fbpx

Financial Jargon – Talk Like a Pro

Mortgage & Financial Glossary

Mortgage and Finance terms can be very confusing, that’s why we created this glossary for you get educated for the mortgage jargon in the finance industry!

 

Accelerated biweekly payment

A payment frequency that allows you to pay to your mortgage every two weeks instead of once a month.. This type of payment allows you to pay down your mortgage faster and save on interest costs. Since there are 52 weeks in year, you will make 26 payments a year. To calculate the amount of your accelerated biweekly payments, divide your monthly payment by two (for example, $1,000 – 2 = $500). Effectively you will pay the equivalent of one extra monthly payment per year.

Accelerated weekly payment

A payment frequency that allows you to pay to your mortgage every week instead of once a month. This type of payment allows you to pay down your mortgage faster and save on interest costs. To calculate the amount of your accelerated weekly payments, divide your monthly payment by four (for example, $1,000 ÷ 4 = $250). Effectively you will pay the equivalent of one extra monthly payment per year.

Amortization Period

The period of time take to pay off a mortgage in full. The most common amortization period for a new mortgage is 25 years if your down payment was less than 20%. If your down payment is 20% or higher then greater amortization of 30 & 35 years periods are available thru many lenders. Longer amortization means you could afford larger amount of the mortgage with lesser payment, however if longer amortization is chosen, the interest is also will be more due to the longer life of the mortgage.

Asset

Typically an asset is anything of value owned. For mortgage purposes, most of lenders (depending on the program) consider the following assets:  Real Estate property, Savings, Inheritance, Investments, RRSPs, GIC, TFSA, Stocks/Bonds/Mutual Funds, Automobiles, Boats, Motorcycles, Aircrafts.

Annual Property Taxes

Property taxes due each year and are usually paid annually by the homeowners. The amount varies for different provinces and each municipality.

Appraised Value

An appraiser establishes the ‘market value’ of your home. Typically this procedure required by mortgage lenders to establish value of your home in order for the lender to make a decision, of how much of a loan can be secured against the subject property.

Annual Percentage Rate (APR)

Annual Percentage Rate establishes the final cost of borrowing of your mortgage, loan or line of credit including interest, appraisal, title insurance and legal conveyance fees. Because APR includes all additional fees charged, it is usually works out higher than contractual interest rate.

Breaking Your Mortgage

Breaking your mortgage means to end the agreed on term prior to it’s set date. Mortgage lenders have the right to charge the penalties for breaking the term and typically there are two types of penalties for fixed term closed mortgages. 1) Three months interest penalty 2) IRD Interest Rate Differential penalty. It’s highly advised to consult with your financial institution or Mortgage Broker to determine the amount of penalties before breaking the mortgage term.

Bank

Financial institution regulated by the federal government of Canada. Main objective and its business of taking deposits, lending money, providing financial services to public via different available vehicles including: mortgages, lines of credits, personal and business loans, credit cards, mutual funds, insurance, investments, GICs, RRSPs, TFSA, chequing and saving accounts.

Blended rate

It’s an interest rate set up to refinanced mortgage loan, that blends an existing rate and today’s market rate for new money to advanced.

Bond or Government Bond

a certificate issued by a company or government to the lender (or individual) for the loan provided. The issued bond acts as a promissory note to pay the lender interest at a set rate and to repay the loan on a set date.

Closed Mortgage

A closed mortgage can be a fixed or a variable rate mortgage.  These types mortgages cannot be prepaid in full and will be subject to penalties if you break it before it maturity. Most lenders do allow limited pre-payment privileges such as lump-sum payment, regular-payment increase, double-up payments.

Closing Date

It’s the day you have been waiting for! It’s when conveyance lawyers transfer the funds for either purchase or sale of your home, and transfer the title into the buyer(s) name, then buyer gets the keys to his/her new home!

Conventional Mortgage

This is a type of mortgage where it’s amount doesn’t exceed 80% Loan to Value of the purchased or refinanced home. In other words, your down payment has to be 20% and up to get a Conventional Mortgage. It’s benefits: you don’t have to buy mortgage insurance thru (CMHC, Genworth) and you can also choose longer amortization up to 35 years rather than standard 25 years.

Convertible Mortgage

Short-term mortgage solution, usually up to 6 month where you can lock-in or secure into a more suitable, lower interest mortgages either Fixed Rate Mortgage or Variable Rate Mortgage without any fees or penalties.

Cost of Borrowing

The total costs of obtaining your mortgage. These costs typically include your appraisal fees, inspection fees, legal costs and other charges required to close your mortgage.

Canada Mortgage and Housing Corporation (CMHC)

CMCH is a crown corporation that contributes to the stability of the housing market and financial system, provides support for Canadians in housing need, and offers objective housing research and advice to Canadian governments, consumers and the housing industry.

CMHC also provides the mandatory loan insurance for buyers with less than 20% down-payment. For more information, visit the CMHC website.

Capital gain or loss

Sale of an asset such as security or real estate property will either result ‘capital gain’ the profit or loss. Capital gain of the real estate is taxed on the 50% of the profit.

Cash back mortgage

It’s a higher percentage rate mortgage pays certain percentage of the mortgage back in cash. It is designed to help buyers to have an additional access to cash when buying a home to help with necessary expenses: moving, legal fees, new furniture and etc. It’s important to know, that if you break “Cash Back Mortgage” term prior to its maturity, you will have to payback the cash, plus associated penalties.

Certified cheque

A method of cheque payment guaranteeing instant funds once deposited into receiver’s account. Usually banks charge small fee to issue a certified cheque.

Closing costs

Closing costs are extra expense that needs to be considered before buying a home. They are: property transfer tax PTT, legal fees, appraisal fees, title insurance, moving, portion of prepaid property taxes and two month strata fees. It is out of pocket expense and cannot be added into the mortgage loan. Typically mortgage lender would like to see 1.5% in savings of the mortgage amount on top of the down payment.

Collateral charge mortgage

A type of mortgage registered as a collateral charge (running account), this will allow borrowing additional funds (providing property appreciated in value) without the necessity to discharge and re-register a new mortgage and pay legal fees. The downside of  collateral charge is when your mortgage reaches the end of its term (renewal date) and you would like to switch your mortgage to a different lender you will have to incur legal fees to discharge your mortgage and register a new one with a new lender. Some lenders allow you to chose between a standard mortgage registration and a collateral one while others (such as credit unions) will only allow collateral charge registration.

Credit rating

A credit rating is determined by credit agencies that establish an individual’s credit history. Evaluations of individuals credit worthiness are reporting on their credit bureaus. Individuals can request their credit reports thru the two credit reporting agencies: Equifax and TransUnion for free copy of your bureau via post mail or for a fee via Internet.

Credit report

Credit report is a detailed credit history of an individual for the last 7 years. Credit report is essential when applying for credit as lenders relying on your bureau to make a decision whether you will be given additional credit. If you have a poor credit rating, lender can still exercise granting credit at the higher rates due to risk to the lender not receiving funds back.

Credit score

A credit score is a numerical number varies from 300 to 900 that are calculated on gathered information in your credit bureau, to establish the creditworthiness of the individual. It is generally based on a credit report primarily originated from the credit bureaus. Any credit issuing institution will rely on the individual’s credit score to determine how risky it would be to extend the credit to borrowers. Good credit is the key to obtain the product you want from the lender. The higher is your score the better is your chance to obtain desired credit at the lowest interest rate.

300 – horrible. 500 – needs work. 600 – it’s ok. 700 – good. 800 – excellent. 900 – phenomenal.

Credit union

A credit union is a co-operative financial institution that’s member-owned and operates for their profit. Provincially regulated, they are typically smaller than the bank and locally community oriented. Many credit unions demonstrate active support for community development and sustainability.

Credit card

Is the of credit issued by either financing institution, department store or retail outlet. Interest rates and annual fees varies depending on the type of credit cards offering; air-miles, various points, cash-back, travel insurance, rental car insurance, extended warranty and etc.

Deposit

Deposit is money put into account held at the bank or the credit union. The form of deposit can be in the form of: cheque, cash, direct deposit, electronic transfer or wire transfer.

Deposit-taking institution

Deposit taking institutions are: banks, credit unions, trust companies, any other financial institutions accepting deposits from the public. Also provides services such as, chequing and savings account, TFSA, RRSPs, mortgages, loans, credit cards and other financial services available.

Discount brokerage

A company that offers to buy and sell investments to public without providing any advice. The firm deemed to be as wholesale operations due lower commissions or fees in comparison with a full service brokerage, which provides holistic approach and sound advice to their clients.

Dividend

A portion of a corporation’s profit paid to its shareholders. In North America income deriving from dividends is taxed, but at the lower rate than personal income.

Down payment

Down payment is the amount of money you have available to put towards the initial payment when you buy your home. Minimum amount required is at least 5% of the negotiated price of the Contract of Purchase & Sale Agreement. If your down payment is less than 20%, you will have to buy the mandatory default insurance, such mortgages called “High Ratio”. At 20% down and higher, you don’t have to buy mortgage default insurance and such mortgages called “Conventional”

Deed

A deed is a document confirming the ownership of a particular property

Estate planning

The process of anticipating and arranging one’s personal affairs to provide for death or mental incapacity or long-term care.

Early Renewal

Prior to the mortgage term expiry, some lenders will allow to renew their mortgages up to four month. Usually lender will send out the letter with new rates and the deadline date to renew the mortgage into a new term. However, the renewal rates usually are not the best and it’s very important to learn what kinds of rates are available from other lenders before signing an early renewal form.

Estimated Value

It’s a market comparable and estimated value of the property based sold homes in your area and city assessed property value. The mortgage lenders don’t support estimated value as they rely on appraised value of the subject property.

Estoppel certificate

An estoppel certificate is a legal document issued by a condominium corporation that shows various finances and legal status of a particular unit. If monthly contributions aren’t up to date, money owed belongs to the strata unit and not the previous owner. Buyer will be held responsible to bring the account to 0 and pay the due amount. It is important that your legal attorney carefully reviews estoppel certificate and advise on financial report of any strata condo you plan to buy.

Easement

Easement of Land is a legal right to the access over or use of the land or waterway in favor of municipality, BC hydro, school and etc.

Equity take out

If your home has equity, you could be eligible for an equity take out mortgage loan. Equity is usually built by either paying down your existing mortgage or increase in real estate prices. To borrow against your existing equity you can refinance your existing mortgage (or obtain a new mortgage if your property is clear title), or you can obtain a second mortgage which will be registered behind your first mortgage as long as you have enough equity to do so.

First mortgage

Is registered as first charge against your property and takes precedence above any other charges or mortgages. Other mortgages or financial encumbrances registered and if you sell the property or it’s been foreclosed, the first mortgage has a priority to be paid out first despite the number of mortgages or charges.

Financial advisor

An individual who advises clients on one or more aspects of their finances. Financial advice can come from different professionals including but not limited to insurance agent who recommends certain types of insurance, an accountant who offers tax tips, or a mortgage broker who suggests a mortgage strategy. Although their roles may overlap, A financial advisor must not be confused with a financial planner. A financial planner analyses a client’s total financial situation and prepares a comprehensive plan to help that person attain financial security in the long term.

Financial institution

A commercial or investment bank, trust company, credit union, brokerage house, monoline lender, leasing company, insurance company, mortgage loan company, pension fund, brokerage firm or any other institution that participates in financial transactions involving cash or offers financial services to their clients or members. The government regulates most financial institutions.

Financial service charge

A fee charged by a financial institution for its services, for example: monthly banking fees, clearing and certifying cheques, making bill payments, writing cheques or using automated banking machines. Fees will vary depending on the services of the financial institution used.

Fixed interest rate mortgage

A mortgage loan where set interest rate and payment amount does not change for a specific term until maturity.

Foreign bank branches

Foreign banks in Canada focusing on commercial banking and other lending activities.

Foreign exchange

It’s a branch to exchange foreign currency and offering different currencies to the public.

Guarantor

It’s an individual that agreed to make payments on the loan if the original borrower of that loan fails to repay it. Usually lenders require guarantors for the applicants that were unable to qualify on their own for different reasons.

Gross debt service (GDS) ratio

The percentage of your gross income before tax required covering home-related costs: mortgage payments, auto loan, other debts as per credit report, property taxes, heating and condo fees. Depending on the lender, the GDS ratio should not be more than 39% (35% in some cases) of your gross income and it’s different from TDS total debt service ratio. See TDS below.

Guaranteed investment certificate (GIC)

An investment product offered by major financial institutions and credit unions. It has guaranteed small rate of return over a fixed period of time. It’s maturity between 30 days and 5 years.

Health insurance

Type of insurance that covers all or a portion of specific expenses related to medical treatment. Similar to car or house insurance, you may choose the level of coverage.

High ratio mortgage

A mortgage that was obtained with less than 20% initial down payment is high ratio mortgage. Borrowers are required to buy mortgage default insurance that is mandatory in Canada.

Holding company

A company that has control over other companies through ownership of a sufficient proportion of those companies’ common stock.

In real estate context a holding company is setup for ownership of one or more properties and only derives income from rental income of those properties.

Home Buyers’ Plan (HBP)

A federal government program that allows first-time home buyers to use up to $25,000 from their Registered Retirement Savings Plans (RRSPs) tax-free to make their down payment or other closing costs. The $25,000 is per individual, so combined limit of $50,000 for a married/common law couple.

Home equity

Equity in your home is determined by the difference between the value of your home and balance owed on your mortgage. Home equity increases overtime due to favorable markets and because you pay down your mortgage.

Home equity line of credit (HELOC)

Mortgage product derived by the equity in your home. Major banks can only allow 65% Loan to Value of HELOC. Some financial institutions will go up to 75% Loan to Value. To learn more about the home equity line of credit visit: http://nationallending.ca/buying-a-home/investment-property/

Home Insurance

Type of insurance protecting your home from fire, vandalism, break-ins, flood, theft, earthquake and more.

Interest Rate

The interest rate is the percentage used to calculate the amount of the interest to be paid by the borrower to the lender. The sooner you pay off the mortgage loan, the quicker you’ll become mortgage free.

Interest rate cap

Interest rate cap exists on certain variable mortgage products. It is a pre set maximum interest rate that can be charged on a variable interest rate mortgage, regardless of any increase in market interest rates.

Investment

Using money to purchase financial vehicles or assets with expectation of future return or appreciation of value. Essentially the money is being used to make money.

Investment income

Money earned from any investment source, including but not limited to stocks, bond, securities, rent, interest paid on savings, interest paid on mortgage investments (private lending), etc.

Investment Property

A property purchased with intent to generate income from renting the property. Commercial or rental property can be purchased with 20% down. It’s primary definition a cash flow which established by the amount of rent received from the property minus the associated expenses.

Interest Rate Adjustment

If you have a variable mortgage rate your interest rate can change throughout the term of the mortgage. The interest rate is based on the bank prime rate (plus or minus any premium or discount). The bank prime rate is directly related to the Bank of Canada overnight rate, and the Bank of Canada reviews the rate 8 times a year. While highly unlikely, it theory your mortgage rate can be adjusted 8 times a year. If the prime rate does change the bank will make an interest rate adjustment on your mortgage and notify you, usually via mail, of your new rate.

Interest Rate Differential (IRD – Penalties)

This type of penalty is usually charged on a fixed closed mortgage. The penalty is calculated on  amount being prepaid, the difference between existing contract rate and the market rate at the time of breaking the mortgage, and the remaining term.

Mortgage Balance x ((Contract Interest Rate – Current Market Rate) / 12) x term remaining = Penalty

Note: Banks make huge profits on IRD penalties as they have 2 sets of rates, posted and discounted, while you might have a discounted rate on your mortgage statement, the actual contract rate would be the posted rate. For example you have 3% mortgage rate but the posted rate was 6% at the time you signed the mortgage contract, in this case the IRD penalty would be calculated on the 6% and not the 3% ,creating an inflated penalty amount and costing you thousands of dollars more.

Inter-Alia Mortgage

A single mortgage that is secured by multiple properties. This type of mortgage is usually setup with private financing, either to obtain more security for the lender or higher loan amount for the client. Another instance when inter-alia mortgage might be used is to help client buy a new property before the existing property is sold (similar to bridge financing).

Joint Tenancy

A type of real estate ownership with two or more individuals owning undivided interest in the property. This type of ownership can be explain as “last man standing”, the last surviving owner gets the title to the property.

Lease

It’s an agreement to rent for a period of time at agreed monthly payments. Commercial or residential leases simply have monthly repayments for use of space. Automobile and equipment leases have a residual value (buyout) at the end of the lease term that either allows you to buy it outright or return it at the end of the lease term.

Lender

A private individual, financial institution, company or an organization who lends money to people or companies. The lender will set the interest rate and mutually agreeable terms and conditions of the loan to the borrower.

Liable

in the context of credit, borrowers are responsible repaying the debts to the debtor.

Life insurance

An insurance policy that pays insured amount of money to the beneficiaries of the policy in the event when the insurer is passed away.

Line of credit

Unsecure loan where the borrower can draw funds up to the loan limit and repay it back either minimum payments, usually 3% on the balance or pay it down in full without penalty.

Liquidity

How easily assets and investments can be converted into cash, making them “liquid”. Liquid assets and investments including any type of savings, stocks, bonds, mutual funds that can easy be cashed. Assets such as real estate are not considered liquid as it takes time to sell the property and turn it into cash (in other words liquidate it).

Low-fee bank account

Major eight banks in Canada – Bank of Montreal, Royal Bank of Canada, National Bank of Canada, HSBC Bank Canada, Laurentian Bank of Canada, Canadian Imperial Bank of Commerce, Bank of Nova Scotia and TD Canada Trust. Each has signed a memorandum of understanding (MOU) with the federal government of Canada agreeing to offer low-fee account to their customers. Government of Canada made sure that Canadians enjoy banking services at the price they can afford.

Loan to Value (LTV) Ratio

Is the ratio of the mortgage amount to property value that determined by the lenders. For example, if your property is worth $500,000 and you made a 25% down payment of $100,000 your mortgage amount will be $400,000; hence the LTV is 75%. If the LTV is higher than 80%, the borrower will have to purchase mandatory mortgage default insurance.

Lump Sum Payment

The most popular mortgage products in Canada allow borrowers to use lump sum prepayment privileges. Depending on the lender, lump sum can be prepaid up to 20% of the original mortgage balance without penalty either once or ongoing as long as it doesn’t exceed allowed amount of prepayment each year.

Maturity

It’s the time where the loan or mortgage reaches the end of its agreeable term.

Minimum payment

Set to make minimum payment on the loan, mortgage or credit card. Minimum payment can be increased depending how the loan was initially set up. Usually minimum mortgage payment allows up-to 20% increase. HELOCs, credit lines and credit cards allow paying the balance in full.

Monoline lender

A financial company that specializes in a single type of product, such as mortgages. It is non deposit taking institution usually provides highly competitive mortgage rates and products available only thru the independent registered mortgage brokers. Such lenders offer flexible mortgage products, competitive rates, better prepayment privileges due to no expensive overheads, having no retail branches and usually better service than major banks. Monolines are federally regulated financial institutions in Canada.

Monolines offer full service via Internet portals to monitor all mortgage activities including, payments, statements, mortgage balances, due dates and all necessary services to increase monthly payments, prepayments and renewals online. Some monolines using major bank’s money to distribute it thru it’s mortgage brokers channels. Top monoline lenders are: MCAP, Street Capital, First National, and Merix Financial.

Monthly Payments

A payment frequency that allows you to pay to your mortgage every month. Remember, fastest way to pay out your mortgage sooner is to set payment frequency to ‘accelerated biweekly or weekly’

Mortgage

A mortgage is a loan secured by the property being financed.  If mortgage isn’t repaid on time, lender has the right to foreclose and sell the property to recover its funds.

Mortgage broker

An individual or organization offering different mortgage products from major financial institutions, credit unions, trust companies, monoline lenders and private lenders. Independent mortgage brokers are regulated by Financial Institutions Commission (FICOM) and deliver better knowledge, professionalism, sound advice and service their clients enjoy far beyond then a service from a major bank’s employee. Brokers have unlimited access to many lenders (not just one like the bank) with many different programs enables them to successfully allocate the mortgage product catered to a specific situation for their clients.

Mortgage default insurance

This insurance is required by law in order to obtain the mortgage with less than 20% down-payment. This insurance protects the lender in case of a default by the client – it does not however protect the client in case he or she cannot continue to pay their mortgage. This insurance is entirely different from and should not be confused with life insurance (mortgage life insurance), home, property, fire, content, and other types of insurance that are designed to protect the home owner.

Mortgage Life Insurance

Mortgage Life Insurance is designed to protect the owner in case of death, critical illness or disability (short term). In case of death the insurance pays out the remaining balance of the mortgage, while short term disability insurance will cover monthly payments for a certain period of time (usually between 12 months to 24 months). Most lenders provide their own insurance but this limits the portability of the coverage if the client decides to switch lenders at renew or refinance – obtaining insurance from an independent provider will allow the client to move the coverage from lender to lender without forfeiting the premiums paid.

Mutual fund

A type of professionally managed investment fund where money from numerous investors is pulled together in order to purchase different stocks, bonds, and other securities.

Maturity Date

The maturity date is the last day of the term of your mortgage. Any outstanding balance is due on this date. However, if you have an outstanding balance you will usually have the opportunity to renew your mortgage with a new principal amount, interest rate, term and amortization.

Mortgage Default Insurance

Mortgage Default Insurance pays the lender if the borrower defaults on making payments. This insurance is required by law for high ratio mortgages (those for an amount greater than 80% of the value of the property) and may be required under other circumstances.

Mortgage Life Insurance

Creditor insurance that pays off the remaining mortgage debt in the event of a borrower’s death.

Mortgage Loan Insurance

See Mortgage default insurance

For more information about Mortgage Loan Insurance or to calculate the premium, you can visit CMHC or Genworth websites at: www.cmhc.ca or www.genworth.ca or www.canadaguaranty.ca.

Mortgage Penalties

Every closed term mortgage (variable or fixed) will have penalties outlined in the contract for paying out the mortgage, refinancing, or renewing before the maturity date of the term. The lender may also charge a penalty if the mortgage is prepaid over the allowable annual limit as set out in original mortgage commitment. The standard penalties for fixed mortgages are equal to the greater of the interest rate differential or 3 months interest for fixed mortgages. Penalties for variable are only 3 months interest for fixed mortgages. There are also administration and discharge fees associated with payout out a mortgage early.

NOTE: Some of the “low rate” mortgages have restrictions and non-standard fees, for example 3% of the remaining balance if terminated early, and every lender has a different way of calculating the interest rate differential penalty (See IRD). When getting a new mortgage make sure you are well informed of the penalties as you might end up paying thousands of dollars in penalties if your situation chances and you need to sell your property before maturity date.

Mortgagee

The lending institution or the private individual who agreed to fund the mortgage on your property.

Mortgagor

The borrower repaying the mortgage loan back to the lender.

MLS Listing

The listing of a real estate property on Multiple Listing Service (MLS) includes particular details of a property including; description, property taxes, maintenance fees, measurement, year built and other details. Most lenders request MLS listing when borrower is purchasing the property.

Open mortgage

Type of a mortgage that can be prepaid at any time without charges or penalty. Typically an open mortgages have higher interest rate than a closed mortgage; open term mortgages  are popular among builders, short term borrowers, and property flippers.

PAD Pre-authorized debit

Is a withdrawal from financial institution made to the account holder for automatic payment withdrawals in lieu of issuing cheques to pay the same bill every month or other payment frequency.

Posted rate

The interest rate advertised by the major banks and financial institutions. However in practice, banks offer lower interest on their mortgage than the posted rate.

For example: if bank’s posted rate 5% and most common discounted 5 year fixed mortgage term is 3%, banks may honor the lower ‘discounted or preferred rate’ to their best customers. NOTE: if a mortgage being paid out before the end of the term, banks will calculate the penalty on the posted rate of  5%, rather than discounted rate of  3%. Such practice results in high penalty amounts for the mortgage holders and big profits for the lenders.

Most Mono-line lenders and Credit Unions do not use or have posted rate. These lenders offer low rate, and If a mortgage being paid before the maturity, their penalties will be based on the contractual mortgage rate, but not the posted rate which is widely used by the major banks.

Premium (insurance)

A set schedule of fixed payments for an insurance policy.

Prepayment

A payment towards a portion or full mortgage balance above the set payment schedule. Closed mortgage contracts usually set a certain percentage of the original mortgage amount that can be prepaid without penalties, but prepayments beyond that limit will include penalties and administration fees. For example a mortgage may allow annual 20% prepayment of the original mortgage balance without a penalty.

Prepayment charge

Also called a penalty for paying off or breaking the mortgage term before maturity. Charges may also incur if a lump-sum is greater than the amount allowed as per original mortgage agreement.

Prepayment penalty

A fee lender charges a fee for paying off the mortgage prior to the end of the set term, or if prepayment amount is greater than the amount specified in the mortgage contract.

Prepayment privilege

Allows to prepay a certain amount above the regular payments and a lump sum towards the principal mortgage amount without a fee or penalty.

Prime rate

The interest rate established by Central Bank of Canada for financial institutions to charge on loans to the customers.

Principal

The actual loan amount being given by the lender to the borrower.

Portable Mortgage

A mortgage you can transfer from a property you sell to the new property you purchase. There is usually a time limit on the transfer ie 90 days from the sale date. There are 2 major benefits of transferring a mortgage, one is that you get to keep the same rate and term of your current mortgage; the other benefit is that you avoid paying any penalties associated with paying out the existing mortgage.

Pre-Approved Mortgage

Pre-approvals are done to help determine your maximum purchase price, review your credit, and lock-in a rate for 120 days while you shop for your new place. At this stage the documents are not reviewed by the lender but the lender does issue a rate hold guaranty for a maximum of 180 days (depending on the lender). As part of our mortgage pre-approval process we do ask for minimal income documentation such as pay-stubs in order to avoid any surprises at the time of full approval, and we also go over mortgage options, budgets payments, and closing costs associated with buying a property.

Principal

The outstanding mortgage balance you borrowed from the lender not including any interest.

Purchase price

The price you have contractually agreed to pay for the purchase of a property. This amount excludes any fees, taxes, or closing costs associated with the transaction.

Qualification rate

Qualification rate can be your mortgage contract are or in certain instances the qualification rate can be higher than the contract rate. The qualification rate is usually higher when borrowers are looking to obtain a certain mortgage product including but not limited to: HELOC, VRM and any mortgage term less then 5 year fixed term rate mortgage.

Realtor

Is the licensed real estate agent hired to purchase, sell and/or appraise real estate property. Realtors don’t charge fees or commissions when working with buyers to acquire property. Commission is paid by the sellers to the realtors upon the sale of their property.

Real property

Includes land, buildings, any permanently attached fixtures and improvements.

Renegotiating

Renegotiate is to change the conditions, rate, term of the mortgage or a loan prior to expiration of the term.

Renewal/renewing

Is the mortgage extension at the end of the term. Typically lenders send-out the letter to of renewal couple of month before the due date, and borrower can renew with a different lender or stay with an existing bank – depending on the renewal offer.

Retail branch

Is a designated bank’s location where services are provided to the walk-in clients.

Risk

Is the possibility of losing one’s invested capital or the uncertainty of future gains.

Second mortgage

A second mortgage is a loan that is placed as a second charge behind the bank’s first mortgage (your current mortgage) and secured by the existing equity in your home. Second mortgages are provided by a different lenders, as the first lender will not issue a second mortgage in most cases.

Secured credit card

Is a card that provides a credit by paying the security deposit to the issuing institution. Usually if borrower wants $1000 credit capacity – the security deposit will be $1000 dollars to offset the risk for the issuer.

Security

Is taken as collateral against the loan. When mortgage is taken out, property is the asset used as security.

Title insurance

Title Insurance is the product that provides coverage for losses related to title fraud, survey issues, problems with the title on your property and challenges to the ownership of your home. Many lenders require purchasing Title Insurance when new mortgage is done.

Total debt service (TDS) ratio

The percentage of  annual income required to cover all expenses related to the property (mortgage, condo fees, heating, property taxes) and all other debts (credit cards, leases, loans, etc). TDS varies based on the lender and borrower’s credit score, in general maximum TDS allowed by lenders is 44%.

Term

The length of the mortgage contact (loan), not to be confused with amortization. Most lenders offer mortgage loans with terms between 6 months to 10 years. On the due date of the term (maturity date of the mortgage contract), you must repay the balance remaining on the loan, if any. Most lenders will give you the option to renew the mortgage either with no changes with exception of the interest rate and continue to payoff the remaining balance or you may choose a new principal amount, interest rate, term, amortization and a new lender if you wish to do so.

Title

The title confirms and certifies ownership of a specific property and discloses any liens, charges, easements, that might be on the title of the property (including a mortgage)

Third mortgage

Third mortgage is a charge secured against the property behind the first and second mortgages. Usually third mortgages are provided by the private lenders.

Variable interest rate mortgage

A mortgage with changing interest rate over the term of the mortgage. The rate can go up or down based on market conditions. Typically the rate is set based on bank prime rate and plus or minus a discount (ie prime is 3% discount is .40%, mortgage rate is 2.60%).  Most lenders allow a variable rate to be switched into a fixed rate at any time at prevailing market rates for remaining term or longer. (For example if there is 3 years left on a variable mortgage term, it can be converted into 3 year fixed term or longer).

Venture capital

Money invested into a business project, typically a start up or expanding business, in a way of equity in the company or loan to the company.

Zoning

A system of designating land and development in municipalities for a specific use. Zoning may include residential, commercial, industrial, agricultural, and others, as well as multiple designations within each zoning segment.