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The amortization of your mortgage is the number of years you will need to pay off your mortgage. Typically, amortizations in Canada are available in 25, 30 and 35 year periods, but mortgages with shorter amortizations are available as well. A longer amortization lowers your monthly interest payments and allows you to have increased cash-flow on a month to month basis; however, with a longer amortization you’ll be paying more interest.
An annual percentage rate (APR) is a broader measure of the cost to you of borrowing money, also expressed as a percentage rate. In general, the APR reflects not only the interest rate but also the interest, principal and any additional fees such as legal fees or appraisal fees on your home. The APR is typically higher than your interest rate because it includes the additional fees required.
These are the property taxes due each year for the subject property.
An appraised value is an evaluation of a property’s value based on a given point in time that is performed by a professional appraiser during the mortgage origination process. Mortgage lenders will use the appraised value of your home to make a decision as to how much they may be willing to loan to you against the value of your home.
Something that you own that has value or use. Example: RRSPs, vehicle, savings, home, etc.
Breaking your mortgage is to opt out of your mortgage before the agreed upon term is finished. Banks and lending institutions will typically charge you the greater of two penalties: three (3) months interest or an IRD (Interest Rate Differential) penalty. Homeowners often break a mortgage to try and take advantage of lower interest rates in the market. A qualified mortgage agent can determine if breaking your mortgage is worth it for you.
Closed mortgages generally have lower interest rates than open mortgages do, but borrowers get limited flexibility: you can’t pay off the loan without incurring a penalty. Most closed mortgages allow for accelerated payments of some kind, but each lender sets its own prepayment terms. Some lenders will let you double up your scheduled mortgage payments or pay an annual lump sum.
The big day! The closing date is the day in which your housing purchase or refinance takes place. A lending institution will grant you the agreed upon funds and sellers transfer home ownership (and the keys!) to the buyer.
A conventional mortgage is a mortgage where the total mortgage amounts to 80% or less of the property’s value. Putting a down payment of 20% or higher puts you into the conventional mortgage category. You also avoid paying any mortgage loan insurance costs.
A convertible mortgage is a variable rate mortgage that can be locked in or converted into a fixed rate mortgage without penalties.
The total costs of obtaining your mortgage. These costs typically include your appraisal fees as well as any other charges required to close your mortgage. These costs are included in your Annual Percentage Rate.
A credit score is a grade given to your credit situation and credit history by a credit reporting agency that gathers credit information and compiles it into a credit report. A credit score is used as part of the mortgage approval process.
A mortgage deed is a document in which the mortgagor transfers an interest in real estate to a mortgagee for the purpose of providing a mortgage loan.
Your down payment is the amount of money you have on hand to put towards the payment of your home. The larger your down payment, the smaller your mortgage amount will be. In Canada, a minimum of 5% down payment is typically required. Mortgages greater than 80% of a home’s value are referred to as ‘high-ratio mortgages’ and require that the borrower pays for mortgage default insurance. Buyers with 20% or greater of a down payment typically do not have to pay for mortgage default insurance.
If you still have an outstanding balance on your mortgage at the end of your mortgage term, you will have to renew for another term. By law, your lender has to send you a renewal notice 21 days before your term is up, but most allow you to renew with them anytime in the final 120 days of your current mortgage term without having to pay a penalty to break your term early; this is known as an early mortgage renewal. However, be sure to find out what’s available to you on the market before agreeing to an early renewal.
This is the estimated value of your home.
An estoppel certificate is a legal document that shows the various finances and legal status of a condominium corporation. It is important that your lawyer reviews this document to help advise you on the financial health of any condominium you might plan on moving into.
The first mortgage is the mortgage that takes precedence above any other mortgages or loans registered against your home. If there are any other mortgages registered against your property and you should sell your home or default on your mortgage, the first mortgage must be paid out with the money made available from the property.
The interest rate the monthly payment you make will remain the same throughout the duration of your mortgage, regardless of the interest rates are fluctuating or not.
A guarantor is a person who agrees to make repayments on a mortgage if the borrower of that mortgage does not do so. Some lenders may require a guarantor depending on your particular situation and borrowing request.
A high ratio mortgage is a mortgage greater than 80% of the value of a property. High ratio mortgages require that the borrower pays mortgage default insurance.
Home equity, or the equity in your home, is the difference between the value of your home and what you owe on it.
The interest rate is the percentage amount based upon the amount of your principal mortgage that you will be paying over the life of your loan. Remember, the quicker you pay off your mortgage, the less interest you pay overall.
An interest adjustment is a closing cost that only some homebuyers have to pay. To be more specific, payments on a Variable Rate Mortgage (VRM) can vary throughout its term depending on what happens with the Prime Rate of your lender – that’s why it’s called variable. On your mortgage funding date, the initial interest rate is set, locking in the interest rate spread. Every three months after that (referred to as the Interest Rate Adjustment Date), the interest rate on your VRM is subject to review and possible adjustment, either up or down, if the prime rate changes. If there is a change in your interest rate, we will mail you an update outlining your new rate and the change in your payment.
The penalty charged to a homeowner if he or she decides to pay off their mortgage before the end of their mortgage term. When breaking a closed fixed-rate mortgage, a lender will charge the borrower the greater of three months interest or an interest rate differential (IRD). An IRD is calculated using the amount the homeowner has paid into the mortgage term and the difference between the homeowner’s original interest rate and the rate the lender charges at present. Each lender calculates penalties differently, and some lenders don’t even allow a mortgage to be broken unless there is a bona fide sale.
When you a buy a house, condo or land in Ontario you are subject to land transfer tax which is due upon closing. If you are purchasing a home in Toronto, it is important to note that an additional Toronto Land Transfer Tax will also apply.
The loan to value ratio is the amount of the mortgage loan against the total appraised value of the property on which the loan is secured. For example, if your property is worth $100,000 and you made a down payment of $25,000, your mortgage amount will be $75,000 and your LTV is 75% ($75,000/$100,000 = 75%). The LTV helps determine whether or not mortgage default insurance is required. LTV of 80% or less will be a conventional mortgage and will generally not need mortgage default insurance. LTV of more than 80% will be a high-ratio mortgage and will need mortgage default insurance. Other circumstances may also cause you to need mortgage default insurance.
The best mortgages allow homeowners to pay off their mortgage faster using prepayment options. Each mortgage year, homeowners can make one-time or on-going lump sum prepayments equal to a certain portion of their original mortgage balance without penalty.
The maturity date is the last day of the term of your mortgage. Any outstanding balance is due on this date. However, if you have an outstanding balance you will usually have the opportunity ahead of time to renew your mortgage with a new principal amount, interest rate, term and amortization.
The listing of a particular property from Multiple Listing Service (MLS) which includes the particular details of a property. Typically, the most pertinent details are property taxes, maintenance fees and measurements of the property.
A mortgage is a loan that is secured by a property.
Mortgage affordability is the amount of money a mortgage borrower can make on a monthly basis toward a mortgage based upon income, expenses, and the proposed monthly payment and interest rates.
A form that is filled out that provides a mortgage broker or lender the financial information required to conduct a credit check. It’s the first step in obtaining financing for a real estate purchase.
A mortgage brokerage must employ a mortgage broker to oversee the brokerage employees. Generally, brokers are responsible for the management role within the brokerage. They are also responsible for ensuring that the brokerage complies with the Real Estate Act. An individual must be a licensed mortgage associate for two years before being eligible to become a broker.
Mortgage default insurance protects lenders, in the event a borrower ever stops making payments and defaulted on their mortgage loan. This insurance is required by law in Canada for high ratio mortgages (down payments between 5% and 19.99%. )
The lending institution or banks providing you with the mortgage on your home.
Creditor Insurance that pays off the remaining mortgage debt in the event of a borrower’s death.
Mortgage Loan Insurance pays the lender in the event the mortgage borrower defaults on making payments. Such insurance is required by law for high ratio mortgages (those for an amount greater than 80% of the value of the property) and may be required under other circumstances. For more information about Mortgage Loan Insurance or to calculate the premium, you can visit CMHC or Genworth websites at www.cmhc.ca or www.genworth.ca or www.canadaguaranty.ca.
A mortgage penalty is a fee built into the contract to prevent or make it difficult for you to break the mortgage, in addition to compensating the provider for the loss of interest income. If the mortgage is terminated before its maturity date, either through the sale of the home, early renewal or discharge, there may be penalties. The applicable penalties would be equal to the greater of the interest rate differential or 3 months interest plus any applicable fees related to the discharge request.
The mortgage term is the length of time you commit to the mortgage rate, lender, and associated mortgage terms and conditions.
The borrower of the mortgage.
This is also known as an NOA. It is the summary form that Revenue Canada Agency sends you after your income tax has been filed. It specifies what you claimed on your taxes last year, as well as the amount of taxes you owe, or the amount of money that you will be received as a tax refund.
A portable mortgage is a mortgage that you can transfer over with you to a new property. The benefit of a portable mortgage is the ability to keep the rate and terms of your current mortgage.
Many lenders will pre-approve a mortgage to a set maximum principal amount before you’ve found the house you want to buy. Pre-Approvals are useful as they can guarantee your interest rate for up to 120 days on fixed-term loans and can help you determine your budget for your next housing purchase. A pre-approval won’t cost you anything and can help you hold on to today’s interest rates.
The prime rate is an interest rate set by banks and lending institutions based on the Bank of Canada’s overnight lending rate. The prime rate usually moves in lock-step with the overnight lending rate. Variable rate mortgage holders should pay attention to the prime rate.
The principal is the amount of money you’ve borrowed for your property. This doesn’t include any interest costs that might be required.
The purchase price is the actual price you’ve agreed upon for the purchase of your new home. This price doesn’t include any closing fees, transfer taxes or interest costs.
To qualify for a mortgage, you’ll have to prove to your lender that you can afford the amount you’re asking for. Mortgage lenders or brokers will use your financial information to calculate your total monthly housing costs and total debt load to determine what you can afford.
Reverse mortgages offer Canadians over the age of fifty-five the opportunity to tap into their existing home equity without having to sell and move. You may be able to borrow up to 55% of the current value of your home tax-free and the loan does not require any scheduled repayment.
This is an asset that is used as collateral for the sake of a loan. In the case of your mortgage, your home is the asset used as security.
The Office of the Superintendent of Financial Institutions Canada (OSFI) announced a number of new mortgage rules, also known as “stress test,” which came into effect on January 1, 2018. The stress test is the government’s way of preventing the worst-case scenario for the housing market by ensuring you can afford interest rate increases. Click here to learn more.
The title designates the ownership of a particular property.
Title Insurance is a product that protects you from any fraud, errors or survey matters associated with the title of your property.
A Variable Rate Mortgage is a mortgage of any given term (usually 3 years or 5 years) where the interest rate moves in lock-step with your mortgage lender’s prime rate.
Zoning refers to the geographic zone designations allotted by municipalities that impacts how a property can be used.
