ACCELERATED BI-WEEKLY: Mortgage payments of one half the monthly payment are made every 2 weeks for a total of 26 payments per year. This results in an overpayment / prepayment of about 8.33% per year. The additional funds are used to reduce the balance owed. The net effect: the mortgage is paid off about 4 years sooner. (Not to be confused with semi-monthly - which is twice per month.) AGREEMENT OF PURCHASE AND SALE: A legal agreement that offers a certain price for a home. The offer may be firm (no conditions attached), or conditional (certain conditions must be fulfilled before the deal can be closed).AMORTIZATION PERIOD: The initial length of your mortgage loan. Until recently the amortization period has been 25 years or less but periods of up to 40 years are now available. A longer amortization period will reduce your monthly mortgage payment. (Not to be confused with term.)APPRAISED VALUE:(Appraisal) A certified appraiser estimates the lending value of the property for the purpose of a mortgage loan – essentially a comprehensive comparison of the subject home to other, similar homes in the area that have sold recently. (Not to be confused with home inspection.)ASSUMABLE: (Assumability) An assumable mortgage is one that the buyer can take over from the seller. The buyer must meet the lender’s credit standards. BLENDED PAYMENTS: Payments consisting of both a principal and an interest component, paid on a regular basis (e.g. weekly, biweekly, monthly) during the term of the mortgage. The principal portion of payment increases, while the interest portion decreases over the term of the mortgage, but the total regular payment usually does not change.CLOSED MORTGAGE: A mortgage with a specific payment schedule for a fixed term, usually 6 months to 5 years. Repayment prior to the end of the term is subject to a penalty. CLOSING COSTS: The expenses associated with purchasing a home. These costs can include, but are not limited to, legal/notary fees and disbursements, property land transfer taxes, as well as adjustments for prepaid property taxes or condominium common expenses, if any.COMPOUNDING PERIOD: The number of times per year in which the interest rate is compounded. Most Canadian mortgages are compounded semi-annually – twice per year. Private mortgages and sub-prime mortgages are often compounded monthly.CONDITIONAL OFFER: An offer to purchase subject to conditions. These conditions may relate to financing, home inspection, or the sale of an existing home. There is usually a time limit in which the specified conditions must be satisfied.CONDOMINIUM FEE: (Condo fee) A condominium is a form of joint ownership of a property. A condo fee is a common payment among owners that is allocated to pay expenses associated with the property.CONVENTIONAL MORTGAGE: A mortgage loan for less than 80% of the property's appraised value or purchase price, whichever is less. Prior to April 20, 2007, the limit was 75%. See high-ratio mortgage.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. DOWN PAYMENT: The buyer's cash payment toward the purchase of a property, or the difference between the purchase price and the amount of the mortgage loan.EQUITY: The appraised value or selling price of a property less the total debt or mortgage(s) registered against the property.EFFECTIVE INTEREST RATE: This is the actual interest rate paid on a loan or mortgage. The effective rate of Canadian mortgages is slightly higher than the quoted or nominal rate because the interest is usually compounded semi-annually or twice per year. The effective interest rate is a useful yardstick when comparing mortgages with different compounding periods.FIXED RATE MORTGAGE: A mortgage in which the rate of interest has been fixed for a specific period of time that is generally referred to as the term. The typical term is five years but lenders generally offer fixed terms of 6 months and one through five years as well as seven and ten years. Some lenders offer longer terms.GDS RATIO: (Gross Debt Service Ratio) The percentage of gross annual income required to cover payments associated with housing. Payments include mortgage principal, interest, property taxes and sometimes include secondary financing, heating, condominium fees or pad rent. The generally accepted maximum is 32% but in some cases it may be 35%.HIGH-RATIO MORTGAGE: A mortgage that exceeds 80% of the home's appraised value or purchase price, whichever is lower. These mortgages must be insured against default (mortgage loan insurance). Lenders arrange for the insurance coverage. Prior to April 20, 2007, the limit was 75%. See conventional mortgage.INSPECTION: A home inspection is a visual examination of a house, by a qualified professional, to determine its overall physical condition. The inspector is chosen by the purchaser.INTEREST RATE DIFFERENTIAL:(IRD) An IRD amount is 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 prepayment privilege amount. The IRD amount 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 we can now charge when re-lending the funds for the remaining term of the mortgage.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.LAND TRANSFER TAX, DEED TAX OR PROPERTY PURCHASE TAX: A fee paid by the buyer to the municipal and/or provincial government when transferring property ownership from seller to buyer. LOAN TO VALUE RATIO: (LTV, LTVR) The ratio of the loan to the appraised value or purchase price of the property, whichever is lower. An LTV ratio of 75% or less is considered a conventional mortgage. An LTV over 75% is considered a high-ratio mortgage.MATURITY DATE: The date at which the current interest rate term ends. On this date, the borrower can pay off some or all of the mortgage without penalty, can renew the mortgage with the same lender at a new interest and term, switch or transfer the mortgage to another lender, or enter into a completely new mortgage agreement (refinance). MORTGAGEE: The party who advances the funds for a mortgage loan: i.e. the lender.MORTGAGE INSURANCE: Properly known as mortgage loan insurance or mortgage default insurance and often confused with mortgage life insurance. Mortgage loan insurance is required on high-ratio mortgages and its purpose is to protect the lender against loss if the borrower is unable to repay the mortgage. Lenders arrange for insurance coverage from one of three mortgage loan insurers. The insurance premium is usually added to the mortgage. Some lenders choose to self-insure in which case the cost of the insurance is referred to as an administration fee.MORTGAGE LIFE INSURANCE: A life insurance policy that pays off the mortgage balance if the borrower dies. This policy may be accompanied by disability insurance and/or critical illness insurance policies that cover the mortgage payments under specified conditions.MORTGAGOR: One who gives a mortgage as security for a loan: i.e. the borrower.NOMINAL INTEREST RATE: The interest rate that is quoted by mortgage lenders in their advertising. Since Canadian mortgages are usually compounded semi-annually, this rate is slightly lower than the effective interest rate. The difference between effective and nominal rates is only significant when comparing mortgages with different compounding periods. OPEN MORTGAGE: A mortgage that allows partial or full payment of the principal at any time, without penalty.PAYMENT FREQUENCY: The choice of making regular mortgage payments every week, every other week, twice a month or monthly.PORTABLE: (Portability, Porting) A mortgage that a borrower can move (port) from an existing property to a new property subject to the borrower and the new property meeting the lender’s normal guidelines. A key benefit to the borrower: no prepayment penalty for breaking the mortgage on the existing property.PRE-APPROVED MORTGAGE: (Pre-approval) A mortgage broker or lender reviews the borrowers’ documentation (income, occupation, credit report) to determine the borrowing capacity. This gives the buyers a price range of what they can afford and allows them to make a “firm” offer.PREPAYMENT PRIVILEGES: Most mortgages are closed with fixed mortgage payments. However, borrowers can usually make some additional payments without incurring penalties – either by increasing the size of their regular payments or by making additional lump sum payments. The maximum amount may vary by lender.PREPAYMENT PENALTIES: A fee charged by the lender when the borrower prepays all or part of a closed mortgage more quickly than is set out in the mortgage agreement. PRINCIPAL: The initial amount borrowed or the amount still owing on a mortgage loan. Interest is paid on the principal amount.REFINANCING: (Refinance) Arranging a new mortgage to replace an existing mortgage or renegotiating the terms and conditions (mortgage amount, amortization period, etc.) of an existing mortgage. RENEWING: (Renewal, Switch, Transfer) Negotiating a new term and interest rate at the end of the existing term without increasing the balance remaining or changing the amortization period. This process can be started up to 120 days before the end of the existing term. SEMI MONTHLY MORTGAGE PAYMENTS: Mortgage payments which are made on the 1st and 15th of the month, or twice per month, 24 payments per year. Not to be confused with bi-weekly mortgage payments (26 payments per year).TDS RATIO (Total debt service ratio): The percentage of gross annual income required to cover payments associated with housing (See GDS) and all other debts and obligations, such as car loans and credit cards. The generally accepted maximum is 40% but in some cases it may be higher.TERM: The length of time for the interest rate agreement, whether open, closed, or variable. At the end of the term the principal / balance becomes due and payable to the lender but is usually renewed or refinanced.TITLE: Legal ownership in a property.VARIABLE-RATE MORTGAGE: (Adjustable, Floating) The interest rate on the mortgage varies, floats, or adjusts according to changes in the lender’s prime lending rate rather than being fixed or locked-in for a set term. There are many varieties of variable-rate mortgages including capped-rates, fixed payment, introductory rates, etc. The benefit to the borrower – historically the variable rate has been lower than the 5-year fixed term rate. The risk to the borrower – the rate can go up as well as down.
