Amortization

Amortization is called the length of time over which your mortgage is financed. This may be anywhere up to 40 years, with 25 years being the traditional amortization. Note that mortgage amortization is different than “mortgage term” which is the length of your agreement with the mortgage lender.

Appraisal

Appraisal is the process of determining the value of property, usually for mortgage lending purposes. This value may or may not be the same as the purchase price of the home. A qualified appraiser physically inspects the property making note of condition, special features and then assesses the value including assessment of comparable properties.

Assets

Assets are property, cash and other things of value (such as stocks and bonds) that a borrower owns.

Assessed Value

Assumable means that your mortgage MAY be taken over by another party if, for example, you sold your house and the buyer wanted to take over your mortgage payments. This may be of an advantage to a buyer if the rate on your mortgage is lower than current rates. Even though the mortgage is assumable, the borrower MUST qualify to the satisfaction of the mortgage lender.

Blend and Extend

Blend and Extend is taking your existing mortgage and adding to the term and combining the old and new rate into a blended rate on a weighted basis. It can be a good way of avoiding prepayment penalties if you are moving and increasing the size of your mortgage.

Blended payment

Blended payment usually refers to a payment that includes principal and interest.

Bridge Financing

Bridge Financing is financing that covers the time between when a new home closes and the buyer’s old home sells.

Canada Mortgage and Housing Corporation (CMHC)

Canada Mortgage and Housing Corporation (CMHC) operates a Mortgage Insurance Fund which protects approved lenders from losses resulting from borrower default. CMHC insurance can insure for loans where the mortgage amount is greater than 80% of the value of the property, and insures for a variety of other specialty lending situations. A premium is charged for the insurance.

C.H.M.C. Insurance

C.H.M.C. Insurance is an insurance that must be purchased when a buyer puts down less than 20% of the home’s value as a down payment.

Chattel

Chattel are a personal property and household goods that aren’t permanently attached to a home.

Closed Mortgage

Closed Mortgage is the restriction or denial of repayment rights until the end of the mortgage term.

Commitment

Commitment is a document where the lender agrees to lend the borrow money under a set of specified conditions. The conditions usually include things like receiving income verification (employment letter, pay stubs, tax information), appraisal, copies of MLS listing, proof of down payment etc.

Compound Interest

Compound Interest is an interest that is charged on both the principal and previously accrued interest.

Conventional Mortgage

Conventional Mortgage is a mortgage where the mortgage amount is 80% of the property value or less.

Discharge

Discharge is a process where lawyer removes mortgage from title registered at Land Titles.

Debt-Service Ratio

Debt-Service Ratio is the percentage of the borrower’s gross income that will be used for monthly payments of principal, interest, taxes, heating costs and any strata fees.

Deposit

Deposit is a sum of money paid by the purchaser when making an offer to be held in trust by the vendor’s agent, broker, lawyer or notary until the closing of the transaction.

Equity

Equity is the value the owner has in a property over and above all mortgages against the property. It is usually the difference between the market value of the property and any outstanding encumbrances.

Fixed-Rate Mortgage

Fixed-Rate Mortgage is when the mortgage interest rate is fixed for the term of the mortgage.

Foreclosure

Foreclosure is a process undertaken by lawyers where the lender obtains ownership of the property after the borrower has not made regular payments per the loan agreement.

Gross Debt Service (GDS) Ratio

Gross Debt Service (GDS) Ratio is the percentage of gross income required to cover monthly payments associated with housing costs. Most lenders recommend that the GDS ratio be no more than 32% of your gross (before tax) monthly income.

Holdback

Holdback is a money withheld by the lender during the construction or renovation of a house to ensure that construction is satisfactorily completed at every stage.

Inter Alia Mortgage

Inter Alia Mortgage is a single mortgage covering more than one property. The term is latin for “amongst other things.”

Interest Adjustment Date

Interest Adjustment Date is a date from which interest is calculated when mortgage funds are advanced before a regular payment cycle. For example if a mortgage is advanced March 29th and regular monthly payments commence May 1st, there will be an interest adjustment for 3 extra days.

IRD - Interest Rate Differential

IRD – Interest Rate Differential is a commen prepayment penalty method where the difference between current interest rates and the mortgage interest rate is charged for the remainder of the term. IRD is generally only applicable if current interest rates are lower than that of the original mortgage and are intended to compensate the lender for the difference in interest income it will receive.

Interim Financing

Interim Financing is a short-term financing to help a buyer bridge the gap between the closing date on the purchase of a new home and the closing date on the sale of the current home.

Loan to Value (LTV)

Loan to Value (LTV) is the ratio between the amount borrowed and the actual value, normally shown as a percentage.

Maturity Date

Maturity Date is the last day of the mortgage term.

Mortgage Insurance

Mortgage Insurance are both mortgage life insurance and mortgage disability insurnace are available and should be considered by all buyers. Many buyers are qualifying based on two incomes and they should consider how they would pay their mortgage payments if one income ceased due to disability or death. If mortgage insurnace is declined, it it common practise to have a waiver signed to protect all parties.

Mortgagee and Mortgagor

Mortgagee and Mortgagor: The lender is the mortgagee and the borrower is the mortgagor.

Mortgage Term

Mortgage Term is the length of time the current mortgage agreement applies between mortgagee and mortgagor -usually range from six months to 10 years.

Open Mortgage

Open Mortgage is a mortgage which can be prepaid at any time, without penalty. Interest rates are usually higher for open mortgages.

Payment Frequency

Payment Frequency is how often you want to make payments: every week, every other week, twice a month or monthly.

Principal, interest and taxes (P.I.T.)

Principal, interest and taxes (P.I.T.): These make up the regular payment on a mortgage if the lender is including property taxes in your mortgage payments

Porting

Porting means that you can take your mortgage with you to another qualifying property without having to lose your existing interest rate and avoid prepayment penalties.

Prepayment Charge

Prepayment Charge is a fee charged by the lender when the borrower prepays any part of a closed mortgage beyond what is allowed in prepayment privileges set out in the mortgage agreement.

Prepayment Privileges

Prepayment Privileges: Lenders generally offer some prepayments without penalty like 20% per year lump sum plus 20% increase in regular payment but vary based on the mortgage agreement.

Principal

Principal is the amount of money borrowed for a new mortgage.

Property Trasfer Tax

Property Trasfer Tax are the provincial Tax when property changes hands. The 2008 provincial budget increased the threshold for first time buyers exemption to $425,000. For the rest of us, the the tax is calculated at 1% of the first $200,000 and 2% thereafter.

Refinancing

Refinancing is renegotiating your existing mortgage agreement. You may be increasing the principal or paying out the mortgage in full and arranging a new mortgage.

Renewal

Renewal is the end of a mortgage term, a mortgage can be renewed if the terms and conditions acceptable to both the lender and the borrower. Otherwise, the lender will be repaid in full and the borrower will arrange financing elsewhere. It is never advisable to just renew without having your mortgage broker review available options.

Term

Term is the length of the current mortgage agreement. This is different than amortization which is the length of time it will take to pay off the mortgage in full. The term is the lenth of time that the existing terms and conditions (like interest rate and prepayment privileges) apply.

Title Insurance

Title Insurance is different from all other types of insurance. Policies are available for lenders AND for homeowners. Lenders often request title insurance to protect their interests if a property survey is not available (title insurance is usually faster and less expensive than getting a new survey done). A homeowner policy protects your ownership or title against losses incurred as a result of undetected or unknown title defects, for as long as you own your home. Even if you are the rightful owner of your home, there are instances such as real estate title fraud, when your title can come into question.

Total Debt Service (TDS) Ratio

Total Debt Service (TDS) Ratio is the percentage of gross income needed to cover monthly payments for housing and all other debts and financing obligations.

Underwriting

Underwriting is when a lender assesses the loan application based on credit worthiness, value and ability to pay obligations.

Variable Rate Mortgage

Variable Rate Mortgage is a mortgage where interest rates float with the prime rate.

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