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The period of time required to reduce the mortgage debt to zero when all regular blended payments are made on time and provided the terms (payment and interest rate) remain the same.
An independent assessment of the property’s value by a qualified individual.
The increase in value of something because it is worth more now than when you bought it.
Assuming a mortgage
Taking over the previous owner’s (or builder’s) mortgage when you buy a property.
A mortgage payment that includes principal and interest. It is paid regularly during the term of the mortgage. The payment total remains the same, although the principal portion increases over time and the interest portion decreases.
Buy down rate
This is 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.
An interest rate with a pre-determined ceiling – usually associated with a variable-rate mortgage.
A mortgage that cannot be prepaid or renegotiated before the term’s end unless the lender agrees and the borrower is willing to pay an interest penalty. Many closed mortgages limit prepayment options such as increasing your mortgage payment or lump sum prepayment (usually up to 20% of your original principal amount).
Costs that are in addition to the purchase price of a property and which must be paid on the closing date. Examples include legal fees, land transfer taxes, and disbursements.
The date on which the sale becomes final, the new owner takes possession of the property and funds are transferred from the purchaser to the vendor.
Canada Mortgage and Housing Corporation (CMHC):
CMHC is a federal Crown corporation that administers the National Housing Act (NHA). Among other services, they also insure mortgages for lenders that are greater than 75% 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 “Hi-Ratio” mortgages.
Commitment Letter/Mortgage Approval
Written notification from the mortgage lender to the borrower that approves the advancement of a specified amount of mortgage funds under specified conditions.
An Offer to Purchase that is subject to specified conditions, for example, the arrangement of a mortgage. There is usually a stipulated time limit within which the specified conditions must be met.
A mortgage where the borrower is contributing more than 20% or more of the value of the property as the down payment.
A mortgage that you can change from short-term to long-term, depending on your financial needs.
If your original offer to the vendor is not accepted, the vendor may counteroffer. This means that the vendor has amended something from your original offer, such as the price or closing date. If a counteroffer is presented, the individual has a specified amount of time to accept or reject.
The main report a lender uses to determine your creditworthiness. It includes information about your ability to handle your debt obligations and your current outstanding obligations.
Curb Appeal: How attractive the home looks from the street. The first impression you have of a home is important. A home with good curb appeal will have attractive landscaping and a well-maintained exterior.
Debt service ratio
The percentage of the borrower’s income used for monthly payments of principal, interest, taxes, heating costs and condo fees (if applicable).
A legal document that is signed by both the vendor and purchaser, transferring ownership. This document is registered as evidence of ownership.
A homeowner is ‘in default’ when he or she breaks the terms of a mortgage agreement, usually by not making required mortgage payments or by not making payments on time.
Failing to make a mortgage payment on time.
Money placed in trust by the purchaser when an Offer to Purchase is made. The sum is held by the real estate representative or lawyer/notary until the sale is closed and then it is paid to the vendor.
The decrease in value of something because it is now worth less than when you bought it.
The money that you pay up-front for a house. Down payments typically range from 5%-20% of the total value of the home.
This is where someone else has the right for access to or over another person’s land for a specific purpose, such as a driveway or public utilities.
The difference between the market value of a property and the amount owed on the property. This difference is the amount a homeowner actually owns outright.
Also called a certificate of status, it is a certificate that outlines a condominium corporation’s financial and legal state. Fees may vary and may be capped by law (does not apply in Quebec).
Foreclosure: The legal process where the lender takes possession of your property and sells it to cover the debts you have failed to pay off. When you default on a loan and the lender feels that you are unable to make payments, you may lose your home to foreclosure.
Gross Debt Service Ratio (GDS): The percentage of the borrower’s gross monthly income that will be used for monthly payments of principal, interest, taxes and heating costs (P.I.T.H.) and half of any condominium maintenance fees.
High ratio mortgage
A mortgage where the borrower is contributing less than 20% of the value of the property as the down payment.
A visual inspection of the major components of a home by a qualified individual, who will give the home buyer a true and unbiased picture of the home’s condition.
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 in full if you die.
The cost of borrowing money. Interest is usually paid to the lender in regular payments along with repayment of the principal (loan amount).
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.
Land transfer tax
A tax that is levied (in some provinces) on any property that changes hands.
Legal fees and disbursements
Some of the legal costs associated with the sale or purchase of a property. It is in your best interest to engage the services of a real estate lawyer (or a notary in Quebec).
A claim against a property for money owing. A lien may be filed by a supplier or a subcontractor who has provided labour or materials but has not been paid.
The ratio of the loan amount to the lending value of a property expressed as a percentage. For example, the loan-to-value ratio of a loan for $90,000 on a home which costs $100,000 is 90%.
Lump Sum Prepayment
An extra payment, made in lump sum, to reduce the principal balance of your mortgage, with or without penalty. A closed mortgage typically restricts the amount and frequency of the prepayments you can make. With an open mortgage, however, you can make a lump sum prepayment at any time without penalty. Making prepayments can help you pay off your mortgage sooner and ultimately save on interest costs over the life of your mortgage.
The last day of the term of the mortgage. On this day, the mortgage loan must either be paid in full or the agreement renewed.
MLS — Multiple Listing Service
A multiple listing service is a real estate agents’ cooperative service that contains descriptions of most of the homes that are for sale. Real estate agents use this computer-based service to keep up with properties they are listing for sale in their area.
A loan that you take out in order to buy property. The collateral is the property itself.
Mortgagee is the lender; mortgagor is the borrower.
A company or individual who helps the homeowner find the right financing to buy a property. A broker does not actually lend money but seeks out a lender and arranges the mortgage terms. This may include negotiating with the lender for the best possible deal for the homebuyer.
Mortgage default insurance
Required if you are contributing between 5% and 20% of the value of the property as the down payment.
Mortgage Life Insurance
Mortgage life insurance provides coverage for your family should you die before your mortgage is paid off. This insurance can be purchased through your lender and the premium added to your mortgage payments. However, you may want to compare rates for equivalent products from an insurance broker.
Mortgage Loan Insurance
If you have a high-ratio mortgage (more than 80% of the lending value of the property) your lender will probably require mortgage loan insurance, which is available from CMHC or a private company.
The percentage interest that you pay on top of the loan principal. For example, you may take out a mortgage of $100,000 at a rate of 12%. Your monthly payments will consist of a portion of the original $100,000, plus 12% interest.
The length of time the interest rate is guaranteed for a mortgage. Mortgage terms normally rate from six months to five years or more, after which you can repay the balance of the principal owning or re-negotiate the mortgage at current rates.
A regularly scheduled payment that is often blended to include both principal and interest.
The cost hiring of packers, movers or renting a van.
Your financial worth, calculated by subtracting your total liabilities from your total assets.
New Home Warranty Program
A guarantee that if something covered under the warranty needs to be repaired it will be. If the builder doesn’t repair it, the repair will be made by the organization that provided the warranty. All provinces and Yukon Territory have New Home Warranty programs for newly built homes. However, there are currently no such programs in Nunavut or the Northwest Territories.
Offer to purchase/conditional offer
A written contract outlining the terms under which the buyer agrees to purchase the property. There may be conditions attached to the offer, for example: offer being subject to arranging the mortgage or selling a home.
A mortgage which you can pay off, renew or refinance at any time. The interest rate for an open mortgage is usually higher than a closed mortgage rate.
The expenses that a homeowner has each month to operate a home. These include property taxes, property insurance, utilities, telephone and communications charges, maintenance and repairs.
The amount that you borrow for a loan. Each monthly mortgage payment consists of a portion of the principal that must be repaid plus the interest that the lender is charging you on the outstanding loan balance. During the early years of your mortgage, the interest portion is usually larger than the principal portion.
Principal, interest, taxes and heating — costs used to calculate the Gross Debt Service ratio (GDS).
Transferring an existing mortgage from one home to a new home when you move. This is known as a “portable” mortgage.
Pre-approved mortgage certificate
A written agreement that you will get a mortgage for a set amount of money at a set interest rate. Getting a pre-approved mortgage lets you shop for a home without worrying how you’ll pay for it.
Pre-paid property tax and utility adjustments
The amount you will owe if the person selling you the home has pre-paid any property taxes or utility bills. The amount to reimburse them will be calculated based on the closing date.
Repaying part of your mortgage ahead of schedule. Depending on your mortgage agreement, there may be a penalty for pre-paying.
Insurance that you buy for the building(s) on the land you own. This insurance should be high enough to pay for the building to be re-built if it is destroyed by fire or other hazards listed in the policy.
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 the property survey for a fee.
Taxes charged by the municipality where the home is located based on the value of home. In some cases the lender will collect a monthly amount to cover your property taxes, which is then paid by the lender to the municipality on your behalf.
Increasing the amount of your current mortgage, at a new interest rate. The term of the new mortgage must be equal to or greater than the term remaining on your current mortgage.
Once the original term of your mortgage expires, you have the option of renewing it with the original lender or paying off all of the outstanding balance.
This amount is set aside by the homeowner on a regular basis so that funds are available for emergency or major repairs. Setting aside 5% of your monthly take-home pay will give you a well-funded reserve.
Taxes applied to the purchase cost of a property. Some properties are sales tax exempt (GST and/or PST), and some are not. For instance, residential resale properties are usually GST exempt, while new properties require GST. Always ask before signing an offer.
The extra costs payable for hooking up hydro, gas, phone, etc. to a new address.
Survey or Certificate of Location
A document that shows property boundaries and measurements, specifies the location of buildings on the property and states easements or encroachments.
The term of a mortgage is the length of time that the mortgage conditions, including the interest rate you pay, are carried out. Terms are usually between six months and ten years. At the end of the term, you either pay off the mortgage or renew it, possibly renegotiating its terms and conditions.
A freehold title gives the holder full and exclusive ownership of the land and building for an indefinite period. A leasehold title gives the holder the right to use and occupy the land and building for a defined period.
Insurance against loss or damage caused by a matter affecting the title to immoveable property, in particular by a defect in the title or by the existence of a lien, encumbrance or servitude.
Total Debt Service Ratio (TDS)
The percentage of gross monthly income required to cover the monthly housing payments and other debts, such as car payments.
Variable rate mortgage
A mortgage with an interest rate that changes with the market. The rate changes each month, so the portion of your monthly payment that goes towards interest may go up or down each month. But your total monthly payment will probably stay the same.
Vendor Take Back Mortgage
This is where the vendor rather than a financial institution finances the mortgage. The title of the property is transferred to the buyer who makes mortgage payments directly to the seller. These types of mortgages, sometimes referred to as take-back mortgages, can be helpful if you need a second mortgage to by a home.
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