Agreement of Purchase and Sale
Legal contract a purchaser and a seller enter into.
Amortization Period
The amortization period of your mortgage is the amount of time it would take you to repay your mortgage in full based on your current payment amount, your payment frequency and your current interest rate.
Annual Property Taxes
These are the municipal property taxes payable by the property owner each year.
Annual Percentage Rate (APR)
Annual Percentage Rate represents the total cost of borrowing for your loan or mortgage including the interest, principal and any additional fees.
Appraised Value
The appraised value of your property is the ‘market value’ of your home as deemed by an appraiser. Mortgage lenders 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.
Appraisal
The process of determining the value of a property. For mortgage lending purposes this is done by a certified appraiser.
B
Beacon score
A credit rating, also referred to as a credit score, used by banks and other lenders, indicating a person’s credit worthiness in comparison to others.
Blended Payments
Equal payments consisting of both an interest and a principal component. On an amortized loan the payment amount does not change. However, the principal portion increases while the interest portion decreases with each successive payment.
Breaking Your Mortgage
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.
C
Canada Mortgage and Housing Corporation (CMHC)
CMHC is a federal Crown corporation that administers the National Housing Act (NHA). Among other services, they also insure mortgages for lenders that are greater than 80% of the purchase price or value of the home. The cost of that insurance is paid for by the borrower and is generally added to the mortgage amount. These mortgages are often referred to as high ratio mortgages.
Closed Mortgage
A mortgage that cannot be prepaid, renegotiated or refinanced.
Closing Date
The date on which the new owner takes possession of the property and the sale becomes final.
Collateral
An asset (such as a property or an automobile) that you offer as security for a loan.
Conventional Mortgage
A mortgage that is up to 80% of the purchase price or the value of the property.
Convertible Mortgage
A convertible mortgage is a variable rate mortgage that can be ‘locked-in’ or converted into a fixed rate mortgage without penalties.
Cost of Borrowing
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.
Credit Bureau
An agency that maintains individual credit files on consumers. There are three credit bureaus in Canada.
Credit check
A process where a person has his or her credit history reviewed before credit is extended.
Credit file
A detailed history of money you have borrowed, credit you have used and whether you make bill and debt repayments on time. A credit file may list employment history as well as present and residences.
Credit Rating / Credit Score
A numerical score calculated using the information in your credit file. The credit rating is often used to determine a borrower’s credit worthiness and is sometimes referred to as a credit score.
D
Deed
A deed is a document confirming the ownership of a property.
Demand Loan
A loan where the balance must be repaid upon request.
Deposit
A sum of money deposited in trust by the purchaser on making an offer to purchase. When the offer is accepted by the vendor (seller), the deposit is held in trust by the listing broker, lawyer, or notary until the closing of the sale, at which point it is given to the vendor.
Debt Service Ratio
The percentage of the borrower’s gross income that will be used for monthly payments of principal, interest, taxes, heating costs, condominium fees and minimum payments on secured and unsecured debts.
Default
Non-payment of instalments due under the terms of a mortgage.
Discharge
Removal of all mortgages and financial encumbrances on a property.
Down Payment
Down payment is the amount of money you put towards the purchase your property.
E
Early Renewal
Renewal of a mortgage prior to the end of the existing mortgage term.
Equity
The difference between the market value of the property and any outstanding mortgages registered against the property.
Equity Take Out
When the owner takes out a mortgage on an existing property to use for other purposes such as investments or for renovations.
Estimated Value
This is the estimated value of your home. You may use the value of comparable homes in your area or your annual property tax assessment to determine an estimated value.
Estoppel Certificate
An estoppel certificate is a legal document that shows the various finances and legal status of a condominium corporation.
F
FICO® score
A specific credit rating score provided directly by Equifax to individuals. The rating provided is a three digit number indicating a person’s credit worthiness in comparison to others.
First Mortgage
A debt registered against a property that has first priority on that property.
Fixed-Rate Mortgage
A mortgage for which the interest is set for the term of the mortgage.
G
Gross Debt Service (GDS) Ratio
A calculation used by lenders to help determine a borrower’s capacity to repay a mortgage. It takes into account the mortgage payments, property taxes, approximate heating costs, and 50% of any maintenance fees
Guarantor
A person with an established credit rating and sufficient earnings who guarantees to repay the loan for the borrower if the borrower does not.
H
High Ratio Mortgage
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
Home equity, or the equity in your home, is the difference between the value of your home and what you owe on it.
Home Equity Line of Credit
A line of credit secured against the borrower’s property.
I
Interest Adjustment Date (IAD)
The date on which the mortgage term will begin. This date is usually the first day of the month following the closing.
Interest-Only Mortgage
A mortgage on which only the monthly interest cost is paid each month. The full principal remains outstanding.
Interest Rate
The rate of interest charged on a mortgage. Mortgage rates are determined by the lender in most cases, and can be either fixed (stay the same for the term of the mortgage) or variable (fluctuate with a benchmark interest rate).
L
Loan to Value (LTV) Ratio
The ratio of the principal amount of a mortgage to the value of the property.
For example, if your property is worth $400,000 and you made a down payment of $100,000 your LTV is 75%.
Lump Sum Payment
An extra payment made by the borrower to reduce the amount (principal) of a mortgage. Lump sum payments are in addition to the regular instalments that are made on the loan.
M
Maturity Date
The date a mortgage term ends. On the maturity date, the mortgage must either be paid off or renewed into a new term.
Mortgage
A mortgage is a loan that is secured by property.
Mortgage Default Insurance
Mortgage Default Insurance pays the lender if the borrower defaults on making payments. This 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.
Mortgagee
The financial institution or person (lender) who is lending the money using a mortgage.
Mortgage Insurance Premium:
A premium added to the mortgage and paid by the borrower over the life of the mortgage. The mortgage insurance insures the lender against loss in case of default by the borrower.
Mortgage Life Insurance
Creditor insurance that pays off the remaining mortgage debt in the event of a borrower’s death.
Mortgage Rate
The rate of interest charged by a bank on funds that are used for the purchase of real estate.
Mortgagor
The person who borrows the money using a mortgage.
Multiple Listing Service (MLS) listing
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.
O
Open mortgage
An open mortgage that may be prepaid, in part or in full, during the term without paying a prepayment charge.The interest rate on an open mortgage may be higher than the interest rate on a closed mortgage.
P
Penalty
A sum of money paid to a lender for the privilege of prepaying a mortgage in part or in full.
Portable Mortgage
An existing mortgage that can be transferred to a new property. One would want to port their mortgage in order to avoid any penalties, or if the interest rate is much lower than current rates.
Pre-Approved Mortgage
An evaluation of a potential borrower by a lender that determines whether the borrower qualifies for a loan from the lender, or the maximum amount that the lender would be willing to lend. The pre-approval process involves a thorough look into the income and expenses of the borrower, including a look at the borrower’s credit report and score.Pre-Approvals are useful as they can guarantee your interest rate for up to 180 days on fixed term loans and can help you determine your budget for your next housing purchase.
Prepayment Option
The right to prepay specified amounts of the principal balance. Penalty interest may be incurred on prepayment options.
Prepayment Penalty
A fee charged a borrower by the lender when the borrower prepays all or part of a mortgage over and above the amount agreed upon. In most instances the charge is either an Interest Rate Differential (IRD) penalty or 3 months interest.
Prime (or Prime Rate)
The Prime Rate is the interest rate charged by banks to their most creditworthy customers. The rate is usually consistent amongst the major banks.
P.I. (Principal and Interest)
Principal, and interest due on a mortgage.
P.I.T. (Principal, Interest and Taxes)
Principal, interest, and property tax due on a mortgage.
Purchase Price
The purchase price is the purchase price that is agreed upon in the agreement of purchase and sale.
R
Rate
The rate of interest charged on a mortgage.
Rate Commitment
The number of days the lender will guarantee the mortgage rate on a mortgage approval.
Renewal
A mortgage renewal is a new agreement to extend or renew mortgage terms with your mortgage holder.
Rental
Refers to any rented property.
Rental agreement
A legally binding agreement to rent a premises, either written or oral, between a landlord and tenant.
Rental property
Land and/or buildings and/or units and/or rooms available for or being rented.
S
Second Mortgage
A debt registered against a property that is secured by a second charge on the property.
Security
This is an asset that is used as collateral for the sake of a loan. In the case of a mortgage the property is the asset used as security.
Switch
To transfer an existing mortgage from one financial institution to another.
T
Term
The mortgage term is that period of time until your mortgage becomes due and payable. Most mortgages have a term that ranges from six months to ten years.
Title
The title designates the ownership of a particular property.
Title Insurance
Title Insurance is a product that protects you from any fraud, errors or survey matters associated to the title of your property.
Total Debt Service (TDS) Ratio
The ratio of a borrower’s total monthly debt as compared to his or her monthly gross income. Lenders use this ratio to determine how much the loan applicant is allowed to borrow.
U
Utilities
Services such as heat, water and electricity that may or may not be included in the amount of rent paid.
Unit
The premises rented under one tenancy agreement, usually an apartment within a complex with a group of units.
V
Variable-Rate Mortgage
A variable interest rate mortgage has an interest rate that can vary during the term. The interest rate varies in accordance with changes in market interest rates. For example, the interest rate for most variable rate mortgages changes whenever a lender’s prime rate changes.
Vendor Take Back (VTB) mortgage
A mortgage provided by the vendor (seller) to the buyer.
Z
Zoning
Zoning refers to the geographic zone designations allotted by municipalities.