DON’T LET THE JARGON BE OVERWHELMING

Here’s a list of common mortgage terms you should be familiar with. If you’re still unsure, our Vancouver Realtor Adam Wahed is happy to help you navigate any of these.

AMORTIZATION PERIOD

The number of years designated to repay the mortgage loan.

APPRAISAL

The process of determining the value of a property, usually for lending purposes. This value may or may not be the same as the purchase price of the home. Bank is responsible for appraisal arrangement and cost.

BLENDED PAYMENTS

Payments consisting of both a principal and an interest component, paid on a regular basis (i.e. weekly, bi-weekly, monthly) during the term of the mortgage. The principal portion of payment increases, while the interest portion decreases over the term of the mortgage, but the total regular payment usually does not change.

CANADA MORTGAGE AND HOUSING CORPORATION (CMHC)

The National Housing Act (NHA) authorized Canada Mortgage and Housing Corporation (CMHC) to operate a Mortgage Insurance Fund which protects NHA Approved Lenders from losses resulting from borrower default. Premium is paid by purchaser.

SITE SURVEY

A legal document specifying the exact location of the building on the property and describing the type and size of the building including additions, if any.

TITLE SEARCH

A document setting out instruments registered against the title to the property - e.g. deed, mortgages, etc.

CLOSED MORTGAGE

A mortgage agreement that cannot be prepaid, renegotiated or refinanced before maturity, except upon payment of a prepayment penalty.

CONVENTIONAL MORTGAGE

A mortgage that does not exceed 75% of the appraised value or purchase price of the property, whichever is less. Mortgage loan insurance is usually not required for this type of mortgage.

DEBT-SERVICE RATIO

The percentage of the borrower's gross income that will be used for monthly payments of principal, interest, taxes, heating costs and condominium fees.

DEED (CERTIFICATE OF OWNERSHIP)

The document signed by the seller transferring ownership of the home to the purchaser. This document is then registered against the title to the property as evidence of the purchaser's ownership of the property.

DEPOSIT

A sum of money deposited in trust by the purchaser when making an offer to be held in trust by the seller's agent, broker, lawyer or notary until the closing of the transaction.

EQUITY

The interest of the owner in a property over and above all claims against the property. It is usually the difference between the market value of the property and any outstanding encumbrances.

FIRE INSURANCE

Before a mortgage can be advanced, the purchaser must have arranged fire insurance. A certificate or binder from the insurance company may be required on closing. Fire insurance should be effective as of closing date, not possession date.

FIXED RATE MORTGAGE

A mortgage for which the rate of interest is fixed for a specific period of time (the term).

FORECLOSURE

A legal procedure whereby the lender eventually obtains ownership of the property after the borrower has defaulted on payments.

GROSS DEBT SERVICE (GDS) RATIO

The percentage of gross income required to cover monthly payments associated with housing costs. Most lenders recommend that the GDS ratio be no more than 32% of your gross (before tax) monthly income.

HIGH RATIO MORTGAGE

If you don't have 25% of the lesser of the purchase price or appraised value of the property, your mortgage must be insured against payment default by a Mortgage Insurer, such as CMHC.

HOLDBACK

An amount of money required to be withheld by law by the lender during the construction or renovation of a house to ensure that construction is satisfactorily completed at every stage.

MATURITY DATE

Last day of the term of the mortgage agreement.

OPEN MORTGAGE

A mortgage which can be prepaid at anytime, without penalty.

PRE APPROVED MORTGAGE

Preliminary qualification by the lender of the borrower's application for a mortgage to a certain maximum amount and rate. Generally issued for a limited time only. Subject to limitations and final approval.

PRE PAYMENT PENALTY

A fee charged by the lender when the borrower prepays all or part of a closed mortgage more quickly than as set out in the mortgage agreement.

PRINCIPAL

The mortgage amount actually borrowed.

REFINANCE

Renegotiating your existing mortgage agreement. May include increasing the principal or paying out the mortgage in full.

RENEWAL

At the end of a mortgage term, the mortgage may "roll over" on new terms and conditions acceptable to both the lender and the borrower. This is known as renewing a mortgage. If satisfactory terms cannot be agreed upon, the lender is entitled to be repaid in full. In this case, the borrower may seek alternative financing.

PRE-PAYMENT OPTIONS

The right to prepay all or a portion of the principal balance. Prepayment charges may be incurred on the exercise of prepayment options.

SECOND MORTGAGE

This is usually at a higher interest rate and represents the difference between the appraised value of the house and first mortgage financing plus the downpayment.

SECURITY

In the case of mortgages, real estate offered as collateral for the loan.

TERM

The length of the current mortgage agreement. A mortgage may be amortized over a long period (such as 25 years) with a shorter term (six months to five years or more). After the term expires, the balance of the principal then owing on the mortgage can be repaid or a new mortgage agreement can be entered into at the then current interest rates.

TOTAL DEBT SERVICE (TDS) RATIO

The percentage of gross income needed to cover monthly payments for housing and all other debts and financing obligations. The total should generally not exceed 37% of gross monthly income.

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