Here is a helpful A-Z guide to the key mortgage
The number of years it will take to pay off your mortgage. Mortgages that are default insured (CMHC, Genworth or Canada Guaranty) offer amortization periods of up to 25 years.
An official estimate of your proposed home’s property value, as provided by an accredited real estate appraiser, who assesses the home’s size, condition, comparable homes on the same street, among other factors. An accurate amount is necessary as the property itself is the security on your loan (mortgage).
A legal document that requires a person buying a home to take over responsibility for the mortgage of the home builder or previous owner.
A mortgage payment that includes both the principal loan amount and the interest. The payment remains the same throughout the life of the mortgage, but the percentages of the payment that go towards the principal or interest change over time.
A closed mortgage means there will be a penalty if you break the mortgage within the term. Closed mortgages often allow generous pre-payment privileges to be able to pay down your mortgage.
The cost you will have to pay in addition to the purchase price of the home on the day your officially own the home. These costs may include such things like legal fees, title registration, property tax adjustments, moving costs, utility set up, even your 1st mortgage payment. They usually range from 1.5% to 4% of the purchase price. Most lenders will require you have a range of between 0.5 and 1.5% of the purchase price ( depending on the lender ), in reserve in your liquid cash or within your equity to show you have thecapital to cover the additional costs.
The date at which the sale of a property becomes final and the new owner takes possession of the home. This is the date all funds are ideally transferred.
The amount of money you provide as your initial payment to secure a mortgage. The minimum down payment on a home is 5%.
Fixed rate mortgage
A fixed rate mortgage is a closed mortgage, where the interest rate on this type of mortgage is locked in for the term. You’ll pay the same installment each month for the term of your mortgage.
Gross debt service ratio (GDS)
The percentage of your gross monthly income that can be used toward housing-related payments (mortgage, property taxes, condo fees, and heating) . To qualify for a mortgage, your GDSR can be 39% (or less) of your gross monthly income.
High ratio or Insured Mortgage
A mortgage where the borrower’s down payment will be under 20% of the home’s purchase price; will require mortgage default loan insurance (CMHC, Genworth, Canada Guaranty)
Low ratio mortgage or conventional mortgage
A mortgage where the borrower’s down payment will be 20% or more of the home’s purchase price.
Loan to Value (LTV)
Is a ratio that lenders use to express how much of the total property value is borrowed. If a borrower has give a down payment of 10% of the purchase price, then the percentage of the total property value that is borrowed is 90% loan to value. The more equity of capital in a property the borrower has the lower the loan to value.
The lender of the mortgage.
Mortgage Default Loan Insurance
Mortgage default loan insurance protects lenders from payment default. Lenders pay the insurance premium and it’s passed on to you; pay it off as a lump sum or add it to your mortgage for monthly payments.
Mortgage Life insurance
Optional term insurance, which ensures that if one of the borrowers dies, the insurance will pay off the remaining mortgage, so survivors will own the home free outright.
A mortgage that you can pay off at any time without penalty.
The amount of money charged for prepaying all, or some, of your mortgage. Sometimes known as a mortgage break fee.
The amount you currently owe on the mortgage.
The principal, interest and taxes due on your mortgage.
Refinancing is when you are changing either your amortization (extending it) and or when you increase your balance by pulling equity out of your home. You must leave 20% of the equity within your home. People often refinance to pay off debt, do renovations in the home, or even to reduce monthly mortgage payments,,
Total Debt Service (TDS)
The percentage of the borrowers gross annual income that is needed to cover GDS plus any other debts. Some lenders will allow a maximum of TDS ratio of 44%
The length of time your mortgage agreement is valid, anywhere from 6 months to 10 years. After that term, you can renegotiate your mortgage, can choose to switch it to another lender, pay it out in full, or maybe you might want to look at refinancing.
Variable rate mortgage
Unlike a fixed rate mortgage, the interest charged on a variable rate mortgage changes with fluctuations to the market’s prime lending rate. Increases to the prime rate will see your interest and monthly payments go up, while the opposite occurs when the prime lending rate goes down. When prime lending rate goes down, more of your payment go toward your principal. Variable rate mortgages are also closed into a term like a fixed mortgage and the variable amount of the prime will remain the same for the term.