is permitted authorized to act as an agent for the purchase or sale of real estate on behalf of the property owner or buyer.
REAL ESTATE APPRAISAL
This is a report prepared by a real estate appraiser that estimates the value of a home. It states features and details of the home which includes measurements and photos. Lenders require appraisals to confirm that the purchaser has purchased the home for a fair market price or to determine what the market rents are for the home in that area. It also ensures that the home meets the lender’s standards and to also determine the amount of equity exists.
This may include paying off the existing mortgage and arranging a new one with the same or a different lender. This may be an opportunity to consolidate should you qulaify.
This is when the mortgage holder has the second place position behind the original first mortgage. This would be a separate mortgage from the first.
This is the property that will be pledged as collateral for the mortgage.
SEMI-MONTHLY MORTGAGE PAYMENTS
This is when mortgage payments are scheduled 2 times per month, for instance, on the 1st and 15th of each month.
Equity created by a homeowner or purchaser by completing work on a property being purchased or refinanced.
This is the legal ownership of a property. The purchasers would usually be on title.
This is insurance that protects the owner or mortgagee of the property from any pending lawsuits or outstanding claims arising from a defective title.
This is the process of deciding whether or not a lender will provide a mortgage loan to a home buyer based on credit, employment, income, serviceability and other factors. The lender will review and must accept all documents prior to advancing funds to the lawyer.
VARIABLE RATE MORTGAGE
This is a mortgage that has fixed payments, but where principal portion of the payment fluctuates when interest rate changes. Variable rate mortgages or VRM will generally fluctuate in respect to the prime lending rate.