Agreement of Purchase and Sales – The legal contract a purchaser and seller agree to. This is typically prepared by a professional realtor, or by the builder if buying a new property.
Amortization – The number of years it takes to repay the entire amount of the financing based on a set of fixed payments. Click here for more information.
Appraisal – Process of determining the market value of a property
Assets – What you own or can call upon. Often used in determining net worth or in securing financing.
Assumption Agreement – A legal document signed by a buyer that requires the buyer to assume responsibility for the obligations of an existing mortgage. If someone assumes your mortgage, make sure you get a release form the mortgage company to ensure that you are no longer liable for the debt.
Blended Payments – equal payments which consist of both principle and interest components. Typically, the principle amount goes up while the interest amount decreases over time even though the payments remain the same.
Buy Down Rate – The portion of the interest rate on a buyer’s mortgage that you assume when they buy your home. If you’re selling your home and the prospective buyer doesn’t like the interest rate on their mortgage, you can offer to add a certain percentage of it onto your existing mortgage. You can add a maximum of 3%.
Canada Mortgage and Housing Corporation (CMHC) – CMHC is a federal Crown corporation that administers the National Housing Act (NHA). They 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 can not be prepaid or negotiated for a set period of time without penalties.
Closing Costs – Costs that are in addition to the purchase price of a property and which are payable on the closing date. Examples include legal fees, land transfer taxes, and disbursements.
Closing Date – The date on which the new owner takes possession of the property and the same becomes final.
Collateral – An asset, such as a term deposit, Canada Savings Bond, or automobile, that you offer as security for a loan.
Conventional Mortgage – A mortgage up to 80% of the purchase price or the value of the property. A mortgage exceeding 80% is referred to as a “Hi-Ratio” mortgage and the lender will require insurance for that mortgage.
Credit Scoring – A system that assess a borrower on a number of items, assigning points that are used to determine the borrower’s credit worthiness.
Demand Loan – A loan where the balance must be paid upon request.
Deposit – A sum of money put in trust by the purchaser making an offer to purchase. When the offer is accepted by the vendor (seller), the deposit is held in trust by the listing real estate broker, lawyer, or notary until the closing of the sale, at which point it is given to the vendor. If a house does not close because of the purchaser’s failure to comply with the terms set out in the offer, the purchaser forgoes the deposit, and it is given to the vendor as a compensation for breaking the contract (the offer).
Down Payment – The money that you pay up front for a house. Downpayments typically range from 5%-20% of the total value of the home.
Equity – The difference between the market value of the property and any outstanging mortgages registered against the property. This difference belongs to the owner of the property.
First Mortgage – A debt registered against a property that has first call on that property.
Fixed-Rate Mortgage – A mortgage for which the interest rate is set for the term of the mortgage. See our rates page more information.
Genworth Financial Canada – A private mortgage insurance company. One potential source of mortgage insurance for high-ratio mortgages.
Gross Debt Service Ratio (GDS) – It is one of the mathematical calculations used by lenders to 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, and this sum is then divided by the gross income of the applicants. Ratios up to 32% are acceptable.
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.
High-Ratio Mortgage – A mortgage that exceeds 80% of the purchase price, or appraised value of the property. This type of mortgage must be insured.
Home Equity Line of Credit (HELOC) – A personal line of credit secured against the borrower’s property. Generally, up to 75% of the purchase price or appraised value of the property is allowed to be borrowed with this product. See our HELOC page for more information.
Home Insurance – Insurance to cover both your home and its contents (also referred to as property insurance). This is different from mortgage life insurance, which pays the outstanding balance of your mortgage if you die.
Inspection – The process of having a qualified home inspector identify potential repairs to the property you are interested in and their estimated cost. Also known as home inspection.
Interest Adjustment – The amount of interest due between the date your mortgage starts and the date the first mortgage payment is calculated from. Sometimes there is a gap between the closing date of your home purchase and the first payment date of your mortgage. Let’s say that the closing date on your new house is August 10th – but your mortgage payments are on the 15th of each month (so your first payment is calculated from August 15th and paid on September 15th). That leaves five days (August 10th to 14th) that aren’t accounted for in your first mortgage payment. You have to make an extra payment to make up for these five days; the payment is generally due on your closing date. You can avoid all this by arranging to make your first mortgage payment exactly one payment period (e.g., one month) after your closing date.
Interest-Only Mortgage – A mortgage on which only the monthly interest cost is paid each month. The full principal remains outstanding. The payment is lower than amortized mortgage since one is not paying down the principal. Interest-Only Mortgages are only available in Canada, in the form of a line of credit.
Legal Fees and Disbursements – Some of the legal costs associated with the sale or purchase of a property. It’s in your best interest to engage the services of a real estate lawyer.
Lump Sum Payment – An extra payment that you make to reduce the amount of your mortgage principle.
Mortgage – a mortgage is a loan that uses a piece of real estate as security. Once that loan is paid-off, the lender provides a discharge from that mortgage.
Mortgage rate – The percentage of interest that you pay on top of the loan principle.
Mortgage Life Insurance – This form of insurance pays the outstanding balance of your mortgage in full if you die. This is different from home or property insurance, which insures your home and its contents.
Mortgagee – The financial institution / person / lender who is lending the money using a mortgage
Mortgagor – A person who borrows the money using a mortgage.
Multiple Listing Service (MLS) – A computerized listing of the properties available in your area, including information and sometimes pictures of each property.
Offer to Purchase – A legally binding agreement between you and the person who owns the house you want to buy. It includes the price you are offering, what you expect to be included with the house, and the financial conditions of sale (your financing arrangements, the closing date, etc.).
Open Mortgage – A mortgage that can be repaid at any time during the term without any penalty. For this convenience, the interest rate is typically between 0.75-1.0% higher than a closed mortgage. A good option if you are planning to sell your property or pay-off the mortgage entirely.
P.I.T. – principal, interest, and property tax due on a mortgage
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 the current rates available.
Porting – Transferring an existing mortgage from one home to a new home when you move.
Prepayment Penalty – A fee charged to a borrower by the lender when the borrower prepays all or part of a mortgage over and above the amount agreed upon. Although there is no law as to how a lender can charge you the penalty, a usual charge is the greater of the Interest Rate Differential (IRD) or three months interest.
Property Survey – A legal description of your property and its location and dimensions. An up-to date survey is usually required by your mortgage lender. If not available from the vendor, your lawyer can obtain one for a fee.
Prime – The lowest rate a financial institution charges its best customers.
Principal – The original amount of a loan, before interest.
Pre-Payment – Repaying part of your mortgage ahead of schedule. Depending on your mortgage agreement, there may be a prepayment cost for pre-paying.
Rate Commitment – The number of days the lender will guarantee the mortgage rate on a mortgage approval. This can vary from lender to lender, anywhere from 30 to 120 days.
Refinance – Take equity from your home and consolidate other high interest debts by refinancing your home’s current mortgage. To learn more about refinancing your home click here.
Renewal – When the mortgage term has concluded, your mortgage is up for renewal. It is open at this time for prepayment in part or in full, to be renewed with the current lender or transferred to another lender, at no cost. We can help with that, click here for more info.
Second Mortgage – A debt registered against a property that is secured by a second charge on the property.
Switch – To transfer an existing mortgage from one financial institution to another. We can help you arrange this. Click here for more info.
Term – The period of time the financing agreement covers. The terms available range from 6 months to 10 years with the interest rate fixed for the chosen term. Click here for more information.
Total Debt Service (TDS) Ratio – This is the other mathematical equation used by lenders to 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, and any other monthly obligations (i.e. payments on personal loans, car loans, lines of credit, credit card debts, other mortgages etc.) and this sum is then divided by the gross income of the applicants. Ratios up to 44% are acceptable with good credit.
Variable Rate Mortgage – A mortgage fir which the interest rate fluctuates based on changes in time. See our rates page more information.
Variable Take Back (VTB) Mortgage – A mortgage provided by the vendor (seller) to the buyer.