Glossary

A

Agreement of Purchase and Sales:
The legal contract a purchaser and a seller enter. I recommend that you have your offer prepared by a professional Realtor with the knowledge and experience to protect you with the most suitable clauses and conditions satisfactorily.

Amortization Period:
The number of years it takes to repay the entire amount of financing based on a set of fixed payments.

Appraisal:
The process of determining the market value of a property.

Assets:
What you own that has value. Often used in determining net worth or in securing financing.

Assumption Agreement:
A legal document signed by a buyer requires the buyer to assume responsibility for the obligations of an existing mortgage. If someone assumes your mortgage, make sure that you get a release from the mortgage company to ensure that you are no longer liable for the debt.

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B

Blended Payments:
Equal payments consisting of both an interest and a principal component. Typically, while the payment amount does not change, the principal portion increases, while the interest portion decreases.

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C

Canada Mortgage and Housing Corporation (CMHC):
CMHC is a federal Crown corporation that administers the National Housing Act (NHA). Among other services, they also insure mortgages for lenders greater than 80% of the purchase price or value of the home. The cost of that insurance is paid for by the borrower and added to the mortgage amount. These are ‘Hi-Ratio’ mortgages.

Closed Mortgage:
A mortgage that cannot be renegotiated for a set period of time without penalties.

Closing Costs:
The accumulated costs associated with any real estate transaction. May include legal and administrative expenses.

Closing Date:
The date on which the new owner takes possession of the property, and the sale becomes final.

Collateral:
An asset, such as term deposit, Canada Savings Bond, or automobile, that you offer as security for a loan.

Collateral Charge/Mortgage:
A mortgage product where lenders register an additional 25% of the property value. It is important to note that this is not a traditional mortgage, and it cannot be transferred to another lender.

Conventional Mortgage:
A mortgage of up to 80% of the purchase price of the property. A mortgage exceeding 80% is a ‘Hi-Ratio’ mortgage, and the lender will require insurance on that mortgage.

Credit Scoring:
A system used to determine a borrower’s creditworthiness.

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D

Demand Loan:
A loan where the balance must be repaid upon request.

Deposit:
A sum of money deposited in trust by the purchaser when making an offer to purchase. When the offer is accepted, the deposit is held in trust until the closing.

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E

Equity:
The difference between the market value of the property and any outstanding mortgages registered against the property. This difference belongs to the owner of that property.

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F

First Mortgage:
A debt registered against a property that has first call on that property.

Fixed-Rate Mortgage:
A mortgage for which the interest is set for the term of the mortgage.

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G

Gross Debt Service Ratio (GDS):
GDS is used by lenders to determine a borrower’s capacity to repay a mortgage. It takes into account the mortgage payments, property taxes, approximate heating costs, and 50% of any maintenance fees, and this sum is then divided by the gross income of the borrowers.

Gross Income:
The total income before taxes and deductions per year.

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H

High-Ratio Mortgage:
When a mortgage exceeds 80% of the property value. This type of mortgage must be insured.

Home Equity Line of Credit (HELOC):
A personal line of credit secured against the borrower’s property. Up to 80% of the value of the property is allowed to be borrowed with this product.

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I

Interest Adjustment Date (IAD):
The date on which the mortgage term will begin. The interest cost between the closing date and the first payment date. That is why it is always better to close your deal towards the end of the month.

Interest-Only Mortgage:
A mortgage on which only the monthly interest is paid. The full principal remains outstanding. The payment is lower than an amortized mortgage since once is not paying any principal.

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M

Market Value:
The price your home could sell for in current market conditions.

Maturity Date:
The end of your current mortgage term.

Mortgage:
A mortgage is a loan that uses a piece of real estate as a security. Once that loan is paid-off, the lender provides a discharge for that mortgage.

Mortgagee:
The financial institution or person (lender) who is lending the money using a mortgage.

Mortgagor:
The person who borrows the money using a mortgage.

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O

Open Mortgage:
A mortgage that can be repaid without any penalties. The interest rate is much higher than a closed mortgage.

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P

P.I.T.:
Principal, interest, and property tax due on a mortgage.

Portable Mortgage:
A mortgage that can be transferred to a new property. One would want to port their mortgage to avoid penalties or if the interest rate is much lower than the current rates.

Prepayment Penalty:
The fee a lender charges when the borrower prepays all or part of a mortgage over and above the amount agreed upon. Although there is no law about how a lender can charge you the penalty, a usual charge is the greater of the Interest Rate Differential (I.R.D.) or 3 months interest.

Principal:
The original amount of a loan before interest.

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R

Rate Commitment/Hold:
The number of days the lender will guarantee the mortgage rate on a mortgage approval. This can vary from lender to lender anywhere from 30 to 120 days.

Refinance:
Refers to the replacement of an existing mortgage with a new mortgage under different terms.
A loan (debt) can be refinanced for various reasons:

1.) to take advantage of a better interest rate (which will result in a reduced monthly payment or a reduced term)
2.) to consolidate other debt(s) into one loan
3.) to reduce the monthly repayment amount
4.) to reduce or alter risk (e.g. changing from a variable-rate to a fixed-rate loan)
5.) to free up cash

Renewal:
When the mortgage term has concluded, your mortgage is up for renewal. It is open at this time for prepayment in part or in full, then renewing with the same lender or transferring it to another lender at no cost (we can arrange).

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S

Second Mortgage:
A debt registered against a property that is secured by a second charge on the property.

Switch (Transfer):
To transfer an existing mortgage from one financial institution to another. We can have this arranged for you at no cost to you.

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T

Term:
The period the financing agreement covers. The terms available are 6 months, 1, 2, 3, 5, 7, and 10-year terms.

Total Debt Service (TDS) Ratio: TDS is used by lenders to determine a borrower’s capacity to repay a mortgage. It takes into account the mortgage payments, property taxes, approximate heating costs, and 50% of any maintenance fees, and any other monthly obligations (i.e. personal loans, car payments, lines of credit, credit card debts, other mortgages, etc.), and this sum is then divided by the gross income of the applicants.

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V

Variable Rate Mortgage:
A mortgage for which the interest rate fluctuates based on changes in the prime lending rate.