Mortgage Terms

 

Accelerated Payments

An accelerated payment is different than a conventional payment in that it does not average payments into the 12 months of a year. As an example, accelerated bi-weekly payments have 26 payments for the year, which essentially enables a borrower to have 13 month's worth of payments a year. These extra payments are paying down principal more quickly than a conventional bi-weekly payment - which averages 26 payments into the 12 months of the calendar year. More payments per year leads to paying down principal more quickly, paying less interest and saving thousands of dollars.

___________________________

Accelerated Bi-Weekly Payments

Accelerated bi-weekly payments are mortgage payments that occur every two weeks. This means that a borrower has 26 payments per year. An accelerated payment is different than a conventional payment in that it does not average payments into the 12 months of a year. Essentially it enables a borrower to have 13 month's worth of payments a year. These extra payments are paying down principal more quickly than a conventional bi-weekly payment - which averages 26 payments into the 12 months of the calendar year. More payments per year leads to paying down principal more quickly, paying less interest and saving thousands of dollars.

___________________________

Accelerated Weekly Payments

Accelerated weekly payments are mortgage payments that occur every week. This means that a borrower has 52 payments per year. An accelerated payment is different than a conventional payment in that it does not average payments into the 12 months of a year. Essentially it enables a borrower to have 13 month's worth of payments a year. These extra payments are paying down principal more quickly than a conventional weekly payment - which averages 52 payments into the 12 months of the calendar year. More payments per year leads to paying down principal more quickly, paying less interest and saving thousands of dollars.

___________________________

Agreement and Purchase of Sale

A document used when real estate is being purchased or sold. It is a contract between the seller and buyer of the home that overviews the terms and conditions that they agree to abide by. This includes the price, closing date and more. 

___________________________

Amortization Period

The length of time that it takes to pay off your mortgage is called the Amortization period. The longer the amortization period is, the less your monthly payments will be because your payments are being spread across a longer period of time. However, it is important to know that the longer it takes for you to pay off your mortgage, the more interest you will end up paying. So it will save you more money in the short, but cost you more overall. Typical amortization periods in Canada are 25 and 30 years.

___________________________

Annual Percentage Rate (APR)

You may notice that your APR is slightly higher than your actual interest rate. This is because the APR is a total representation of the costs of your home mortgage, which includes interest, principal and any additional fees such as appraisal or legal costs.

___________________________

Annual Property Taxes

The taxes that are due each year based on provincial and municipal ownership.

___________________________

Appraised Value

The “Market Value” of your home as determined by an accredited appraiser. Lenders will use the appraised value of your home to determine the amount of money they will lend you against the total appraised value of your home.

___________________________

Appraisal Fee 

A fee paid to the appraisal company in order to confirm the value of the home that is being purchased is in line with the purchase price. This protects the lender in the case that the buyer defaults on the mortgage. This fee is mandatory during the mortgage process and is sometimes covered, if the mortgage is done by an institutional lender. Generally costs ~$300

___________________________

Approved Mortgage 

A borrower can only be approved for a mortgage if they have an accepted purchase and sale agreement (aka they have purchased a property). Mortgage approval is the step to take when a borrower needs financing for a specific property at a specific date. A mortgage approval will determine the lender, and set out all the terms and conditions of the mortgage, including rate and prepayment privileges.

___________________________

Assumable Mortgage 

A mortgage that can be passed/transferred from the seller of the house to the buyer. 

___________________________

Bad Credit Mortgage 

A mortgage loan option that is for borrowers that have bad credit - a score below 700 - and have been turned down by major banks, lenders and credit unions. There are still solutions for these borrowers, such as private lenders, B mortgage lenders or trust companies.  

___________________________

Bank of Canada 

The Bank of Canada is Canada's central bank. A Crown Corporation, the BOC is charged with promoting the financial and economic well-being of Canada. It is also in charge of determining monetary policy as well as the overnight interest rate (which affects interest rates). 

___________________________

Bank Statement 

A bank statement is a snapshot of your recent banking information. It shows a record of the balance of the bank account that you use for your salary and expenses. It shows the amount of money that is being paid into and withdrawn from the account. Generally a lender will look to see the last three months of a borrower's bank statements. This will allow them to see average salary, home down payment, any major expenses, etc. All of this information is kept extremely private. 

___________________________

Basis Point  

0.01%. As an example, when the Bank of Canada increases the overnight interest rate by 25 basis points, this means that the interest rate increased by 0.25%. 

___________________________

Bi-Weekly Mortgage Payment   

Mortgage payments that occur every two weeks. The payment is calculated by multiplying the monthly mortgage payment by 12 and dividing it by 26 equal payments.  

___________________________

Blended Mortgage   

The combination of an existing mortgage rate with a new mortgage rate. This would often happen if a borrower is purchasing a new home and needs a larger mortgage, or to access equity. The blended mortgage would enable the borrower to avoid breaking the mortgage and having a prepayment penalty.   

___________________________

Breaking Your Mortgage

A broken mortgage occurs when a borrower opts out of their mortgage before the the term is completed. Banks and lenders will generally charge the greater of two different penalties - the Interest Rate Differential or 3 months of interest. Every lender is different, as some have more stringent restrictions. Also, fixed mortgages generally have a higher breakage fee than variable. Homeowners will break a mortgage for multiple reasons, which include: switching to a lower rate, home sale, divorce or lost job. Our Homewise team can provide suggestions on how to manage this situation. We also ask questions in sign-up to understand if you are someone likely to break their mortgage.

___________________________

Bridge Financing

Bridge financing often happens if a borrower has purchased a new home and it closes before the sale of their current home. This means that they borrower will need a loan for anywhere from 2 weeks to a few years. 

___________________________

Business Cheque

Required for a self-employed borrower. This is a cheque that is associated with the corporate bank account.

___________________________

Carrying costs

The cost of ownership that must be taken into account as monthly/annual costs. On top of the mortgage payments, this includes hydro, gas, property tax and home insurance.

___________________________

Cash Back Mortgage 

A mortgage that enables a borrower to take out a lump sum on top of the mortgage principal on the date the purchase closes. The lump sum can range between 1-7% of the mortgage principal. Cash back mortgages are always fixed rate mortgages. 

___________________________

Closed Mortgage

These are mortgages that cannot be repaid in full before the end of the borrower’s term without a penalty. There are also open mortgages, which provide borrowers with the ability to repay their mortgage at any time without incurring a penalty; however, an open mortgage usually comes with a higher interest rate compared to a closed mortgage.

___________________________

Closing Date

This is the day that your home is officially yours (your first day of ownership!) or it is the first day of your refinance. On this day the lender will release the total mortgage funds to the seller and the seller will transfer the home deed to the buyer.

___________________________

Co-Applicant

A co-applicant is someone (such as a husband or wife) that will be applying with the applicant (borrower) and will be registered on the title and/or the mortgage. As part of the application, Banks and Lenders will need the co-applicant's income information, living situation and liabilities as their profile will be part of your application.

___________________________

Collateral Mortgage 

A collateral mortgage differs from a standard mortgage, in that a standard mortgage places a charge on the title of the home and a collateral mortgage places a charge on the total registered value. This enables a borrower to borrow more money from the lender as the property value increases. While this feature allows a borrower to take out more money from their lender, rather than refinance, it does come with a major caution. A collateral mortgage cannot be transferred to another lender, even when the term comes to an end. This can be a big issue as it can cause a borrower to have a large prepayment penalty if they ever need/want to leave their lender. 

___________________________

Co-Signer or Guarantor

Must be an immediate family member. A co-signer or guarantor is someone who not registered on the title or mortgage, but they are guaranteeing that payments will be made in the case that the mortgage defaults.

___________________________

Conditional Offer

A conditional offer means that the buyer offers to buy a home from the seller as long as specific conditions (i.e. financing, home inspection and sale of current home) are met within a specific period of time. The buyer and seller will both need to meet these conditions within the timeframe, which is usually 2-7 days, for the purchase to go through. If the conditions are not met, the offer is considered void and the deposit will be returned to the buyer. 

___________________________

Conventional Mortgage

A Conventional mortgage applies to homebuyers who have a down payment that is 20% or higher to put towards the purchase of their home. These homebuyers do not have to buy mortgage default insurance. For homes being purchased over a million dollars, you are required to put down at least 20% and have a conventional mortgage.

___________________________

Convertible Mortgage

This is a variable mortgage that can be converted into a fixed rate mortgage at any time without incurring a penalty. You will be granted the fixed rate posted at the time of conversion.

___________________________

Cost of Borrowing

The cost of borrowing is the total costs included in getting your mortgage. These costs include lawyer fees, appraisal fees and property insurance. It does not include all charges, such as optional insurance, penalties for prepaying and any other optional fees not directly associated with the purchase. The costs are averaged out into the Annual Percentage Rate.

___________________________

Credit Score

A credit score is like a mark given to you based on the repayment history of your credit facilities, such as credit cards, lines of credit and auto loans. It represents a judgement of the risk you pose to money lenders at a specific point in time, the higher the score the less risk you pose. Credit reporting agencies such as Equifax and Transunion use a scale between 300-900 to indicate credit worthiness. For more information, please visit this link: https://www.equifax.com/personal/education/credit/score/

___________________________

Debt Service Ratios 

The ratios that show a borrower's debt to income expressed as a percentage. Debt Service ratios are the fundamental calculations used by lenders to determine how much a borrower can afford to borrower to purchase a home. There are two ratios, GDS and TDS. GDS (Gross Debt Service Ratio) overviews the monthly costs of carrying, while TDS (Total Debt Service Ratio) includes monthly carrying costs as well as other debt commitments like auto leases and any loans. 

___________________________

Deed

This is a document that confirms the ownership of a property.

___________________________

Default 

When a borrower fails to make their mortgage payments, this can lead to them to default on their mortgage. This means that the borrower failed to meet the obligations of their mortgage contract with their lender. This can lead a borrower to lose their home if the proper steps are not taken.  

___________________________

Deposit

A deposit is payment that is required for your home purchase that is paid, in trust, to a real estate brokerage or lawyer representing the seller. The amount is often around 5% of the total home purchase (the minimum down payment percentage for a homebuyer in Canada) ie. $25,000 on the purchase of a $500,000 home.

___________________________

Down Payment

A down payment is the amount of money that a home buyer is paying towards the purchase price of a home. For example, if you are buying a home for $800,000 and you have $160,000 to put towards the purchase price, this means that your down payment is $160,000. It is important to note, however, that your down payment should not take up all of the money you have allocated to your home purchase, as there are other closing costs (land transfer fee, real estate lawyer, etc) that you will need to account for. In Canada, the minimum down payment for a mortgage is 5%. 

___________________________

Early Mortgage Renewal

Certain lenders will provide their borrowers with the ability to renew their mortgage up to 12 days before the end of their term. Often times this is done to lock the borrower into their mortgage before they can shop around for something better. Our Homewise team is aware of this and will always work to provide our borrowers with a better mortgage than what is first offered.

___________________________

Estoppel Certificate (Status Certificate) 

Now called a Status Certificate, a status certificate is provided by a condominium corporation to the owner of the condo unit. It is required by lenders to confirm that the condominium corporation is in good order, has no legal issues and has enough reserve funds for continued operation. Generally it is a way for the lender to ensure that the condominium will be in good shape moving forward.

___________________________

Financial Statements

Financial statements are an overview of a company owner’s business' financial data, which would include their balance sheets, income statements as well as the Statement of Retained Earnings, Statement of Changes in Financial Position (SCFP) and the Notes to the Financial Statements and other key supporting documents. It presents the entity's current financial position.. These are formal records of the financial activities of a business. They are statements that provide an overview of the profitability and financial condition of the business in the short and long term.

___________________________

First Mortgage

A first mortgage means that a mortgage was registered first, and I was done so before any other mortgages on the property. A second mortgage occurs when a mortgage is registered after the first mortgage. A mortgage that is registered after the second mortgage is a third mortgage. In general, the chronological order in which liens are registered on title determines their priority. So a first mortgage must be paid out before a second mortgage. The exception to that is property tax arrears. If a homeowner accumulates property tax arrears over the years, and then sells their house, those arrears must be paid out before any mortgage debt. 

___________________________

First-Time Home Buyer 

Someone who has never purchased a Real Estate Property. FTHB can apply for tax rebates both provincially and sometimes municipally (in the case of buying property in Toronto). If a borrower is a FTHB it is important to note that on their application to take advantage of the potential savings. 

___________________________

First-Time Home Buyers' Tax Credit (HBTC) 

A non-refundable tax credit of a maximum of $750 that is provided by the federal government for qualifying first-time home buyers. The tax credit can be claimed on line 369 of the borrower's personal tax return. 

___________________________

Fixed Rate Mortgage

A fixed rate mortgage is a loan where the rate stays the same through the term of the loan. For example, if you have a rate of 2.93% on a 5-year fixed mortgage, the rate will be the exact same all 5 years of the term and your payments will not change. 

___________________________

GDS (Gross Debt Ratio) 

A ratio used by lenders to determine how much a borrower can afford each month to own a home. The ratio takes into account the mortgage payment, utilities and property taxes, then divides it into gross monthly income. The industry standard GDS is 32%. If a borrower is at or below 32% the borrower will have confidence that the borrower can afford monthly payments. The maximum GDS is allowed is 39%. 

___________________________

Gift Letter

A gift letter is a document that overviews and outlines the terms of a down payment gift for a real estate purchase. Simply put, it shows the portion of the down payment that will come from a source/someone (such as a family member) other than the purchaser. This is money that is meant for the down payment and is not to be repayable by the buyer. 

___________________________

Gross Income

A potential borrowers total personal income before any deductions or taxes.

___________________________

GST/HST on a New Home Purchase 

A tax that only comes into effect on the purchase of a brand new build (and in specific provinces). 

___________________________

Guarantor

Someone that “Guarantees” a mortgage. This person agrees that they will make mortgage payments on behalf of the borrower if the borrower is not able to. Lenders will require that a borrower provide sign with a guarantor in order to qualify for the loan.

___________________________

Home inspection

Many people will have a conditional offer on a home based on a home inspection. The home inspector will generate a report that will assess the condition of the home. This allows potential homebuyers to get a full picture of the potential home they are buying as well as the extra costs and hidden issues they may not be aware of (i.e. old roof that will need replacing). Cost is generally $400-600. Sometimes a seller will provide their own home inspection to all potential buyers. 

___________________________

High Ratio Mortgage

A High-Ratio Mortgage applies to homebuyers who have a down payment between 5% and 19.9%. To qualify for a home purchase, these homebuyers will need to purchase mortgage default insurance and will need proof of employment, a strong credit score and an amortization period of a maximum of 25 years. A high ratio mortgage is also called an insured mortgage because potential borrower's must qualify based on insurable guidelines. However, since the new rule changes, these guidelines now apply to everyone equally, no matter the down payment. 

___________________________

Home Buyer's Plan - RRSP Plan (HBP) 

A plan implemented by the Canadian government that enables home buyers to borrower up to $25,000 of their RRSP. This is a tax-free benefit that helps Canadian purchase their home. It is important to note that this is not a loan and it must be repaid within 15 years. 

___________________________

Home Equity

This is the difference between the total value of a borrower's home against the values of the total debt registered on title.

___________________________

HELOC (Home Equity Line of Credit)

A Line of Credit that is secured by a home and offers a lower interest rate than a standard Line of Credit. The LOC is made available to a borrower after the home closes and enables the homeowner to borrow up to 65% of the value of their home, minus the outstanding mortgage balance. The borrower's mortgage balance + HELOC cannot equal more than 80% of the value of the borrower's home. 

___________________________

Home Inspection 

Some buyers will have a conditional offer on their home based on a home inspection. The home inspector will generate a report that will assess the condition of the home. This allows potential homebuyers to get a full picture of the potential home they are buying as well as the extra costs and hidden issues they may not be aware of (i.e. old roof that will need replacing). Cost: $400-600

___________________________

Interest Adjustment Date

Any interest that is accrued between the borrower's closing date and the date of the first scheduled mortgage payment is known as interest adjustment. The date that a borrower must pay their interest is the interest adjustment date. As a quick note, mortgages are paid in 'arrears'. This means that a monthly mortgage payment on February 1st is for the mortgage amount due for January. 

___________________________

Interest Rate

Interest rate is a percentage of the loan the bank or lender charges in order borrow money from them, usually expressed in an annual basis. Essentially it is the cost of the debt you take on in order to purchase the property.

___________________________

Job Letter

A job letter is a document that is provided by the borrower’s employer that lists out the borrower’s position as an employee, their length of employment as well as their income.

___________________________

Land Transfer Tax

All provinces (and some cities, such as Toronto) have a land transfer tax varied by location. It is calculated as a percentage of the purchase price of your home. First Time Home Buyers can get a rebate on their Land Transfer Tax in certain provinces, such as Ontario

___________________________

Land Transfer Tax Rebate 

A rebate provided to first-time home buyers in Ontario, PEI, British and British Columbia. Toronto residents are also eligible for an additional rebate. 

___________________________

Lender 

A bank, credit union, private lender or financial institution that lends home buyers money to purchase their property. 

___________________________

Loan to Value (LTV) Ratio

The amount of money the borrower needs for their mortgage vs. the price of the total home. For example, a $160,000 mortgage for a home valued at $800,000 is a LTV of 20%. An LTV of 20% or higher (conventional) does not need mortgage default insurance. A LTV of 19.99% or below is a high-ratio mortgage that needs mortgage default insurance.

___________________________

Lump Sum Payment

The amount your lender will allows a borrower to pay as a lump sum (single payment) annually on the anniversary of the first day of the mortgage. Some lenders allow up to 20%, while others allow up to 15%. Some lenders do not allow any pre-payments. This lump sum goes directly to paying off your mortgage principal and therefore helps borrowers pay less interest on their mortgage and save money.

___________________________

Market Value 

Also called the 'assessed value'. An appraisal is done to determine the price that a homeowner could sell their home for in the current market. 

___________________________

Master Business Licence

A document that is needed for sole proprietors or business owners. The document may be requested by the lender as proof that the applicant (Borrower) owns their respective business. It serves as proof that the business is operational and registered.

___________________________

Maturity Date

The final day of the mortgage term. All outstanding balances are due on this day. This means that a borrower has the ability to switch/refinance to a different lender, or to renew with their current lender, with a new interest rate, term and sometimes, amortization length.

___________________________

Maximum Affordability

The maximum mortgage loan amount that a lender is willing to provide a borrower to purchase a home as laid out in a pre-approval. 

___________________________

Monthly Mortgage Payment 

A mortgage payment that is made once a month. This means that a borrower makes 12 payments in a year. 

___________________________

Mortgage

A loan that is secured using real estate as the collateral, used to purchase a home. 

___________________________

Mortgage Application

The document that we submit to the lender on a borrower's behalf in order to approve their mortgage loan. The mortgage application includes the borrower(s) financial and background information as well as key property information. It is used to determine how much the lender is will to lend to the borrower, as well as for how long and at which interest rate. The mortgage application will also include a credit pull as well as key documentation (such as NOA and T4). 

___________________________

Mortgage Approval 

A borrower can only be approved for a mortgage if they have an accepted purchase and sale agreement (aka they have purchased a property). Mortgage approval is the step to take when a borrower needs financing for a specific property at a specific date. A mortgage approval will determine the lender, and set out all the terms and conditions of the mortgage, including rate and prepayment privileges.

___________________________

Mortgage Broker / Agent

A specialist that is licenced by the provincial financial services commission and has access to multiple lenders, mortgage rates and features. A mortgage broker does the work for a consumer to shop around to find them the best mortgage - negotiating on their behalf. At Homewise, our mortgage brokers do the work for our users and utilize our lender relationships and volume discounts to find our users a great mortgage. 

___________________________

Mortgage Default Insurance

Required if a down payment is less than 20% of the price of a borrower’s home (sometimes called CMHC Insurance). The role of this insurance is a protection for the lender in the case that the buyer defaults on their loan (cannot pay it off). It is processed through the mortgage. It may also be acquired under other circumstances.

___________________________

Mortgage Interest Rate

Interest rate is a percentage of the loan the bank or lender charges in order borrow money from them, usually expressed in an annual basis. Essentially it is the cost of the debt you take on in order to purchase the property.

___________________________

Mortgage Life Insurance

Also called creditor insurance, mortgage life insurance protects the home against the borrower’s death. It pays off the remaining mortgage debt if the borrower dies.

___________________________

Mortgage Penalties

If a mortgage term is terminated before the date of maturity there may be penalties, depending on the mortgage product. Banks and lenders will generally charge the greater of two different penalties - the Interest Rate Differential or 3 months of interest. Every lender is different, as some have more stringent restrictions. Also, fixed mortgages generally have a higher breakage fee than variable. Homeowners will break a mortgage for multiple reasons, which include: switching to a lower rate, home sale, divorce or lost job. Our Homewise team can provide suggestions on how to manage this situation. We also ask questions in signup to understand if you are someone likely to break their mortgage.

___________________________

Mortgage Pre-Approval

A lender will evaluate a potential homeowner down payment amount, credit score and debt service ratios (and sometimes application and tax/income documentation) to determine their maximum home affordability. If a lender pre-approves a borrower, this means that they can have a 30-120 day (depending on the lender) rate-hold with the specific lender that guarantees the rate for the specific period. Pre-approval gives a potential homeowner the ability to search for a home with the peace of mind that they can spend to a certain level and have a lender provide them with a mortgage. 

___________________________

Mortgagee

The bank or lending institution that provides the funds.

___________________________

Mortgagor

The borrower that is receiving the mortgage.

___________________________

Mortgage Renewal

When a borrowers mortgage term ends, if there is still a balance left on their mortgage, they will need to renew their mortgage. Many lenders will try to lock in their borrowers 6 months before the renewal date. So it is very important to shop around to find the best mortgage before that point. Homewise provides mortgage renewal options from multiple lenders to help our users easily find a better mortgage. 

___________________________

Mortgage Statement

This is a document that is provided if an applicant (borrower) already has a mortgage and is needed when a borrower is looking to switch or refinance their mortgage. It is supplied by the homeowner’s current lender detailing the details of the mortgage. This includes the balance, the interest rate, time remaining as well as other pertinent information.

___________________________

Mortgage Term

The length of the contract that your current mortgage will be in effect. This includes all of the terms of the mortgage that your current contract with a lender includes, including your interest rate. At the end of your term, you will need to renew your mortgage with your current lender, or refinance/switch with a new lender. (Note, if you are able to pay off your mortgage at the end of your term, you will not need to renew or refinance)

___________________________

MLS Listing

The MLS listing is the real estate listing of the property within a database. It provides a series of key information about the home that was purchased. When you purchase a property, the lender will always ask for a copy of the electronic listing.

___________________________

New to Canada Mortgage 

Home buyers that are new to Canada have different rules and steps in the process. This includes submitting extra documentation as well as the potential to need to get mortgage default insurance under a new to Canada program. 

___________________________

Notice of Assessment (NOA)

The NOA is a document that is issued by the federal government when an individual’s personal tax return has been completed and filed. The NOA shows a break down the income from the past year as well as the balance owing or the refund. The NOA acts as confirmation from the Canada Revenue Agency that an individual has completed their tax filings for the year. 

___________________________

Offer to Purchase 

A document that the home buyer's real estate agent drafts as the initial offer to the seller. As part of the offer to purchase, the home buyer usually provides a deposit. 

___________________________

Open Mortgage  

An open mortgage enables a borrower to repay their mortgage, in part or whole, at any time without any penalties or notice. Open mortgages are useful if a home buyer knows that they will be moving out within a short period of time, or if they are coming into a large amount of money from a home sale or inheritance and wants to pay off their mortgage quickly. 

___________________________

Pay Stub

A paystub validates an employee’s income and is often requested by lenders. It is a document that is provided by the borrower’s (employee's) employer each time that the borrower is paid. This may be by cheque, direct deposit or other forms of payment. The paystub is often used to validate that the job letter and application accurately reflect each other.

___________________________

PITH 

Mortgage principal + Interest + Taxes + Heating. The monthly housing costs used to calculate debt service ratios to determine home affordability.

___________________________

Portable Mortgage

If a borrower is selling their property to buy another home, a portable mortgage allows them to transfer their existing mortgage to a new property without incurring any early payout penalties. This includes the transfer of their mortgage balance, interest rates and terms and conditions.

___________________________

Payment Frequency

The schedule at which you choose to pay off your mortgage. This can be monthly, semi-monthly, weekly, bi-weekly, accelerated weekly, and accelerated bi-weekly

___________________________

PIPEDA Consent  

This is a consent form that allows our Homewise team to use the applicant’s (borrower) personal information for the purposes that are laid out on the consent form.

___________________________

Pre-Approved Mortgage

Some lenders will pre-approve a mortgage for a borrower- which basically outlines the amount of money they are willing to lend and at what rate. This process is done before a home has been found. The pre-approval generally is a guarantee of an interest rate from anywhere from 30-120 days on a fixed mortgage, so it can also be called a rate hold. Pre-approvals are free and are highly recommended for borrowers so that they can know how much they can afford to borrower based and can budget accordingly.

___________________________

Prepayment Options 

Prepayment options enable a borrower to pay off their mortgage principal more quickly through mortgage payment prepayments (increasing the amount a borrower pays per mortgage payment) or lump sum payments (increasing the borrowers payments on the anniversary of your mortgage funding date). Most lenders allow these options, it is just a question of by how much the percentage will be.

___________________________

Prepayment Penalty

When a borrower needs to break their mortgage early they will incur a prepayment penalty. A fixed rate mortgage will incur a penalty of the greater of three months of interest or the interest rate differential. A variable rate mortgage holder will have a penalty of only the three months of interest. 

___________________________

Prime Rate

Based on the Bank of Canada’s overnight lending rate, the prime rate is an interest rate that is set by banks and lenders. The prime rate will generally move in tandem with the overnight lending rate. Borrowers with a variable rate mortgage should always be aware of these changes as it affects their mortgage payments or amortization schedule.

___________________________

Prepaid Utility or Property Tax Bills

Sometimes, a seller will have paid property taxes or utility bills that are prepaid for the time that you will live in the home. Buyers will need to reimburse the previous owner for these payments.

___________________________

Principal (Mortgage Balance)

The total sum of the money that a home buyer is borrowing from a lender for their property. The principal does not include interest costs or any other associated fees.

___________________________

Private Mortgage 

When someone cannot qualify for a prime or bad credit mortgage a private mortgage provides a backup option for a short-term loan. Private mortgages have an amortization length of between 1-3 years. During that time, the borrower will only pay off interest that is accumulated every month. Interest rates are much higher with a private mortgage and can range anywhere from 8-18% as the private lenders are taking on a greater risk. Generally, at the end of the term, the borrower will transfer their mortgage to a traditional lender. 

___________________________

Proof of Down Payment

This is shown to prove that an actual transfer of funds has happened to purchase the home in the initial offer. Generally this amounts to roughly 3-5% of the price of the home and was provided by the borrower to the seller's representation (real estate brokerage or lawyer) during the home purchase.

___________________________

Property Insurance

Property insurance is required for all lenders in a home purchase. It covers losses due to fire, vandalism and other risks. Depending on the level of coverage (i.e. $1 Million of coverage), the cost will be roughly $50-60 per month.

___________________________

Property Tax 

Tax payments that vary by municipality/Province and are calculated as a percentage of the value of a borrower's home. 

___________________________

Property Tax Statement / Tax Bill

The municipal/provincial tax authority will provide this document to the homeowner in the jurisdiction where the property is located. The tax bill overviews the amount of taxes that are payable by the homeowner. It is obtained during a refinance or a switch to ensure that property taxes are up to date in their payments.

___________________________

Purchase Price

The purchase price that a buyer has agreed to pay for a home. The purchase price does not include any other fees such as closing costs, land transfer tax or interest. It is also different than the market value of a home. 

___________________________

PST on CMHC Insurance (ON, MB, SK and QC)

This is a tax that is paid before closing based on total cost of the required CMHC Insurance

___________________________

Rate Hold 

A period of time that a lender will hold a potential home buyers mortgage rate (usually between 30-120 days depending on the lender). This locked in rate will be honoured during the full hold time and if the rate does drop, most lenders will allow the borrower to use the lower rate. 

___________________________

Real estate lawyer (and disbursements)

One of the most important part of a purchase or refinance is to find a lawyer who will act on your behalf. A real estate lawyer will prepare, register and record all official documents for the purchase/refinance. These will be the final documents that a homebuyer signs. The real estate lawyer will also be responsible for getting the keys from the seller.

___________________________

Refinance / Switching a Mortgage 

For individuals that already have a mortgage on a property but would like to inquire about moving the mortgage to another institution and/or increasing their balance. A borrower would switch mortgages to see if there is a better option for them, or they would to refinance their mortgage to take-out existing equity. Be advised, if a borrower is looking to refinance/switch their mortgage, the maximum amount they can borrow is 80% of the value of your property.

___________________________

Second Mortgage 

If a borrower already has a mortgage and needs to take out another mortgage it is called a second mortgage. Mortgage rates on a second mortgage are always higher than a first mortgage as there is more risk for the lender. This is because the first mortgage is paid off first by the property if the borrower was to default on their mortgage. 

___________________________

Self-Employed Mortgage 

When a potential home buyer is self-employed there are different steps to the process that they will have to go through. This includes other documentation such as personal tax Notices of Assessment and sometimes third-party income validation. Some lenders cater more to self-employed borrowers. During the Homewise application process we are users if they are self-employed to ensure that we find them a mortgage best suited to their unique situation.  

___________________________

Skipped Payment 

Some lenders will allow their borrowers to skip anywhere between 1 and 4 payments each year. This enables a borrower to take a break from their payments if they want to afford a major purchase. It is important to note that skipping a payment means that a borrower will not be making their regular mortgage payment, so they will not be paying down their mortgage balance and the interest will still be charged and added to their mortgage balance. 

___________________________

Statement of Adjustments 

On the mortgage close date, statement of adjustment documents are made for both the buyer and seller. These respective statements are developed by the real estate lawyers and overviews the costs that each will have to pay on the date of closing.  

___________________________

Status Certificate

Formerly known as an Estoppel Certificate, a status certificate is provided by a condominium operation to the owner of the condo unit. It is required by lenders to confirm that the condominium corporation is in good order, has no legal issues and has enough reserve funds for continued operation. Generally it is a way for the lender to ensure that the condominium will be in good shape moving forward.

___________________________

Stress Test (B-20)

It is a system that was implemented to test homebuyer's ability to afford their mortgage payments if interest rates were to go up. This test existed for insured mortgages already (someone who is borrowing more than 80%), but this test now applies to all mortgages in Canada. The Federal Government implemented this test as they are concerned with Canada's level of debt. With the hindsight of the housing crash in the US in 2008, their goal is to ensure the Canadian economy stay strong and that homeowners will be able to afford their homes.

___________________________

T1 General (Tax Return)

A T1 General / Tax Return is generally requested if there is commission based income. Lenders will need the two most recent years. This is a tax form that is required to be finalized by a taxpayer (borrower) and submitted to the CRA (Canada Revenue Agency). It overviews income as well as deductions, any expenses and more as prescribed by the Income Tax Act.

___________________________

T4

Borrowers will need to provide at least 2 years of their T4 as part of an application. A T4 is a document that is required by law for employers to provide to their employees who have employment income (such as salary or hourly income) so that they can file their tax return. The T4 specifies the amount of income that they employee (borrower) earned in a one year period, as well as any deductions that were taken from the earnings.

___________________________

T4A

Borrowers will need to provide at least 2 years of their T4A as part of an application. A T4A is a document that is required by law for employers to provide to their employees who have employment income that is self-employed commission based income or income that is not listed on the T4. The T4A specifies the amount of income that they employee (borrower) earned in a one year period (which can include income tax deducted if it is self-employed commission)

___________________________

Term

The length of the contract that your current mortgage will be in effect. This includes all of the terms of the mortgage that your current contract with a lender includes, including your interest rate. At the end of your term, you will need to renew your mortgage with your current lender, or refinance/switch with a new lender. (Note, if you are able to pay off your mortgage at the end of your term, you will not need to renew or refinance)

___________________________

Terms and Conditions

An important section for borrowers to overview as part of a mortgage agreement. Some important terms to review are: if the mortgage is portable, what prepayment options are available, if the mortgage is a collateral mortgage and prepayment penalties. 

___________________________

Title

Title designates the ownership of a specific property.

___________________________

Title Insurance

Title insurance provides coverage for all of the title-related risks that are associated with real estate transactions. This includes situations such as fraud, forgery, missing heirs, among others. It protects the homeowners’ rights of ownership.

___________________________

TDS (Total Debt Service Ratio) 

A ratio used by lenders to determine how much a borrower can afford each month to own a home based on their total debt commitments. The TDS includes monthly carrying costs as well as other debt commitments like auto leases and any loans. The ratio takes into account the mortgage payment, utilities, property taxes, and minimum debt payments, then divides it into gross monthly income. The industry standard TDS is 40%. If a borrower is at or below 40% the borrower will have confidence that the borrower can afford monthly payments. The maximum GDS is allowed is 44%. 

___________________________

Utilities 

Monthly payments that a borrower will have to pay on top of their mortgage. This includes services such as hydro, gas, cable, internet, water, etc.  

___________________________

Variable Rate Mortgage

A variable rate mortgage is a loan where the rate may change up or down over the term of the mortgage based on market conditions. For example, if you have a 2.7% 5-year variable mortgage, the rate may go down to be 2.6% on year 2 and 3, it may go up to 2.8% on year 4 and 5. Monthly payments will stay the same, however, the amount of interest paid off will change based on the rate.

___________________________

Weekly Mortgage Payment 

Mortgage payments that occur every week. The payment is calculated by multiplying the monthly mortgage payment by 12 and dividing it by 52 equal payments.

___________________________

Zoning

This is the zone designations based on geography that are set out municipally.

0 minutes to read

More answers to
Your Questions