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Most commonly known financial institutions are considered 'A lenders.' These lenders typically cater to clients with a good credit history and solid, steady income.
Amortization is how long it would take to completely pay off your mortgage, assuming your payments stayed the same for the entire course of your mortgage. For example, a 25 year amortization means if your interest rate and payments remained the same, it would take 25 years to pay your mortgage off.
An adjustable rate mortgage, also known as a variable rate mortgage, has a rate that fluctuates. Your payments will always be prime +/- a specified amount (for example, prime + 2%). When your lender changes their prime rate, your mortgage payment will also change.
An appraiser determines the market value of a house based on its condition and the selling price of comparable houses recently sold in the area.
B lenders are also known as 'alternative lenders.' Generally speaking, they typically have less stringent requirements that must be met in order to obtain a mortgage through them. They are also more willing to evaluate a mortgage application on a case-by-case basis. Although there can be a negative connotation to the term 'B lender,' there are some situations in which alternative lending can be a better fit. A great example of this is for self-employed individuals who have inconsistent income.
A borrower is the individual that is applying for mortgage financing. There can be more than one borrower on a mortgage application.
Finding your dream home before the sale of your current home can mean that you won’t be able to access the equity in your current home to use as a down payment. This is where bridge financing comes in. Bridge financing is a short-term loan provided to you by a mortgage lender that helps “bridge” the gap between the closing dates for both properties. It is repaid to the lender when the funds from selling your current home become available.
A mortgage broker is a licensed individual who acts as a liaison between you and your mortgage lender. They can help you apply for a mortgage and meet the conditions listed in your mortgage approval. For most mortgages, your broker is paid by way of a 'finder's fee' from the lender for sending them your business.
A closed mortgage is a mortgage where there are penalties involved for paying off part or all of your mortgage early. Closed mortgage are more common than open mortgages in Canada, as they generally offer lower interest rates than open mortgages.
Closing costs are usually around 1.5 percent of your total mortgage, and includes the fees that are incurred when the title to the property is transferred to you. Some of the more common closing costs include: legal fees, appraisal fees, title insurance, fire insurance, and home inspections.
The date on which the sale becomes final and home ownership is transferred from the seller to the buyer.
CMHC is one of three 'mortgage default insurance' providers in Canada. Along with Genworth and Canada Guaranty, they provide mortgage insurance to protect the lender in case you default on your mortgage. Any mortgage with less than a 20 percent down payment requires mortgage default insurance and the premiums are paid by you as the borrower.
A collateral charge mortgage serves the purpose of ensuring additional funds are available through the equity in your home, without having to pay the additional administrative and legal fees that are typically involved in a refinance. This gives you the ability to tie additional loans into your mortgage which generally offers lower interest rates than other loan sources, such as credit cards, car loans and personal lines of credit.
A mortgage commitment, also called a conditional mortgage approval, is an offer of mortgage financing to a borrower from a lender. The commitment includes a list of conditions which must be met in order for the financing to be fully approved.
The condition of financing date is outlined in your mortgage commitment provided by your lender. This is the date by which you must meet all of the conditions set forth in the commitment in order for your financing to be fully approved.
When you make an offer to the seller of a home, your offer will likely be subject to certain conditions. For example, 'subject to financing' means that your offer is contingent upon you being able to secure financing from a mortgage lender. Including conditions in your offer is not as attractive to sellers as an unconditional offer, but it protects you in the event that something goes wrong throughout the process.
The process of legally transferring ownership of property from one party to another.
A conventional mortgage is a mortgage with a down payment of at least 20 percent. These types of mortgages usually don't require default mortgage insurance, which saves you money over the course of your mortgage.
A co-borrower (or secondary applicant) is an additional borrower who is added to a mortgage application. Lenders will evaluate their income, debt, and credit history just as they would a primary borrower. Any party listed as a borrower within the mortgage commitment is legally responsible for the debt incurred through financing a home.
A co-signer has the same legal obligation to pay off mortgage debt as any other borrower listed on the mortgage commitment. Usually, co-signers are borrowers that do not reside with the primary borrower (for example, your parents or siblings).
A credit bureau provides detailed information about your credit history to creditors and lenders. There are different types of credit reports, meaning the score you see for yourself on a site like Credit Karma or Borrowell may not be the same score your mortgage broker or lender sees.
Your debt service ratios include your Gross Debt Service ratio (GDS) and Total Debt Service ratio (TDS). Both your GDS and TDS are used by lenders to evaluate your mortgage application. Generally speaking, lenders like to see your GDS at less than 39 percent of your income and your TDS at less than 44 percent of your income.
The most common type of default with regards to a mortgage is failure to make your mortgage payments. Defaulting on your mortgage can lead to your home being foreclosed on, which gives your lender legal ownership of the property.
A deposit is an amount that is put down after your offer to purchase a home is accepted by the seller. Generally, your deposit amount will be removed from your down payment once everything is finalized. A 'subject to financing' condition helps protect you in the event that your financing falls through, and usually means you will receive your deposit back.
Your down payment is the total up-front sum that is paid by you when you purchase a home. The down payment amount required depends on the purchase price of the house you're buying: for a purchase price of $500,000 and under, you're required to put 5 percent down. For a purchase price between $500,000 and $1 million, you're required to put down 5 percent on the first $500,000 and 10 percent on the remaining amount. Homes over $1 million require a down payment of at least 20 percent.
Equity in your home is the difference between the homes current market value (if you were to sell the home) and what's outstanding on your mortgage. For example: let's say you purchased a home for $500,000 4 years ago. The home is now worth $525,000 and you still have $200,000 owing on your mortgage. The equity in your home would be $525,000 - $200,000 = $325,000. An appraiser helps you determine the market value of your home in the event that you want to refinance your home and access the equity you've built for other purposes.
A fixed rate mortgage is the most popular interest rate option. With a fixed interest rate, the mortgage payment you make each month will stay constant for the term of your mortgage (until your mortgage renewal).
A firm offer means that your REALTOR® has removed all conditions from your offer to purchase a home.
The first-time homebuyers incentive was introduced by the federal government in September 2019. Through this program, the Government of Canada may contribute an additional amount to go towards the purchase of your home (on top of your own down payment). This decreases your total mortgage loan, which, in turn, decreases your monthly mortgage payments. The amount they will contribute is dependent on the type of purchase you are looking to make: up to an additional 5 percent towards an existing home, or up to 10 percent on a new build. It's important to note that this program does not work for all situations and there are certain qualifying criteria that must be met.
Foreclosure is the legal process of transferring ownership from the borrower to the lender, and is usually the result of the borrower defaulting on the mortgage.
Your Gross Debt Service ratio (GDR) is your total monthly expenses over your gross (before tax) monthly income. Monthly expenses include items such as mortgage payments, property tax, heating costs, and condo fees (if applicable). Generally, lenders like to see your GDS ratio below 39 percent of your income.
Your gross income is what you make before taxes and other contributions are removed, while your net income is the total amount after these items are removed. Net income is also called your 'take home' pay.
A high-ratio mortgage is a mortgage where you put less than 20 percent down on your home. All high-ratio mortgages require mortgage default insurance, which is insurance that protects the lender in case you default on your mortgage payments. The premiums for mortgage default insurance are your responsibility as the borrower, and the costs are added to the lifetime of your mortgage.
The Home Buyers' Plan is a program that allows you to withdraw funds from your Registered Retirements Savings Plans (RRSPs) to buy or build a home. The home can be for the buyer or a related person with a disability. Each buyer can redeem up to $35,000 of their RRSPs tax-free as long as they meet certain conditions. This money needs to be paid back into your RRSP's within 15 years.
The Home Buyers' Amount or Home Buyers' Tax Credit is a one time, non-refundable income tax credit in the amount of $5000 on a qualifying home. This provides up to $750 in federal tax relief to eligible individuals.
Equity in your home is the difference between the homes current market value (if you were to sell the home) and what's outstanding on your mortgage. For example: let's say you purchased a home for $500,000 4 years ago. The home is now worth $525,000 and you still have $200,000 owing on your mortgage. The equity in your home would be $525,000 - $200,000 = $325,000. An appraiser helps you determine the market value of your home in the event that you want to refinance your home and access the equity you've built for other purposes.
A visual inspection of the major components of a home, by a qualified individual, giving the homebuyer a true and unbiased picture of the home’s condition.
Home insurance offers protection against damages or losses to the policy holders property and assets.
The interest adjustment is the date when interest begins to accrue on a home. This date is usually the same as your closing date and is before your first mortgage payment. Your interest adjustment date (IAD) is usually the day before your first mortgage payment.
Mortgage interest is the interest charged on a loan for mortgage financing. Interest rates for mortgages fall into two categories: fixed rates and variable rates.
Your interest rate is the rate of interest charged to you throughout your mortgage term. For example, if you have a five-year fixed rate of 3.25 percent, your interest rate is 3.25 percent until those five years are up.
An interest rate differential (IRD) is a calculation used when you want to pay off your mortgage early or when you want to make extra payments to your principal above and beyond the prepayment privleges outlined in your mortgage commitment. Your prepayment penalty is generally the higher of 3 months of interest, or the IRD. The IRD is calculated as the difference between your original interest rate and the lenders current mortgage rate.
In terms of home ownership, a lien is when you owe money and that debt is attached to your property. A mortgage is one example of a lien.
A mortgage lender is a financial institution that offers loans for borrowers to purchase a home.
When you're purchasing a home, the listing agent is the seller's REALTOR®.
A loan-to-value (LTV) ratio compares your total mortgage amount to the total current value of the home. For example, if you want to purchase a $350,000 home and you have a $35,000 down payment, your total mortgage required is $315,000. Your LTV ratio would be $315,000/$350,000 = 0.90. This would be a 90 percent LTV.
A lump sum payment is an extra payment you make towards your mortgage, above and beyond your regular mortgage payments. Before making a lump sum payment, be sure to check your mortgage commitment or speak with your broker about prepayment privleges.
The maturity date (also known as your renewal date) is the day your current mortgage term expires. For example, if you purchased a home with a closing date of January 10, 2020, and you selected a 5-year fixed mortgage, your maturity date would be January 10, 2025. At this point, you are required to renew your mortgage with a new interest rate and mortgage term.
As implied by the name, monoline lenders offer just one product line: mortgage financing for residential homebuyers. They are different than your bank because banks offer a variety of services, such as savings and chequing accounts, credit cards, and/or lines of credit. Financing through a monoline lender is not available to the general public - it's only offered through a licensed mortgage broker.
A mortgage is a loan used to buy a home or property. That property is considered security for the loan, meaning that your lender can take legal possession of the property if you can no longer make your mortgage payments.
A mortgage broker is a licensed individual who acts as a liaison between you and your mortgage lender. They can help you apply for a mortgage and meet the conditions listed in your mortgage approval. For most mortgages, your broker is paid by way of a 'finder's fee' from the lender for sending them your business.
Mortgage default insurance is required if you put less than 20 percent down on your mortgage. This type of insurance is put into place to protect the lender in case you are unable to make your mortgage payments. It's important to note that this insurance does not protect you as the homeowner. Mortgage Default Insurance is offered through one of three providers in Canada: CMHC, Genworth, and Canada Guaranty, and premiums are generally added onto your mortgage and paid off throughout the life of the loan.
Your mortgage payment is the regularly scheduled payment that goes towards paying down your mortgage loan. It includes an amount that goes directly to your principal, an amount that goes towards interest, plus any applicable insurance fees.
Your mortgage principal is the initial amount you borrow when you obtain mortgage financing, and does not include any interest. Your principal will reduce with each mortgage payment you make, but not all of your payment will go towards reducing your principal. Your payment will also include interest and any applicable insurance premiums required.
A mortgage statement is provided to the borrower by the lender. It includes the current mortgage balance, interest rate, and the outstanding amount remaining on both the mortgage term and amortization.
The length of time the interest rate is guaranteed for a mortgage. Mortgage terms normally range from 6 months to 5 years or more, after which time you can repay the balance of the principal owing or re-negotiate the mortgage at current rates.
When mortgage financing is provided, the lender is also known as the mortgagee.
When mortgage financing is provided, the borrower is known as the mortgagor.
The mortgage stress test was introduced by the federal government in October of 2016. All homebuyers are subject to the stress test in order to qualify for a mortgage. The reasoning behind the original stress test was to consider long-term mortgage affordability and ensure you could still make your payments if interest rates were higher at your mortgage renewal. The updates to the stress test in 2021 were a reflection of unsustainable housing prices across the country, and were aimed at driving down prices by limiting purchasing power for buyers. As of 2021, you are required to qualify at the greater of: the current ‘floor rate’ set by governing parties, or the contract rate (interest rate) offered by your lender plus two percent.
Your net income is what you take home after applicable taxes and other contributions are removed, while your gross income is what you make before these items are removed.
A conditional Offer to Purchase means that you are willing to purchase a property given that certain conditions are met. Some of the more common conditions on an Offer to Purchase are a satisfactory home inspection, and whether or not you are able to obtain mortgage financing as the buyer. Once these conditions are met, they are removed from the offer and you have a firm sale.
An open mortgage allows you to repay your mortgage at any time without incurring a prepayment penalty. However, open mortgages generally come with higher interest rates than closed mortgages, making them the less popular option in Canada.
This form allows your lender to automatically withdraw your mortgage payments from a specified bank account.
Payment frequency is how often you make your mortgage payments and can significantly impact the amount of interest you pay through the lifetime of your mortgage. For example, changing your payments to a more frequent schedule can shave years off of the time it will take to pay your mortgage off, and save you thousands of dollars in interest.
Porting your mortgage means taking your existing mortgage contract from your current home to a new home. This includes the interest rate and terms set forth in the original contract.
A mortgage prepayment means paying more than your regular mortgage payments, whether in a lump sum or on a schedule.
The prepayment clause in your mortgage commitment outlines the terms around making extra payments to your mortgage. This includes the allowable prepayment amount and any penalties involved for exceeding that amount.
A prepayment penalty is a fee charged by your lender if you: pay more then the allowable amount towards your mortgage, if you want to entirely pay off your mortgage early, or if you want to break your mortgage to switch to another lender. Your penalty will be outlined in the prepayment clause section of your mortgage commitment.
Prime rate is set by your lender and will directly affect your mortgage payment if you have a variable rate mortgage. The prime rate can fluctuate and is heavily influenced by the Bank of Canada's overnight lending rate. If the Bank of Canada increases their lending rate, your lender will generally follow suit by increasing their prime rate. Conversely, if the Bank of Canada reduces their overnight lending rate, lenders will usually pass some savings along to borrowers by decreasing their prime rate.
See 'mortgage principal.'
Private lenders are unregulated corporations or individuals that offer mortgage financing. A mortgage through a private lender typically involves higher interest rates and fees than you would see with a typical mortgage.
Your property taxes are made up of two major components: municipal taxes and education property tax. The municipal tax rates are determined by the municipality in which your property is located, while your education property tax is determined by your provincial government.
A title is a document listing the legal owner(s) of a property.
With a purchase plus improvements mortgage, you can renovate now and pay those renovations off over time as part of your mortgage. It's important to note that with this type of mortgage, you'll need to pay for the cost of renovations upfront. Once the improvements are complete and inspected, the funds are reimbursed to you. For more information on this type of mortgage, check out our services page.
Any homebuyer in Canada is subject to the 'Mortgage Stress Test,' which includes qualifying at a rate set forth by governing bodies. The qualifying rate is the greater of the current 'floor rate' or the rate offered by your lender plus two percent. This is to help ensure long-term mortgage affordability, and helps test whether you will still be able to make your mortgage payments if your rate increases at renewal time.
A Real Property Report (RPR) is a legal document prepared by a registered Land Surveyor. It shows a high-level view of the property, including legal boundaries and any structures that are present. An RPR is required to sell your property in Alberta.
Your REALTOR® is here to help you find the right home based on your needs, and to represent you throughout the process of making an offer, engaging in negotiations, and deciding on whether to accept any counter-offers that are presented to you. If you are purchasing a home, you generally do not pay a fee to your REALTOR®; rather, they are paid a commission by the seller of the home. Your REALTOR® should also be licensed through RECA.
Refinancing gives you access to the equity in your home by closing out your current mortgage and replacing it with a new one. Refinancing before your mortgage is up for renewal can involve hefty penalties, so it's important to speak with your broker and have them run the numbers on your behalf before committing to a refinance.
Your mortgage is up for renewal on the maturity date listed in your mortgage commitment. For example, if your closing date for your home was July 4, 2020 and you chose a 5-year fixed mortgage rate, your renewal would fall on July 4, 2025.
A refinance plus improvements mortgage will allow you to renovate your home now, and access equity based on your homes future value (the appraised value after renovations are complete). For more information on this type of mortgage, check out our services page.
A second mortgage is a second loan that you take on your home and is secured against the equity you currently have in the home. Second mortgages allow you to borrow up to 80 percent of your homes current value, minus what you currently owe on your first mortgage.
See 'mortgage stress test.'
A survey is conducted by a registered Land Surveyor in order to document the legal boundaries of a property.
In a mortgage, your term is the length of time your interest rate is guaranteed for. For example, if you choose the 5-year fixed rate option, your mortgage term is 5 years. If you choose a 3-year variable rate, your mortgage term is 3 years. Once your mortgage term is up, you will need to renew your mortgage and secure a new interest rate.
This type of insurance protects both the lender and the homebuyer in the event that a financial loss occurs due to issues with the title of the property (for example, if an outstanding lien on the property is discovered).
Your Total Debt Service (TDS) ratio is your total monthly debts and expenses over your gross (before tax) monthly income. Expenses include items such as mortgage payments, property tax, heating costs, and condo fees (if applicable). Monthly debts include credit cards, auto loans, lines of credit, and spousal or child support payments. To calculate monthly debts on credit cards and linesof credit, take the current balance and multiply it by 3 percent (0.03).
When you apply for a mortgage, your application is evaluated by a mortgage underwriter. This is the process lenders use to determine whether they are willing to offer mortgage financing to you, and is based on several factors including: your income, debts and expenses, your down payment, and credit history. You may notice that our team also includes an underwriting department. Our underwriters are licensed individuals who are trained extensively on the requirements for each of the lenders we do business with. They understand how to best structure your application and which lender(s) to submit it to based on what type of mortgage product works best for you.
A variable rate mortgage, also known as an adjustable rate mortgage (ARM), has a rate that fluctuates. Your payments will always be prime +/- a specified amount (for example, prime + 2%). When your lender changes their prime rate, your mortgage payment will also change.
A VOID cheque is a cheque with the word 'VOID' written across it. This prevents someone from filling out and cashing the cheque. VOID cheques are usually used to verify your banking information.
