Interested in buying a home? Here is a list of helpful, easy-to-understand terms used for mortgages and purchasing a home.
Types of Mortgages
Closed Mortgage – Closed mortgages often stay unchanged for the term you already agreed to. If you decide to renegotiate, refinance or pay out before the end of term, prepayment costs will occur.
Convertible Mortgage – Having the same security as a closed mortgage, a convertible mortgage can be altered to become a longer, closed mortgage without prepayment costs and at any time. Usually a convertible mortgage goes along with fixed rate mortgages.
High-Ratio Mortgage – If you have less than 20% of a total purchase price for a downpayment, you can obtain this type of mortgage. It has to be insured with credible sources including Genworth Financial Canada or CMHC.
Open Mortgage – An open mortgage lets you repay at any time during the set term, in full or part, without the worry of prepayment costs.
Types of Rates
Fixed Rate Mortgage – Throughout the complete mortgage term, the interest rate does not change
Variable Rate Mortgage – This rate can fluctuate during the mortgage term with the prime rate of the market.
Mortgage Rate – This is the percentage of interest paid above the loan principle. In perspective, if you have a mortgage of $1000,000 with a rate of 12%, monthly payments would be a part of the $1000, 000 with 12% interest.
Appraisal – When the lending value of a property is accessed. Often, a fee is required to have an appraisal done.
Interest Adjustment – This is a required payment for that time occurring from the closing date and the date of a mortgage’s first payment (Example: Closing date of August 10, and August 15 is first payment.) To avoid an interest adjustment, arrange the first mortgage payment to occur at least one month after the closing date.
Land Transfer Tax– In some provinces, there is a tax when a property changes ownership.
Legal Fees and Disbursements – Having a real estate lawyer (in Quebec, a notary) will help you navigate the legal costs involved with buying or selling a property or home.
Prepaid Property Tax and Utility Adjustments – This is the amount the seller will be reimbursed by the buyer, if the seller prepaid any utility bills or taxes on the property. The amount is based on the closing date.
Property Survey – An up to date survey of your property’s location and proportions are required by any mortgage lender. A lawyer, often for a fee, can get your survey if you can’t get one from the seller.
Sales Taxes – Like all things we buy, there are taxes. It is no different for properties, though some are exempt from taxes and some aren’t. Sales tax includes GST or PST (or both.) New properties usually need GST, where residential resales are often GST exempt.
General Mortgage Terms
Amortization – Often 15 to 25 years in length, amortization is the amount of time it takes you to completely pay off your mortgage (Not the same as a mortgage term.)
Assuming a Mortgage – This is when you purchase a property and assume the previous owner’s mortgage.
Buy Down Rate – the part of the interest rate you assume when someone buys your home. If the buyer dislikes the interest rate on their mortgage, you can take up to 3% onto your current mortgage.
Canada Mortgage and Housing Corporation (CMHC) – A corporation of the Crown and a source of mortgage insurance often for high-ratio mortgages. For Canadians, the CMHC tries to improve the housing and living conditions and for the federal government, administers the National Housing Act.
Closing Costs – The additional costs (legal fees disbursements, land transfer fees,) above the purchase price of a home, due on the closing date.
Closing Date – The date when the purchaser takes possession of new home or property, and sale becomes final.
Downpayment – Usually ranging from 5% to 20%, a downpayment is the amount of money one pays towards the cost for a property.
Genworth Financial Canada – Another high-ratio mortgage insurance source. A privately-owned mortgage insurance company.
Home Insurance – Different from mortgage life insurance, this insurance includes coverage of a home and the contents. It is often called “property insurance.”
Inspection – When a qualified, legal home inspector assesses the home or property you wish to buy, locating any immediate or eventual repairs and their potential costs.
Lump Sum Payment – To reduce the mortgage principal, you make an extra payment.
Mortgage – In simple terms, a mortgage is a loan where the property is its own collateral. This loan is taken out so you can purchase a home or property.
Mortgage Life Insurance – Pays your mortgage’s outstanding balance if you pass away. It is different from other property or home insurance (these cover home and contents.)
Multiple Listing Service (MLS) – A listing often having photos, descriptions and other information on available properties.
Pre-Approved Mortgage Certificate – Written, legal agreement stating your mortgage is set at a certain amount and interest rate, allowing you to have stress-free home shopping.
Offer to Purchase – An agreement legally binding the buyer and seller of a home. It states financial conditions of sale, what is included in the house and the price offered.
Porting – Also known as a “portable mortgage,” this is when you move to a new home and you transfer the current mortgage to the new property.
Pre-Payment – When you pay some of your mortgage before it comes due. Check your agreement, however, as there may be prepayment costs involved.
Refinancing – Refinancing usually happens when a customer needs extra funds. There may be pre-payment costs involved during this process of establishing a new mortgage (same property) with new conditions and terms while paying out the current mortgage.
Renewal/Renewing – With the original bank or lender, you will be able to renew the terms of your mortgage. You can also pay off any outstanding balance.
Term – A term describes the length of time during with you pay a set rate on the mortgage loan. Usually, a mortgage is set over 20 to 25 years, with a shorter term between approximately six months to five years. When the term is up, you can renegotiate the interest rate with your bank or lender.