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mortgage
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Mortgage
Definitions
This section provides a brief explanation of
the terms you will find throughout this site. To help keep explanations
short, the definitions while accurate in general, may not be complete.
Amortization: With a mortgage, the
borrower agrees to pay back the amount borrowed over a period of time. This
breaking of the loan into smaller parts to be paid back over uniform blocks
of time is amortization.
Amortization Period: The actual number
of years it will take to repay a mortgage in full. This period can be longer
than the loan's term. For example, a mortgage may have a five-year term and
a 25 year amortization period.
Appraised Value: An estimate of the
market value of the home (and property) that the borrower pledges as
security for the mortgage. This value may be more or less than the purchase
price of the property.
Assets: The things of value that you
own.
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” (or combination) of the interest
rate of the "old mortgage" and the interest rate for the
additional amount to be borrowed.
Blended Mortgage Payment: A regular
installment payment composed of both principal and interest in which part of
the money received is applied toward the principal of the loan and part is
put to pay the interest. This is the norm for mortgage payments. Blended
payments are separate from the concept of a blended rate mortgage.
Bridge Financing: A loan made for a
short term, to "bridge" (or cover) the time gap between completing
the purchase of one property and finalizing arrangements to pay for it. The
need for this type of financing often results from mismatched closing dates.
CMHC: The Canada Mortgage and Housing
Corporation is a federal Crown corporation that administers the National
Housing Act. CMHC's services include providing housing information and
assistance to consumers and providing mortgage default insurance for high
ratio mortgages.
Carrying Costs: The expenses of living
in, and maintaining a home (and property). This includes mortgage payments,
property taxes, heating, repairs and so on.
Closed Mortgage: A mortgage that
generally may not be prepaid, or early renewed, unless the borrower is
willing to pay an additional interest. Some lenders may allow limited
prepayment privileges without additional interest.
Closing Date: The date the purchase of
the property becomes final and the new owner takes possession.
Collateral Mortgage: A loan evidenced
by a promissory note and backed by the collateral security of a mortgage on
a property. The money borrowed is generally used for a purpose other than
the purchase of a home, such as a vacation, or home renovations.
Conventional Mortgage: A first
mortgage of up to 75% of the property's appraised value or purchase price,
whichever is lower.
Deed: A legal document that transfers
and evidences ownership of the property to the buyer.
Default: Failure to repay an
outstanding debt as agreed.
Deposit: A sum of cash that is
required to 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. If the offer is later turned down by the
buyer, the deposit may or may not be returned.
Down payment: The amount of money put
forward by the buyer toward the purchase price of a home.
Equity: The difference between the
price for which a property could be sold and the total amount owing on it.
First Mortgage: A mortgage which 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 for
which the rate of interest is fixed for the term (i.e. a set period of
time).
Floating Rate Mortgage: See Variable
rate mortgage.
Gross Debt Service Ratio: The
percentage of a borrower's gross monthly income that can be used to pay the
housing costs, including the monthly mortgage payment (principal and
interest), heating costs and property taxes (and condominium fees when
applicable). The total should not be more than 32% of monthly gross income.
High Ratio Mortgage: A mortgage for
more than 75% of either or both a property's appraised value and purchase
price. In other words, the down payment amount is less than 25% of the
purchase price/appraised value.
Interest: Interest is the cost of
borrowing. It is the amount paid on the money borrowed. It is represented as
an annual percentage rate applicable to the mortgage.
Liabilities: What you owe. For
example: taxes, mortgages, car loans and credit card balances.
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 mortgage is both a loan
used to purchase or refinance a home and a security for the repayment of the
loan.
Mortgage Disability Insurance:
Insurance that pays the mortgage installments should the insured borrower
become ill or disabled and unable to work.
Mortgage Default Insurance:
Government-backed or privately-backed insurance protecting the lender
against the borrower's default on high-ratio mortgages.
Mortgage Life Insurance: Insurance
that pays off the mortgage debt should the insured borrower die.
Mortgage Payment: The regular
installments made towards paying back the principal and paying interest on a
mortgage.
Mortgagee: The lender.
Mortgagor: The borrower.
Multiple Listing Service (MLS): A
computer-based system for relaying information to real-estate agents about
properties for sale.
Open Mortgage: A mortgage that can be
prepaid or renegotiated at any time without additional interest.
Pre-Arranged Mortgage: A mortgage for
a set maximum amount and interest rate that is arranged prior to the
purchaser finding a house. Often arranged prior to home-shopping, this
option can help the purchaser establish an affordable price range.
Prepayment Options: Allows the
borrower to prepay a portion, or all of the principal balance, with or
without penalty. These options are typically restricted to specific amounts
and times.
Principal: The amount initially
borrowed under the mortgage.
Rate (Interest): The annual percentage
amount charged in return for borrowing funds.
Realtor: A real estate professional
who is a member of a local real estate board and the Canadian Real Estate
Association.
Second Mortgage: A mortgage granted
when there is already a mortgage registered against the property. If the
borrower defaults and the property is sold, the second mortgage is paid
after the first.
Security: Property (assets) offered as
backing for a loan. In the case of mortgages, the property being purchased
or refinanced forms the security for the loan.
Survey: A document providing details
of a property's boundaries, measurements and structures. It will also
describe any easements, rights-of-way, or encroachments made by either your
property or by adjoining properties onto your property.
Term: The length of time a lender will
lend mortgage funds to a borrower. Most mortgage terms run from six months
to five years. Certain lenders may offer longer terms (eg. 7 or 10 years).
After this period, the borrower can either repay the balance (the remaining
principal plus interest) of the mortgage, or renew the mortgage for another
term. The total length of a mortgage is usually made up of several terms.
Title: The legal evidence of ownership
to a property.
Title Search: A detailed examination
of the registered title documents to ensure there are no liens or other
encumbrances (claims) on the property, and no question regarding the
seller's statement of ownership.
Total Debt Service (TDS) Ratio: The
percentage of a borrower's gross (before tax) monthly income needed to cover
payments for housing costs (principal, interest, taxes, condominium fees,
heating costs) and all other debts and obligations (typically loans and
credit cards). The total should not be more than 40 percent of gross monthly
income.
Variable Rate Mortgage: A mortgage for
which the rate of interest fluctuates as money market rates change. While
the regular payments you make stay the same for the term, the amount applied
toward the principal changes according to the change (if any) in the rate of
interest. This is also referred to as a Floating Rate Mortgage.
Vendor: The seller in a real estate
transaction.
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