Check out our helpful A-Z guide to mortgages and mortgage related terms
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 you 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.
A credit bureau collects personal information such as name and address, credit account information, known as “tradelines”, inquiry information and public record and collections information. With this information a credit bureau compiles the information into a credit report, and scores the report – commonly known as credit score, Beacon score or FICO score. Mortgage lenders and other credit lenders use the report as concrete evidence on how you handle your relationship with credit. There are two major consumer credit bureaus in Canada, Equifax and TransUnion.
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; requires 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 change your amortization (extend it) and/or when you increase your balance by pulling equity out of your home. You must leave 20% of the equity in 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. An acceptable TDS ratio is anything below 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, choose to switch lenders, pay it in full, or look at refinancing.
Variable rate mortgage
Unlike a fixed rate mortgage, the interest charged on a variable rate mortgage changes with fluctuations in 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.