Glossary
Amortization Period
The actual number of years it will take to repay a mortgage in full. This period is usually longer than the loan’s term. For example, a mortgage may have a five year term and a 25 year amortization period.
Appraised Value
An estimate of the market value of a property that is pledged as security for the mortgage. This value may be more or less than the purchase price of the property.
Assets
Things such as property, investments, cash, cars etc. that you may own.
Blended Rate Mortgage
A mortgage that combines the amount you owe under an existing mortgage with additional money that you require. The interest rate for the new amount is determined by blending the interest rate between the interest rate of the old mortgage and the interest rate for the additional amount to be borrowed.
CMHC
The Canadian Mortgage and Housing Corporation is a federal Crown corporation that administers the National Housing Act. It provides mortgage default insurance for high ratio mortgages. It allows people to qualify for mortgages with less than 20% down payment or equity.
Closed Mortgages
A mortgage that may not be prepaid or renewed early without an interest penalty. The interest penalty is normally the greater of three months interest or the interest rate differential.
Closing Date
The date that the purchase of a property becomes final and the new owner takes possession.
Conventional Mortgage
A first mortgage of up to 80% of the property’s appraised value or purchase price, whichever is lower.
Down Payment
The amount of money put forth by the buyer towards the purchase price of a home.
Equity
The difference between the appraised value of a property and the amount owing against it.
First Mortgage
A mortgage that is registered first against the property. This mortgage has to be paid first in the event of sale or default.
Five Percent Down Program
This program allows buyers to obtain up to 95% financing on properties up to a certain value. The loan must be insured by either CMHC, Genworth or AIG. The Maximum loan amount will vary according to location and eligibility and can vary with personal circumstances.
Fixed Rate Mortgage
A mortgage where the rate of interest is fixed for the entire period of the term.
Gross Debt Service Ratio
The percentage of your gross monthly income that can be used to pay the housing costs, including monthly mortgage payments (principal and interest), heating costs and property taxes (condo fees when applicable). This ratio is usually 32% of your gross monthly income.
High Ratio Mortgage
A mortgage for more than 80% of either or both a property’s appraised value and purchase price. The down payment amount is less than 20% of the purchase price or appraised value.
Interest
The price paid for the use of borrowed money.
Loan-to-Value Ratio (LTV)
The percentage of the value of the property for which a mortgage is required. This ratio is important in determining whether or not default insurance is required. It also sets the premium for the default insurance.
Maturity Date
The last day of the term of your mortgage agreement. The mortgage must be paid in full, or the agreement renewed by this date.
Mortgage Broker
A registered agent who negotiates with lenders on behalf of a borrower to obtain the best overall mortgage package for that borrower’s circumstances.
Open Mortgage
This type of mortgage allows you to pay back the borrowed funds without notice or penalty. There are two types of open mortgages:
Fixed rate mortgages; usually a very short term, 6 months to a year. Interest rates will be higher than a closed mortgage with the same term.
Variable Rate Mortgages (VRM’s). Normally available for a 5 year term. The mortgage can be paid out in full anytime during the term of the mortgage.
Principal
The amount of money owing on your mortgage, including accrued unpaid interest.
Refinance
Obtaining a new mortgage on an existing property. You might be looking for more money, a better rate or different prepayment terms.
Survey
The legal written or mapped description of the location and dimension of your land. The survey should also show the dimensions and placement on your lot of any structure, including additions such as pools, sheds and fences. An up-to-date survey is often required by a lender as part of the mortgage transaction.
Switch
This term refers to a mortgage transfer where there is no change in your mortgage balance but your mortgage changes lenders.
Title Insurance
Insurance offered by Title Companies to protect a landowner, and thus the mortgage lender against any legal uncertainties on the title to the real estate, or of legal priority of the mortgagee.
Total Debt Service Ratio (TDSR)
The percentage arrived at by dividing your monthly housing costs (principal, interest, property taxes, heating and condo fees) Plus all other monthly debt obligations by your gross monthly income and multiplying it by 100. This is used by all lenders as the “upper limit” by which to measure the ability of the borrower to make the mortgage payments.
Underwriting
The process of deciding whether or not to lend you money based on all the information you have provided to the lender. Every lender has different processes that they follow with different lending criteria.
Variable Rate Mortgage (VRM)
A mortgage tied to the bank prime rate. Your variable rate mortgage interest rate will increase and decrease accordingly with any changes in the bank prime rate. Subsequently, increases and decreasing your mortgage payments may also occur.
Verification of Employment
The lender will request a job letter as well as a current pay stub to confirm income, length of employment, position etc. Some lenders also contact an applicant’s employer to verify the details provided in the mortgage application.