Accelerated Bi-weekly Payment
A mortgage repayment plan in which the borrower makes 26 payments per year instead of 24 which would be required if the payment plan called for four payments per month. The extra four payments each year have the effect of “accelerating” the repayment of the mortgage.
This refers to the process of paying off a mortgage in regular payments composed of both interest and principal. This is usually 25 years for a new mortgage, however can be up to a maximum of 35 years.
An independent, unbiased report that uses various analysis techniques and market research to determine the realistic value of a property.
An existing mortgage that can be taken over (assumed) by the buyer of a property when that property is sold.
Any payment of principal over and above the regular payment.
The rate at which the Bank of Canada charges loans to the chartered banks. This is the rate on which lending institutions base their prime lending rate.
The name given to the credit score published by Equifax. See also Empirica Score.
Regular equal mortgage payments combining, or blending, interest and principal components in one constant payment.
The rate that results from the blending of an existing mortgage and a new mortgage with differing interest rates into one consolidated mortgage. The calculation to determine the final rate takes into account both the interest rates and the amount of principal for each of the component loans.
A loan provided to borrowers to provide financing for purchase, pending closing of the sale of their existing property.
Canadian Association of Accredited Mortgage Professionals (CAAMP)
CAAMP is the only national organization representing Canada’s mortgage industry and administers the Accredited Mortgage Professional (AMP) designation.
Canada Mortgage and Housing Corporation (CMHC)
A Crown Corporation, which was initially created to administer the National Housing Act and is Canada’s only public sector mortgage insurer. CMHC is charged with administering government housing initiatives and works with community organizations, the private sector, non-profit agencies and all levels of government to help create innovative solutions to today’s housing challenges.
A loan based on the credit of the borrower and on the collateral for the mortgage. A conventional mortgage does not exceed 80% of the market value of the property. This means that the borrower must have 20% or more available for the down payment.
Mortgages with a convertible rate feature allow borrowers to fix the rate of their variable rate mortgage at any time with no penalty.
A single number that represents the information found in a borrower’s credit history. Equifax’s credit score is known as the Beacon Score, while TransUnion’s score is called the Empirica Score.
Debt Service Ratios
Ratios that are used to compare borrowers’ debts to their incomes to determine if they can afford loans
Double Up Option
A clause that may be included as part of an open mortgage contract, giving the borrower the opportunity to double the scheduled principal and interest payments.
The initial amount you put towards your purchase price.
Fixed Rate Mortgage
In a fixed rate mortgage the interest is determined and is set for the term of the mortgage. Fixed rate mortgages are most desirable when current interest rates are low.
Fully Open Mortgage
An open mortgage that allows principal payments to be made in any amount, at any time, in addition to regular mortgage payment, without penalty.
Gross Debt Service Ratio (GDS)
The percentage of the borrower’s income that is needed to make all payments for costs associated with housing. There is a maximum amount associated with this ratio to ensure that borrowers can afford to carry the debt.
High Ratio Mortgage
A mortgage is considered high ratio when the loan-to-value is 80% or more. This occurs when the borrower’s down payment is less than 20%of the property value.
An examination of the structure and mechanical systems to determine a home’s safety and makes the potential homebuyer aware of any repairs that may be needed.
Interest rate is the percentage charged on outstanding loan balances.
Interest Rate Differential Amount (IRD)
A compensation charge that may apply if you pay off your mortgage principal prior to the maturity date, or pay the mortgage principal down beyond the amount of your prepayment privileges. The IDR is calculated on the amount being prepaid using an interest rate equal to the difference between your existing mortgage interest rate and the interest rate that can now be charged when re-lending the funds for the remaining term. Most closed fixed-rate mortgage have a prepayment penalty that is the higher of 3-months interest or the IDR. Most variable-rate mortgages do not have IRD penalties.
Land or Property Transfer Tax
A tax paid on property that changes hands. First-time buyers may be eligible for a rebate in certain provinces. Calculated by 1% on the first $200,000 of fair market value and 2% on the portion greater than $200,000.
The cost paid to have a lawyer finalize the property transfer between the seller and the purchaser.
Loan-to-Value Ratio (LTV)
The amount of the mortgage loan compared to the value of the property. This ratio is calculated by the lender prior to providing the loan. The results of this calculation help to determine whether or not the applicant will qualify for a loan and whether the application, if approved, will be for a conventional loan or a high ratio loan.
Lump Sum Payment Option
A clause that may be included in an open mortgage allowing the borrower to prepay a portion of the principal if desired and in accordance with the specific terms of the contract.
The final day of the term of the mortgage, on which the balance of the mortgage owing becomes due.
A legal method by which a borrower can pledge property to a lender as security for a debt. In Quebec, this is referred to as a hypothec.
A mortgage broker acts as an intermediary who brokers mortgage loan on behalf of individuals or businesses.
Mortgage Loan Insurance (Mortgage Default Insurance)
Mortgage loan insurance enables home buyers to purchase a home with as little as 5% down payment. The amount of the insurance premium depends on the amount borrowed from the lender and ranges from .50% to 7% of the home purchase price less down payment. Most commonly an insurnance premium of 2.75% is required.
The replacement of current mortgage financing with new financing, usually to take advantage of different interest rate or financial conditions or the existing equity in the property.
The length of time the interest rate is guaranteed for a mortgage. Mortgage terms normally range from 6 months to 5 years or more, after which time the borrower can either repay the balance of the principal owing or re-negotiate the mortgage at current rates.
Nominal Interest Rate
Also known as the stated rate. This is the interest rate used to calculate interest payments. It differs from the effective interest rate.
An open mortgage allows a borrower to repay any amount of the principal at any time without notice or penalty. Mortgages may be partially open, having clauses that allow partial pre-payment at specified times, or in specified ways. For example,
- Double Up Option The opportunity to double the scheduled principal and interest payments.
- Lump Sum payment Option The choice to prepay a portion of the principal.
- No Cost Switching of Payment Option This option allows the borrower to change the payment schedule (monthly/semi-monthly/bi-weekly/weekly).
- Skip Payment Option This alternative grants the borrower the ability to skip a monthly payment without the mortgage going into default.
A mortgage with an option that allows a buyer to transfer a current mortgage to a new property (typically subject to credit approval and a property appraisal).
The sum of money (usually equal to an amount of interest) a lender may require from a borrower to repay all or part of any outstanding principal in advance.
The interest rate at which financial institutions lend to their best customers.
The amount upon which interest is paid.
This type of mortgage allows older consumers to convert their home equity into monthly cash payment(s), generally for living expenses. A homeowner’s equity is gradually drawn down by a series of monthly payments from the lender to the homeowner – the borrower. At the end of the loan period, or upon the death of the borrower, the loan balance is due, which is usually settled by the heirs who sell the property to meet the outstanding obligation.
A mortgage placed on real property which is already encumbered with one mortgage. Determination of first, second, third mortgage, etc. is determined by priority of registration (time and date).
Skip Payment Option
This is an example of a mortgage clause that may be added to an open mortgage. If this clause is part of the mortgage agreement, the borrower has the ability to skip a monthly payment without the mortgage going into default.
The term used in British Columbia to describe a licensed individual employed by a broker and working as a mortgage originator.
In a mortgage, term is the actual length of time for which the money is loaned. The term is usually shorter than the amortization period. At the end of the term the outstanding debt must either be refinanced at current market rates or paid off in full.
Title Insurance Policy
A contract by which the insurer, usually a title insurance company, agrees to pay the insured a specific amount for any loss caused by insured defects to title of a property, for which the insured has an interest as purchaser, lender or otherwise.
Total Debt Service Ratio (TDS)
One of the ratios used to determine whether or not a borrower is able to carry the debt load for a mortgage. The ratio is calculated as the percentage of annual income required to cover housing costs (GDS) plus any other loans that an individual has, such as those resulting in credit card and car payments. There is a maximum amount associated with this ratio to ensure that borrowers can afford to carry the debt.
This is the process undertaken by lenders and insurers to verify the mortgage application information and supporting documentation submitted, make an assessment of risk on both the applicant(s) and the property, and approve or decline the mortgage loan.
Variable Rate Mortgage
Is type of mortgage, also referred to as adjustable rate mortgage, is the opposite of a fixed rate mortgage. The interest rate on this loan may change during the term of the mortgage reflecting changes in the current market rates.
Vendor Take-Back Mortgage (or Seller Take-Back Mortgage)
A mortgage in which the vendor uses his or her own equity to provide some or all of the mortgage financing in order to sell the property.
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