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The legal contract a purchaser and seller get into. We recommend that you have your offer prepared by a professional realtor that has the knowledge and experience to satisfactory protect you with the most suitable clauses and conditions. Amortization Period Number of years designated to repay the mortgage loan based on a set of payments. Appraisal The process of determining the value of property, usually for lending purposes. This value may or may not be the same as the purchase price of the home. Assets What you own or can call upon. Often used in determining net worth or in securing financing. Beacon Score A score which is an indicator of how likely a consumer is to pay a loan or credit card as agreed. A beacon score is based solely on information in a credit file maintained by the credit reporting agencies. Blended Payments Equal Payments consisting of both a principal and an interest component, paid on a regular basis (i.e. weekly, bi-weekly, monthly) during the term of the mortgage. The principal portion increases, while the interest portion decreases over the term of the mortgage, but the total regular payment usually does not change over the term of the mortgage. Canada Mortgage and Housing Corporation (CMHC) The National Housing Act (NHA) authorized Canada Mortgage and Housing Corporation (CMHC) to operate a Mortgage Insurance Fund which protects NHA Approved Lenders from losses resulting from borrower default. Premium is paid by purchaser. 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 term deposit, Canada Savings Bond, or automobile, that you offer as security for a loan. Closed Mortgage A mortgage agreement that cannot be prepaid, renegotiated or refinanced before maturity, except upon payment of a prepayment penalty. Conventional Mortgage A mortgage that does not exceed 75% of the appraised value or purchase price of the property, whichever is less. Mortgage loan insurance is usually not required for this type of mortgage. Debt-Service Ratio The percentage of the borrower's gross income that will be used for monthly payments of principal, interest, taxes, heating costs and condominium fees. Deed (Certificate of Ownership) The document signed by the seller transferring ownership of the home to the purchaser. This document is then registered against the title to the property as evidence of the purchaser's ownership of the property. Deposit A sum of money deposited in trust by the purchaser when making an offer to be held in trust by the seller's agent, broker, lawyer or notary until the closing of the transaction. Equity The interest of the owner in a property over and above all claims against the property. It is usually the difference between the market value of the property and any outstanding encumbrances. Fire Insurance Before a mortgage can be advanced, the purchaser must have arranged fire insurance. A certificate or binder from the insurance company may be required on closing. Fire insurance should be effective as of closing date, not possession date. Fixed Rate Mortgage A mortgage for which the rate of interest is fixed for a specific period of time (the term). Foreclosure A legal procedure whereby the lender eventually obtains ownership of the property after the borrower has defaulted on payments. Gross Debt Service (GDS) Ratio The percentage of gross income required to cover monthly payments associated with housing costs. Most lenders recommend that the GDS ratio be no more than 32% of your gross (before tax) monthly income. 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 If you don't have 25% of the lesser of the purchase price or appraised value of the property, your mortgage must be insured against payment default by a Mortgage Insurer, such as CMHC. Holdback An amount of money required to be withheld by law by the lender during the construction or renovation of a house to ensure that construction is satisfactorily completed at every stage. 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. The interest cost for those days from the closing date to the first of the month are usually paid at closing. That is why it is always better to close your deal towards the end of the month. Maturity Date Last day of the term of the mortgage agreement. Mortgage The financial institution or person (lender) who is lending the money using a mortgage. Mortgagor The person who borrows the money using a mortgage Mortgage Life Insurance A form of reducing term insurance recommended for all mortgagors. In the event of the death, accidental dismemberment or terminal illness of the owner or one of the owners, the insurance can pay the balance owing on the mortgage. The intent is to protect survivors from loss of their home. Mortgage Critical Illness Insurance Mortgage Critical Illness Insurance is available as an enhancement to Mortgage Life Insurance. Mortgage Critical Illness Insurance is underwritten by the Canada Life Assurance Company. Complete details of benefits, exclusions and limitations are contained in the Certificate of Insurance. It is recommended for all mortgagors. It can pay off your TD Canada Trust mortgage - up to $300,000 - if you are diagnosed with life-threatening Cancer, Heart Attack or Stroke. Open Mortgage A mortgage which can be prepaid at anytime, without penalty. 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. Pre-Approved Mortgage Preliminary qualification by the lender of the borrower's application for a mortgage to a certain maximum amount and rate. Generally issued for a limited time only. Subject to limitations and final approval. Pre-Payment Penalty A fee charged by the lender when the borrower prepays all or part of a closed mortgage more quickly than as set out in the mortgage agreement. Principal The original amount of a loan before interest. Prime The lowest rate a financial institution charges its best customers. 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 Renegotiating your existing mortgage agreement. May include increasing the principal or paying out the mortgage in full. Renewal At the end of a mortgage term, the mortgage is up for renewal. If the mortgage is in good standing, new renewal terms are usually offered by the mortgage lender. The mortgage can also be transferred to another lender at no cost. Prepayment Option The right to prepay all or a portion of the principal balance. Prepayment charges may be incurred on the exercise of prepayment options. Second Mortgage This is usually at a higher interest rate and represents the difference between the appraised value of the house and first mortgage financing plus the down payment. Security In the case of mortgages, real estate offered as collateral for the loan. Survey A legal document specifying the exact location of the building on the property and describing the type and size of the building including additions, if any. Term The period of time the financing agreement covers. The terms available are: 6 month, 1,2,3,4,5,6,7 and 10 year terms, and the interest rates will be fixed for whatever term one chooses. Title Search A document setting out instruments registered against the title to the property - e.g. deed, mortgages, etc. Total Debt Service (TDS) Ratio The percentage of gross income needed to cover monthly payments for housing and all other debts and financing obligations. The total should generally not exceed 37% of gross monthly income. Variable-Rate Mortgage A Mortgage for which the interest rate fluctuates based on changes in prime. |
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