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Below are important mortgage terms every home buyer should understand before they purchase a home in Canada. These are some of the most common mortgage terms. If you have questions about any of these terms or about the mortgage process in general, you can contact us here.
ABSTRACT OF TITLE:
Registry System: A condensed history of the title to a parcel of land. The abstract consists of a synopsis of every recorded instrument affecting the title to that land arranged in chronological order of recording.
ACCELERATED BI-WEEKLY MORTGAGE PAYMENTS:
Mortgage payments which are made every 2 weeks for a total of 26 payments per year. Not to be confused with semi-monthly mortgage payments. Article
The actual number of years it will take to pay back your mortgage loan. Generally speaking most mortgages have 25 year amortization schedules but with a 20% down payment, consumers can have 30 and even 35 year amortizations to help reduce their payment.
An estimate of the value of the property, conducted for the purpose of mortgage lending by a certified appraiser. This appraisal is not to be confused with a building inspection.
A transaction between unrelated entities where a willing seller (the seller is not compelled to sell) transacts with a willing buyer (the buyer is not compelled to buy).
Allows the buyer to take over the seller’s mortgage on the property.
A mortgage that locks you into a specific payment schedule. A penalty usually applies if you repay the loan in full before the end of a closed term.
The number of times per year in which the interest rate is compounded. In Canada, mortgages are generally compounded semi-annual, which is twice per year.
A common payment among owners which is allocated to pay expenses associated with the development.
A mortgage loan issued for up to 80% of the property’s appraised value or purchase price, whichever is less.
The buyer’s total up front payment toward the property. The difference between the purchase price and the amount of the mortgage loan. This total would be a combination of both the deposit given at the time of the offer as well as the remaining amount to be concluded at the lawyers.
The difference between the price for which a property could be sold less the total debt registered against the property.
EFFECTIVE INTEREST RATE:
This is the actual interest rate paid on a loan or mortgage, mortgages typically have a higher effective interest rate because of the fact that interest rates are compounded semi-annually or twice per year.
The first mortgage in the mortgage agreement that is considered to be in first place and will have first claim on assets in the event of default.
FIXED RATE MORTGAGE:
A mortgage in which the rate of interest has been fixed for a specific period of time. This specific period of time is generally known as the term. Article
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.
A mortgage that exceeds 80% of the home’s appraised value or purchase price, whichever is lower. These mortgages must be insured for payment.
The value charged by the lender for the use of the lender’s money. Expressed as a percentage.
LAND TRANSFER TAX, DEED TAX OR PROPERTY PURCHASE TAX:
A fee paid to the municipal and/or provincial government for the transferring of property from seller to buyer.
LOAN TO VALUE RATIO:
The ratio of the loan to the appraised value or purchase price of the property, whichever is lower.
The end of the term, at which time you can pay off the mortgage or renew it.
The party who advances the funds for a mortgage loan. The lender.
Applies to high-ratio mortgages. It protects the lender against loss if the borrower is unable to repay the mortgage.
MORTGAGE LIFE INSURANCE:
Pays off the mortgage if the borrower dies.
One who gives a mortgage as security for a loan. The borrow
NOMINAL INTEREST RATE:
An interest rate which does not necessarily correspond to the effective interest rate. In Canada, these two rates do not correspond.
Allows partial or full payment of the principal at any time, without penalty.
OSB (Outstanding balance):
The amount of principal which is still outstanding at the end of the term.
A mortgage option that enables borrowers to take their current mortgage with them to another property, without penalty.
Qualifies you for a mortgage before you start shopping. This allows the consumer to understand their budget on a per payment basis in relation the the total cost of the home.
Voluntary payments in addition to regular mortgage payments. These are principle only payments are are not subject to interested or penalty.
The amount borrowed or still owing on a mortgage loan. Interest is paid on the principal amount outstanding.
Paying off the existing mortgage and arranging a new one or re-negotiating the terms and conditions of an existing mortgage.
Re-negotiation of a mortgage loan at the end of a term for a new 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). Article
Additional financing. Usually has a shorter term and higher interest rate than the first mortgage.
TDS RATIO (Total debt service ratio):
The percentage of gross annual income required to cover payments associated with housing and all other debts and obligations, such as car loans and credit cards.
The length of time the interest rate is fixed. It also indicates when the principal balance becomes due and payable to the lender.
Legal ownership in a property.
A mortgage with fixed payments, but fluctuates with interest rates. The changing interest rate determines how much of the payment goes towards the principal.
VENDOR TAKE-BACK MORTGAGE:
When the seller provides some or all of the mortgage financing in order to sell their property.
"I’m so lucky I got in touch with Steve Harrison from Mortgages dot ca before signing anything with my bank or the broker my agent referred me to. Steve’s ability and willingness to answer all of my questions as they came up day after day, was amazing. He was a great help throughout the process and even found me a significantly better rate than my bank or my realtor’s broker."
- Lee Dipps