Amortization – the length of time over which your mortgage is financed. This may be anywhere up to 30 years, with 25 years being the traditional amortization. Note that mortgage amortization is different than “mortgage term” which is the length of your agreement with the mortgage lender.
Assumable – this means that your mortgage MAY be taken over by another party if, for example, you sold your house and the buyer wanted to take over your mortgage payments. This may be of an advantage to a buyer if the rate on your mortgage is lower than current rates. Even though the mortgage is assumable, the borrower MUST qualify to the satisfaction of the mortgage lender.
Appraisal – The process of determining the value of property, usually for mortgage lending purposes. This value may or may not be the same as the purchase price of the home. A qualified appraiser physically inspects the property making note of condition, special features and then assesses the value including assessment of comparable properties.
Blend and Extend – Taking your existing mortgage and adding to the term and combining the old and new rate into a blended rate on a weighted basis. It can be a good way of avoiding prepayment penalties if you are moving and increasing the size of your mortgage.
Blended payment – usually refers to a payment that includes principal and interest.
Bridge Financing – This is temporary financing that can be arranged for a variety of purposes, but generally for situations where a new home has been purchased but the old one not yet sold, or where borrows want to stay in their existing home while a new one is being constructed; borrowers must still be able to service the debt as required by the mortgage lender.
Closed Mortgages – A closed mortgage means that you have to pay a penalty if you wish to payout your mortgage completely during the contractual term of your mortgage. Many closed mortgages allow some prepayment, up to 20% per year. These partial prepayment terms vary among lenders and need to be understood. The benefit of a closed mortgage is that they are often available at the most favourable interest rates. This may suit your needs if you do not anticipate wanting to pay down your mortgage before term expires.
Closing Costs – see FAQ page.
CMHC – Canada Mortgage and Housing Corporation (CMHC) operates a Mortgage Insurance Fund which protects approved lenders from losses resulting from borrower default. CMHC insurance can insure for loans where the mortgage amount is greater than 80% of the value of the property, and insures for a variety of other specialty lending situations. A premium is charged for the insurance.
Credit Bureau – an organization that collects payment data. For more information, see our FAQ page.
Construction Mortgages – If you are building a home here in BC, we can arrange a construction mortgage for you. Typically, there are three or more disbursements made by the mortgage lender as construction of the building progresses. The mortgage lender will conduct appraisals during the course of construction and will advance funds in accordance with the appraised value of the partially completed building. Course of Construction Mortgages are often at a slightly higher rate than a standard mortgage, but the advantage is that the borrower is not paying interest on the whole amount of the mortgage at the beginning of construction. Instead, the advancing of funds as the project moves along saves interest costs, particularly where construction takes an extended period of time.
Conventional Mortgage – A mortgage where the mortgage amount is 80% of the property value or less.
Discharge – Process where lawyer removes mortgage from title registered at Land Titles.
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 any strata fees.
Deposit (Purchase Deposit) – A sum of money paid by the purchaser when making an offer to be held in trust by the vendor’s agent, broker, lawyer or notary until the closing of the transaction.
Equity – The value the owner has in a property over and above all mortgages against the property. It is usually the difference between the market value of the property and any outstanding encumbrances.
Home Equity Line of Credit (HELOC) – An Equity Line of Credit gives you access to the equity in your home, usually up to a maximum of 80% of its appraised value. The advantages are that if you need to renovate, travel, pay down other debt, etc., the rate of interest on home equity loans is generally less than other types of personal loans and credit cards. Lines of Credit are generally tied to the prime rate, see rates.
Fixed-Rate Mortgage – A fixed rate mortgage is a mortgage has the rate set for a specific period of time. Generally known as the mortgage term, these terms can range from 6 months up to 10 years. Whether you should lock in for a long term or stay short depends on the interest rate trend in the market, as well as your financial situation and degree of risk tolerance. Most fixed-term mortgages allow you to make partial prepayments towards the principal balance during the term; however, these privileges vary from lender to lender. We will assist you in making the best decision and can set you up on an accelerated payment plan that can save you thousands of dollars in interest. See current rates.
Foreclosure – A process undertaken by lawyers where the lender obtains ownership of the property after the borrower has not made regular payments per the loan agreement.
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.
High Ratio Mortgage – Mortgages of less than 20% of the lesser of the purchase price or appraised value of the property. Contrasted to conventional mortgages, high ratio mortgages require default insurance.
Hold-back – Money withheld by the lender during the construction or renovation of a house to ensure that construction is satisfactorily completed at every stage.
Inter Alia Mortgage – A single mortgage covering more than one property. The term is Latin for “amongst other things.”
Interest Adjustment Date – is a date from which interest is calculated when mortgage funds are advanced before a regular payment cycle. For example if a mortgage is advanced March 29th and regular monthly payments commence May 1st, there will be an interest adjustment for 3 extra days.
Interest Rate Differential (IRD) – is a common prepayment penalty method where the difference between current interest rates and the mortgage interest rate is charged for the remainder of the term. IRD is generally only applicable if current interest rates are lower than that of the original mortgage and are intended to compensate the lender for the difference in interest income it will receive.
Interim Financing – Short-term financing to help a buyer bridge the gap between the closing date on the purchase of a new home and the closing date on the sale of the current home.
Maturity Date – Last day of the mortgage term.
Mortgage Insurance – Both mortgage life insurance and mortgage disability insurance are available and should be considered by all buyers. Many buyers are qualifying based on two incomes and they should consider how they would pay their mortgage payments if one income ceased due to disability or death. If mortgage insurance is declined, it is common practice to have a waiver signed to protect all parties.
Mortgagee and Mortgagor – The lender is the mortgagee and the borrower is the mortgagor.
Mortgage Term – The length of time the current mortgage agreement applies between mortgagee and mortgagor, usually range from 6 months to 10 years.
Open Mortgage – A mortgage which can be prepaid at any time, without penalty. Interest rates are usually higher for open mortgages.
Payment Frequency – How often you want to make payments: weekly (52 payments), bi-weekly (monthly mortgage payment is multiplied by 12 months and divided by the 26 pay periods in a year – 26 payments per year), accelerated bi-weekly (monthly mortgage payment is divided by two and the amount is withdrawn from your bank account every two weeks – 26 payments per year but the payment amount is slightly more than a regular bi-weekly mortgage payment), or monthly (payment is withdrawn from your bank account on the same day of every month (i.e. on the 1st) – 12 payments per year).
Principal, Interest and Taxes (PIT) – These make up the regular payment on a mortgage if the lender is including property taxes in your mortgage payments.
Porting – This means that you can take your mortgage with you to another qualifying property without having to lose your existing interest rate and avoid prepayment penalties.
Prepayment Charge – A fee charged by the lender when the borrower prepays any part of a closed mortgage beyond what is allowed in prepayment privileges set out in the mortgage agreement.
Prepayment Privileges – Lenders generally offer some prepayments without penalty like 20% per year lump sum plus 20% increase in regular payment but vary based on the mortgage agreement.
Principal – The amount of money borrowed for a new mortgage.
Private Mortgages – In some cases, borrowed from a private lender can make the most sense. Financial Institutions have fixed policy guidelines that work for most people, but not all cases. Where a borrower’s situation falls outside the box, a private mortgage may be the best solution.
Property Transfer Tax – Provincial Tax when a property changes hands. Tax is calculated at 1% of the first $200,000 and 2% thereafter.
Refinancing – Renegotiating your existing mortgage agreement. You may be increasing the principal or paying out the mortgage in full and arranging a new mortgage.
Renewal – At the end of a mortgage term, a mortgage can be renewed if the terms and conditions acceptable to both the lender and the borrower. Otherwise, the lender will be repaid in full and the borrower will arrange financing elsewhere. It is never advisable to just renew without having your mortgage broker review available options.
Term – The length of the current mortgage agreement. This is different than amortization which is the length of time it will take to pay off the mortgage in full. The term is the length of time that the existing terms and conditions (like interest rate and prepayment privileges) apply.
Title Insurance – Title insurance is different from all other types of insurance. Policies are available for lenders AND for homeowners. Lenders often request title insurance to protect their interests if a property survey is not available (title insurance is usually faster and less expensive than getting a new survey done). A homeowner policy protects your ownership or title against losses incurred as a result of undetected or unknown title defects, for as long as you own your home. Even if you are the rightful owner of your home, there are instances such as real estate title fraud, when your title can come into question.
Total Debt Service (TDS) Ratio – The percentage of gross income needed to cover monthly payments for housing and all other debts and financing obligations.
Variable Rate Mortgage – A variable-rate mortgage often allows you to take advantage of the lowest rates available. The variable rate is usually tied to a mortgage lender’s prime rate and are generally the same as the Bank of Canada prime rate. These rates are often quoted as prime minus .5% or prime plus 1%, etc. Variable-rate mortgages have been attractive when market experts feel that rates will drop or stay level for a period of time. Variable rate mortgages have the downside of offering little security in a rising-rate environment and payments and interest expense can rise when rates rise.