PURCHASE PHASE TERMS
MORTGAGE PRE-QUALIFICATION
Evaluation for the loan amount, approximate payments and interest rate. This enables you to set your budget for home purchase.
MULTIPLE LISTING SERVICE (MLS)
A computerized listing of the properties available in your area, including information and sometimes pictures of each property.
OFFER TO PURCHASE
A legally binding agreement between you and the person who owns the house you want to buy. It includes the price you are offering, what you expect to be included with the house, and the financial conditions of sale (your financing arrangements, the closing date, etc.).
INSPECTION
The process of having a qualified home inspector identify potential repairs to the property you are interested in and their estimated cost.
APPRAISAL
The process of determining the lending value of a property. There is usually a fee to have an appraisal done.
MORTGAGE
A loan that you take out in order to buy property. The collateral is the property itself.
MORTGAGEE
The lender of a mortgage is called the mortgagee.
MORTGAGOR
The borrower of a mortgage is called the mortgagor.
DOWNPAYMENT
The money that you pay up front for a house. Down payments typically range from 5%-20% of the total value of the home.
LOAN TO VALUE (LTV)
A ratio expressed as a percentage of the mortgage loan amount divided by the lesser of the purchase price or the appraised value of the property being mortgaged.
INTEREST
Interest is money paid by a borrower to a lender for the use of the lender’s money.
The amount of interest charged by a lender is usually expressed as an annual percentage rate, which is called the mortgage interest rate.
TERM
The length of time during which you pay a specific rate on the mortgage loan (i.e., the number of years in your mortgage contract). This is different than the amortization period. A mortgage is usually amortized over 20-25 years, with a shorter term (typically 6 months to 5 years). After the term expires, the interest rate is usually renegotiated with the lender (your bank, for example).
AMORTIZATION
The number of years that you take to fully pay off your mortgage (not the same as your mortgage term). Amortization periods typically range between 15-30 years. For high ratio mortgages (<20% down payment), it is maximum 25 years long.
MORTGAGE TYPES – DOWNPAYMENT BASED
CONVENTIONAL MORTGAGE
A mortgage with an LTV of 80% or less. Generally, default insurance is not required. However, insurance may be requested if there are other risks associated with the application.
HIGH-RATIO MORTGAGE (INSURED MORTGAGE)
When you have less than 20% of the total purchase price to put down as your down payment. This type of mortgage must be insured (through sources such as CMHC or Sagen Canada).
MORTGAGE TYPES
CLOSED MORTGAGE
This type of mortgage must usually remain unchanged for whatever term you agree to. Prepayment costs will apply if you payout more than pre-payment privilege, renegotiate, or refinance before the end of term.
OPEN MORTGAGE
This type of mortgage may be repaid, in part or in full, at any time during the term without any prepayment costs. Rates are higher than closed mortgages.
CONVERTIBLE MORTGAGE
This is a mortgage which offers the same security as a closed mortgage, but which can be converted to a longer, closed mortgage at any time without prepayment costs. Typically associated with fixed rate mortgages.
RATE TYPES
FIXED RATE MORTGAGE
An interest rate that does not change during the entire mortgage term.
VARIABLE RATE MORTGAGE
An interest rate that will fluctuate in accordance with the prevailing market prime rate during the mortgage term. The payment does not change but the amount going towards interest will change accordingly.
CLOSING PHASE TERMS
CLOSING DATE
The date on which the sale of a property becomes final and the buyer takes possession of the property.
CLOSING COSTS
Costs that are in addition to the purchase price of a property and which are payable on the closing date. Examples include legal fees, land transfer taxes, and disbursements.
APPRAISAL FEE
The process of determining the lending value of a property. There is usually a fee to have an appraisal done.
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’s in your best interest to engage the services of a real estate lawyer or a notary
PREPAID PROPERTY TAX AND UTILITY ADJUSTMENTS
The amount you will owe if the person selling you the home has prepaid any property taxes or utility bills. The amount to reimburse them will be calculated based on the closing date.
PROPERTY SURVEY
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.
SALES TAXES
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.
INTEREST ADJUSTMENT
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. Let’s say that the closing date on your new house is August 10th – but your mortgage payments are on the 15th of each month (so your first payment is calculated from August 15th and paid on September 15th). That leaves five days (August 10th to 14th) that aren’t accounted for in your first mortgage payment. You have to make an extra payment to make up for these five days; the payment is generally due on your closing date. You can avoid all this by arranging to make your first mortgage payment exactly one payment period (e.g., one month) after your closing date.
HOME INSURANCE
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.
MORTGAGE LIFE INSURANCE(OPTIONAL)
This form of insurance pays the outstanding balance of your mortgage in full if you die. This is different from home or property insurance, which insures your home and its contents.
POST-CLOSING PHASE TERMS
PRE-PAYMENT
Repaying part of your mortgage ahead of schedule. Depending on your mortgage agreement, there may be a prepayment cost for pre-paying.
LUMP SUM PAYMENT
An extra payment that you make to reduce the amount of your mortgage principal.
MATURITY DATE
This is the last day of the term of the mortgage agreement. The mortgage agreement must either be renewed prior to the Maturity Date or the mortgage balance paid in full prior to the Maturity Date.
RENEWAL/RENEWING
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 balance outstanding.
PORTING
Transferring an existing mortgage from one home to a new home when you move. This is known as a “portable” mortgage.
REFINANCING
The process of paying out the existing mortgage for purposes of establishing a new mortgage on the same property under new terms and conditions. This is usually done when a client requires additional funds. The client may be subject to a pre-payment cost.
