Amortization
The gradual elimination of a liability, such as a mortgage, in regular
payments over a specified period of time.
Amortization period
The number of years it will take to fully repay a mortgage. This period can
be longer than the loan's term. For example, a mortgage may have a
three-year term and a 25-year amortization period.
Appraised value
The estimated fair market value of a property.
Assets
Items owned by an individual or group that have financial value, such as a
house or investments.
Bank of Canada Rate
The minimum rate charged by the Bank of Canada for advances to the Chartered
Banks. It is usually 25 basis points above the treasury-bill rate.
Bank rate
The minimum rate at which the Bank of Canada makes short-term advances to
the Chartered Banks and other members of the Canadian Payments Association.
Since 1980, the bank rate has been set at one-quarter of 1% (25 basis
points) above the weekly average tender rate of 91-day Government of Canada
Treasury Bills.
Basis point
One basis point is one-hundredth of one percentage point (0.01%). For
example, an interest rate that changed from 5.67% to 6.57% moved up by 90
basis points.
Blended rate mortgage
A mortgage that combines the amount the borrower owes under an existing
mortgage with additional mortgage money required by the borrower. The
interest rate for the new amount borrowed is a "blend" of the interest rate
of the old mortgage and the interest rate for the additional amount to be
borrowed.
Bridge financing
A short term loan made to "bridge" the time gap between completing the
purchase of one property and finalizing arrangements to pay for it,
typically the selling of another property. The need often results from
mismatched closing dates.
Carrying costs
The expenses of living in and maintaining a property. This includes mortgage
payments, property taxes, heating, repairs, maintenance fees, etc.
Closed mortgage
A type of mortgage that usually remains unchanged for whatever term you
agree to. Prepayment costs will apply if you payout, renegotiate or
refinance before the end of term.
Closing date
The date the sale of a property becomes final and the new owner takes
possession.
CMHC
CMHC is an acronym for Canada Mortgage and Housing Corporation, a federal
crown corporation that administers the National Housing Act.
Collateral
Assets that you pledge as security for a debt. For a mortgage, the property
is the collateral.
Co-mortgagor
A person who signs a mortgage contract with another party or parties and is
thereby jointly obligated to repay the loan. Generally a co-mortgagor
provides some financial assistance in meeting the requirements of the loan
and receives a share of ownership in the encumbered property.
Compound interest
Basically, it's interest paid on interest. This happens when interest is
paid on an investment and is added to the original amount of the investment.
Further interest is calculated on the investment plus accumulated interest.
Contingent liability
A potential liability that may be incurred depending on the outcome of a
future event, such as a law suit or court case.
Conventional mortgage
A mortgage that does not exceed 80% of the purchase price of a home.
Covenanter (or guarantor)
A covenanter agrees to repay a debt incurred by another person or company to
a lender if that person or company cannot or will not pay their
indebtedness.
Convertible mortgage
A mortgage that may be prepaid or changed to another term at any time.
Credit bureau
A private organization that maintains consumer credit data files. A credit
bureau provides credit information to authorized users for a fee.
Credit rating
Formal evaluation of an individual's or a company's credit history and
capability of repaying obligations.
Current market value
The price at which of a property or other asset will sell within a
reasonable period of time.
Current yield
The annual rate of return on any investment, usually expressed as a
percentage.
Deed
A legal document, signed by the seller, that transfers and evidences
ownership of the property to the buyer.
Default
Failure of a debtor to make payments of interest and principal as they come
due or to meet some other provision of a mortgage, loan or other contract.
Deposit
A sum of cash that must be paid to the vendor by the purchaser. This money
is a symbol of the purchaser's commitment to buy. If the offer is accepted,
the deposit is applied to the down payment.
Down payment
The part of the purchase price of a property that the buyer pays in cash and
does not finance with a mortgage.
Equity
The fair market value of a property in excess of any debts against it. For
example, the equity in a home is the appraised value less the amount of the
mortgage.
First mortgage
A mortgage that is registered first against the property. This mortgage has
to be paid first in the event of sale or default.
Fixed-rate mortgage
A mortgage in which the interest rate does not change during the mortgage
term.
Foreclosure
The process of termination of all rights of a mortgagor in the property
covered by a mortgage. The property is usually sold to pay the outstanding
debt.
Genworth Financial Canada
A private mortgage insurance company and a potential source of mortgage
insurance for high-ratio mortgages.
Gross-debt-service ratio
This ration calculates monthly mortgage (or rent) payments plus your monthly
property taxes, heating costs and strata fees as a percentage of gross
monthly income. Ideally, your ratio should not exceed 32%.
Guarantor (or covenanter)
A guarantor agrees to repay a debt incurred by another person or company to
a lender if that person or company cannot or will not pay their
indebtedness.
High-ratio mortgage
A mortgage that exceeds 80% of either or both a property's appraised value
and purchase price. A high ratio mortgage must be insured against default by
CMHC or Genworth Financial.
Home insurance
Insurance to cover both your home and its contents.
Inspection
The process of having a qualified home inspector identify potential repairs
to the property you are interested in and their estimated cost.
Interest
Interest is the amount charged by a lender to a borrower for the use of
money. Interest rates are usually expressed as an annual percentage.
Land transfer tax
A tax that is levied (in some provinces) on any property that changes hands.
First time buyers may get a refund of some or all of the Land Transfer Tax.
Legal fees and disbursements
Some of the legal costs associated with the sale or purchase of a property.
It's best to engage the services of a real estate lawyer or a notary.
Liabilities
A broadly defined term implying legal or financial responsibilities to
others, such as a bank or credit card company.
Lien
A charge against property of another as security for the payment of a debt,
judgment, mortgage or taxes. A specific lien is against a certain property
only. A general lien is against all the property owned by the debtor.
Loan-to-value ratio
The ratio of monies borrowed for the purchase of an asset to the fair market
value of the asset, usually in reference to real property.
Lump sum payment
An extra payment that you make to reduce the amount of your mortgage.
Maturity date
The last day of the term of your mortgage agreement. The mortgage must be
paid in full, or the agreement renewed, by this date.
Mortgage
A formal document by which the borrower (mortgagor) gives the lender
(mortgagee) a lien on real property as security for a debt. The borrower has
use of the property, and the lien is removed when the obligation is fully
paid.
Mortgage assumption
The act of taking on responsibility for the payment of a mortgage, usually
subsequent to the sale of a property. In the case of mortgage assumption,
the seller remains secondarily liable unless released from obligations by
the lender.
Mortgage disability insurance
Insurance that pays your mortgage payments should you become ill or disabled
and unable to work.
Mortgage life insurance
A type of life insurance often bought by mortgagors. The amount of coverage
decreases as the mortgage balance declines. In the event the mortgagor dies
while the policy is in force, the mortgage is paid from the insurance
proceeds.
Mortgage payment
The regular installments made towards paying back the principal and interest
on a mortgage.
Mortgage rate
The percentage interest that you pay on top of the mortgage principal. For
example, you may take out a mortgage of $200,000 at a rate of 7%. Your
monthly payments will consist of a portion of the original $200,000, plus 7%
interest.
Mortgagee
An institution, or sometimes an individual, who holds a mortgage against a
piece of property as security for a loan.
Mortgagor
A person who has offered a mortgage on their property in exchange for money.
Multiple Listing Service (MLS)
A computer-based system for relaying information to real-estate agents and
the public about properties for sale.
Net worth
The amount by which your total assets exceed your total liabilities.
Open mortgage
A mortgage that allows you pay off all or part of your debt without penalty,
at any time. The mortgage may also allow you change your payments throughout
the term, without penalty.
Porting
Transferring an existing mortgage from one home to a new home when you move.
This is known as a "portable" mortgage.
Pre-approved mortgage
A mortgage for a maximum monetary amount and interest rate that is arranged
prior to the purchaser finding a property. With it you can confidently shop
for a home, know how much you can spend and become a more attractive buyer -
the seller knows you’re serious!
Prepayment
Allows the borrower to prepay a portion or all of the principal mortgage
balance, with or without penalty, ahead of schedule. This decreases the
total amount of interest paid over the life of your mortgage.
Principal
The face amount of a loan, exclusive of interest, according to the terms of
the note securing the obligation.
PIT
An acronym for principal, interest, and taxes.
Refinance
The act of arranging a new mortgage for an increased amount. The old
mortgage is paid off, or discharged, from the proceeds of the new loan.
Renewal
When the term of your mortgage expires, you have the option of renewing it
with the original lender.
Return
The earnings on your investment, such as interest income, dividend income or
capital gains.
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.
Second mortgage
A mortgage granted when there is already a mortgage registered against a
property. If the borrower defaults and the property is sold, the second
mortgage is paid after the first.
Security
Property, or assets, offered as backing for a loan. In the case of
mortgages, the property being purchased or refinanced forms the security for
the loan.
Term
The length of time a lender will lend mortgage funds to a borrower. The
choice of terms runs from six months up to as much as 25 years. The total
length of a mortgage is usually made up of several terms.
Title
The right to the possession of land or property.
Total debt service ratio
The ratio of your monthly mortgage (or rent) payments, property taxes,
heating costs, strata fees plus all of your other monthly debt obligations
(personal loans, credit cards) to your gross monthly income. Usually
expressed as percentage, this ratio should not exceed 42%.
Variable-rate mortgage
A mortgage with an interest rate that changes with the prevailing market
rates during the mortgage term.
