Amortization Period:

The amortization period is the length of time required to fully pay off a mortgage. Commonly, it's 25 or 30 years.

Annual Percentage Rate (APR):

APR represents the total annual cost of borrowing money, expressed as a percentage of the original loan amount.

Bridge Financing:

Bridge financing, or a bridge loan, temporarily covers the gap between the closing of your current home and your new home, allowing you to carry mortgages on two properties for a limited time, usually up to 90 days.

Closed Mortgage:

A closed mortgage means you can't pay off more than a certain amount each year without penalty. Ending the mortgage before the term ends incurs a break penalty/pre-payment charge, which can be costly depending on your mortgage terms and lender.

Collateral Charge Mortgage:

In a collateral charge mortgage, the lender registers a legal claim against the property for an amount greater than the actual mortgage loan.

Compound Frequency:

Compound frequency is the number of times per year a lender adds interest to the principal balance. Most lenders compound semi-annually, while TD and HSBC compound monthly on variable interest rates.

For instance, consider a loan with a 10% interest rate that compounds semi-annually. In this case, the interest rate for each half-year period is 10%/2, or 5%. Let's assume $100 is borrowed. The interest for the first half of the year can be calculated as follows:

$100 x 5% = $5

For the second half of the year, the interest is calculated based on the updated principal, which now includes the interest from the first half. Thus, the calculation becomes:

($100 + $5) x 5% = $5.25

The total interest accrued over the year is the sum of the interest from both half-year periods:

$5 + $5.25 = $10.25

Conditional Offer:

A conditional offer to purchase signifies a buyer's intention to acquire the property, provided certain prerequisites are met before finalizing the sale. Common conditions include conducting a home inspection or securing financing.

Co-Signer:

A co-signer is an individual, often a family member like a parent, who commits to repaying the loan in case the borrower defaults. This arrangement benefits both the borrower and the lender, providing additional security for the loan.

Default:

Default occurs when a borrower fails to repay a loan or when a homeowner does not adhere to the terms and conditions stipulated in their mortgage commitment.

Exception:

Lenders adhere to strict guidelines when underwriting loan applications, but exceptions can be requested on a case-by-case basis. Depending on the lender, exceptions may take anywhere from a few hours to 5-7 business days. Our company values clear communication and will always keep you informed if we need to request an exception on your behalf.

Firm Offer:

A firm offer represents an unconditional commitment to buy a property. Sellers often prefer firm offers, as they increase the likelihood of a smooth and timely sale without significant delays.

Fixed Interest Rate:

A fixed-rate mortgage has an interest rate and payment amount that remain constant throughout the entire term, offering stability and predictability for borrowers.

Foreclosure:

Foreclosure occurs when a borrower defaults on their mortgage payments, prompting the lender to initiate a legal process called power of sale. The borrower receives notice and has the opportunity to bring the mortgage back into good standing.

Gross Debt Service Ratio (GDS):

GDS is a financial metric that compares housing expenses to gross income, expressed as a percentage. It is calculated as (Principal + Interest + Taxes + Heating + ½ condo fee (if applicable)) / income.

Guarantor:

A guarantor is an individual who pledges their assets as collateral to secure a loan. Unlike a co-signer, a guarantor has no claim on the asset purchased by the borrower and will not be registered on title.

Home Equity:

Home equity is the difference between a property's value and the total outstanding debt registered against it. It is calculated as property value – total debt secured by the property.

Home Inspection vs. Appraisal:

A home inspection is typically requested by a homeowner to evaluate a property's overall condition, while an appraisal is required by the lender to determine the property's value.

Insured/High-Ratio Mortgage:

An insured mortgage involves a third-party insurer, like CMHC, Sagen, or Canada Guarantee, to protect the lender if the borrower defaults. It requires a down payment under 20%, a purchase price below $1M, and an amortization period of up to 25 years. Due to the third-party insurance, insured mortgage rates are typically the lowest available.

Insurable Mortgage:

An insurable mortgage has a down payment of 20% or more, a purchase price under $1M, and an amortization period of 25 years or less. Lenders often mass insure these mortgages on the back end, deeming them lower risk, and borrowers may qualify for insured-level rates.

Joint Tenant:

A joint tenant is a person who co-owns property with one or more parties, with each owner's share transferring to the others upon their death. Usually ownership is split 50/50.

Land Transfer Tax:

Land transfer tax is a government fee paid by the buyer on the closing date, calculated based on the property's purchase price and location. Most provinces charge a provincial land transfer tax, while some cities impose an additional municipal land transfer tax.

Lien:

A lien is a creditor's claim against a property if a borrower fails to fulfill their financial obligations. Any property with a mortgage has a lien.

Loan to Value (LTV):

LTV is the ratio of the loan amount to the property's value, expressed as a percentage. LTV (%) = Loan / Property Value.

Maturity Date:

The maturity date, or renewal date, is when the mortgage term ends. At this time, borrowers can repay the full mortgage balance or switch lenders without incurring prepayment penalties.

Mortgage Discharge:

When a mortgage is fully paid off, the lender issues a mortgage discharge document that is registered on the property's title. This document certifies that the property is free from the mortgage debt. This cost is usually offloaded to the borrowers.

Mortgagee:

The mortgagee is the lender providing the loan.

Mortgagor:

The mortgagor is the borrower receiving the loan.

Open Mortgage:
An open mortgage allows borrowers to pay off their mortgage partially or in full at any time without penalties. Open mortgages generally have higher interest rates compared to closed mortgages, due to the flexibility they offer.  

Payment Default:

Payment default occurs when a borrower fails to make a scheduled interest or principal payment.

Pre-Payment Privileges:

These privileges allow borrowers to pay off a part of their mortgage each year without facing a penalty. Expressed as a percentage of the initial loan amount, these privileges are often indicated as 20/20 or 15/15.

This means borrowers can make a lump sum payment up to X% of their original mortgage balance annually and also increase their regular payments by X% annually. Lump sum payments are considered extra payments of $100 or more.

Prime:

The prime rate is the annual interest rate used by Canada's major banks to set interest rates for variable loans and lines of credit. It is influenced by the policy interest rate set by the Bank of Canada (BOC).

Principal and Interest Payment:

Each mortgage payment consists of two parts: principal and interest. The principal portion reduces your outstanding mortgage balance, while the interest portion pays for the interest accrued on your remaining balance.

Standard Charge:

A standard charge is a conventional mortgage registered on a property's title, detailing essential loan information such as the principal amount, interest rate, term, payment amount, and more. Unlike a collateral charge, a standard charge if registered for the mortgage balance at the time.

Tenant in Common:

When a property is owned by two or more individuals as "tenants in common," each owner has a specified percentage of ownership interest. If unspecified, ownership interest is divided equally among all tenants in common.

Term:

The mortgage term is the period during which the interest rate and other conditions of a mortgage are fixed. Terms usually last between 6 months and 10 years, with 5 years being the most common. At the end of the term, borrowers can renew or switch lenders, without penalty.

Title:

Title represents the legal ownership you acquire when purchasing a property. Mortgages are registered on or against the title to secure the lender's financial interest in the property.

Title Insurance:

Title insurance protects buyers and lenders from title defects discovered after closing, including title fraud, survey errors, municipal work orders, and zoning violations. The cost of title insurance is added to your closing expenses.

Total Debt Service Ratio (TDS):

The TDS ratio calculates the proportion of your income used to cover housing expenses (PITH: Principal, Interest, Taxes, Heating) and other debt payments.

Underwriting:

Underwriting is the lender's process of evaluating your mortgage application to determine the likelihood that you, as a borrower, will fulfill your mortgage obligations. It involves assessing your creditworthiness, income stability, and overall financial situation.

Uninsured/Conventional Mortgage:

Uninsured mortgages have a down payment over 20%, a purchase price of $1M or more, and/or an amortization period beyond 25 years. These mortgages don't qualify for mortgage default insurance, making them higher risk for lenders. As a result, uninsured mortgage interest rates are usually slightly higher. If you refinance, your mortgage will automatically become uninsured.

Variable Interest Rate:

Variable interest rates come in two forms – Adjustable Rate Mortgage (ARM) and Variable Rate Mortgage (VRM). Both types have interest rates that depend on the lender's Prime rate, with either a discount or a premium applied. For example, if the Prime rate is 6.50% and your discount is Prime -1.00%, your rate is 5.50%.

ARM – Your payment amount adjusts when the lender's Prime rate changes.

VRM – Your payment amount remains fixed for the term. If the Prime rate decreases, a larger portion of your payment goes towards paying off the principal; if the Prime rate increases, a larger portion goes towards interest costs.