Agreement of Purchase and Sale: A legally binding agreement between
you and the person who owns the house you are purchasing. It includes
the selling price, what will be included with the house, and the
financial conditions of sale (your financing arrangements, the closing
date, etc.).
Amortization Period: The actual number of years it will take to
repay a mortgage in full. The lifetime of a mortgage.
Appraised Value: An estimate of the market value of a property.
Assumption: The ability to take over the obligations of the previous
owner's mortgage when you purchase a property.
Blended Payment: A mortgage payment consisting of both a principal
and an interest component, paid regularly during the term of the
mortgage.
Canada Mortgage and Housing Corporation (CMHC): A Crown corporation
that administers the National Housing Act and creates and sells
mortgage loan insurance products.
Closed Mortgage: A mortgage agreement that cannot be prepaid,
renegotiated or refinanced before maturity, except with penalties
or costs.
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.
Closing Date: The date on which the sale of a property becomes
final and the new owner takes possession.
Collateral Mortgage: A loan backed by a promissory note and the
security of a mortgage on a property.
Conditional Offer: An offer to purchase if certain conditions
are met.
Conventional Mortgage: A mortgage that does not exceed 75% of
the appraised value or purchase price of a property, whichever
is less.
Convertible mortgage: A mortgage that you can change from
short-term to long-term, depending on your financial needs.
Down payment: The portion of the purchase price that is not
borrowed.
Effective Interest Rate: The real rate of interest after the
effects of compounding and the costs to arrange financing are
included, stated as an annual figure.
Firm Offer: An offer to purchase without any conditions.
Fixed Rate Mortgage: A mortgage for which the interest rate is
fixed for a specific period of time.
Foreclosure: A legal remedy to default of a mortgage where the
lender obtains ownership of the property.
Gross Debt Service Ratio (GDS): The percentage of gross income
required to cover monthly payments of principal, interest, property
taxes and heating. The general allowance for GDS ratio is 32%
of gross (before tax) income.
High Ratio Mortgage: A loan in excess of 75% of the property's
appraised value or purchase price, whichever is less. High ratio
mortgages must be insured through either CMHC or an approved
private insurer.
Home Insurance: Insurance to cover both your home and its contents
in the event of fire, theft, vandalism etc. (also referred to as
property insurance). This is different from mortgage life insurance.
Inspection: The process of having a qualified home inspector
identify potential deficiencies to the property you are interested
in and their estimated cost.
Land Transfer Tax: A tax that is levied on any property upon a
change in title to the property.
Lump Sum Payment: An extra payment that you make to reduce the
amount of your mortgage. This is the same as pre-paying, which you
cannot do if you have a closed mortgage.
Maturity Date: Last day of the mortgage agreement term.
Mortgage Life Insurance: Insurance under which the benefits are
used to pay off the mortgage balance due on a mortgage upon the
death of an insured borrower.
Offer to Purchase: A legally binding offer from you to 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.).
Open Mortgage: A mortgage in which the borrower may repay all or
part of the principal balance prior to maturity without any penalty
or bonus.
Porting: Transferring an existing mortgage from one property to
another. This is known as a "portable" mortgage.
Pre-Approved Mortgage: Preliminary approval of a borrower's
application by a lender which guarantees a certain maximum mortgage
amount and interest rate for a specified time frame.
Pre-Payment Penalty: A fee charged by the lender when a borrower
prepays all or part of a closed mortgage balance more quickly than
stated in the mortgage agreement.
Principal: The mortgage amount actually borrowed.
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.
Refinance: To pay in full and discharge a mortgage and any other
registered encumbrance prior to maturity and arrange for a new
mortgage with either the same or a different lender.
Renewal: 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.
Second Mortgage: A mortgage granted when there is already a mortgage
registered against the property.
Security: The property offered as backing for the mortgage loan.
Switch: Transferring an existing mortgage from one lender to another
without increasing the mortgage amount.
Term: The length of time a mortgage agreement covers.
Total Debt Service Ratio (TDS): The percentage of gross income
required to cover monthly payments of principal, interest, property
taxes and heating plus all other debts and financing obligations. The
general allowance for TDS ratio is 40% of gross (before tax) income.
Variable Rate Mortgage: A mortgage for which the interest rate changes
as money market conditions change. Also called an adjustable rate
mortgage or floating rate mortgage.
Vendor-Take-Back: Where a vendor of a property provides some or all of
the mortgage financing in order to sell a property.
