Accelerated bi-weekly mortgage payment

The sum is a little more (about 8%) than a regular bi-weekly mortgage payment. It is calculated by dividing your monthly mortgage payment in half and having that amount withdrawn from your account every two weeks. There are 26 withdrawals made from your account annually.

Accelerated Weekly Mortgage Payment

A mortgage payment that is made weekly that is a little more than a regular weekly mortgage payment. It is calculated by dividing your monthly mortgage payment into four. There are 52 withdrawals made from your account annually. 

Agreement of purchase and sale

This is the formal contract between the seller of the home and the buyer. It contains details about the terms and conditions that apply when the property exchanges hands, including the purchase price and closing date. 

Amortization

The total time it will take to pay off a mortgage loan. In Canada, high-ratio mortgages have a maximum amortization of 25 years. 

Appraisal 

The value of a property as determined by a licensed real estate appraiser.

Assessed value

This value is assigned to the property by the taxing municipality where the property is located. The amount of property tax levied against a property is based on the assessed value of the property and the mill rate (tax rate) of the municipality.

Bank of Canada

The central bank in Canada that was founded in 1934. Just four years later it became a Crown Corporation. The Bank sets the overnight lending rate for the country and is key in creating monetary policy. 

Basis point

A basis point is one one-hundredth of one percent (0.01%). One quarter of one percent (0.25%) is 25 basis points.

Bi-weekly mortgage payment

A mortgage payment that is taken from your account every two weeks for a total of 26 payments each year.

Blended mortgage

An option to prevent breaking your mortgage term early and avoid prepayment penalty fees. It blends a mortgage rate from your current mortgage with a rate for a new mortgage to give you a rate in between the two.

Bridge financing 

Short term financing that allows borrowers to borrow their equity from a property sale to use as a down payment for a property purchase that closes before the sale does.

Carrying costs/monthly carrying costs

These are the expenses that you pay every month over and above your mortgage, such as insurance, property taxes, heat/utilities, and condo fees.

Closed mortgage

A closed mortgage is one that cannot be paid off in full before the end of the term without paying fees or penalties. Most closed mortgages still have prepayment options, allowing the borrower to pay it off ahead of schedule.

Closing costs

The expense related to services that come with buying real estate, such as legal fees and home inspection costs.

Closing date

The day that the new home officially passes hands and the home buyer becomes the home owner. On the closing day, all the money exchanges hands from the buyer to the seller and the transfer of the property title is initiated.

Conventional mortgage

Refers to any mortgage with at least 20% equity/down payment. Put another way, it is any mortgage with a loan-to-value ratio of 80% or less.

Credit score

A score given to borrowers based on their history of debt repayment.

Debt service ratios

A ratio, expressed as a percentage, of a borrower's expenses compared to their gross income.  

Default 

When a borrower stops making mortgage payments, they are considered to have defaulted on the loan.

Deposit

Money that is given to your real estate agent when you make an offer to purchase. This is a lump sum that demonstrates to a seller that you are able and willing to go through with the purchase. If the offer is successful, the deposit is held and forms part of the down payment.

Down payment 

This is a lump sum that you put down to purchase a home. In Canada, home buyers need to put down at least five percent of the purchase price. Down payments under 20% are considered high-ratio mortgages while home buyers that put down over 20% qualify for a conventional mortgage. 

Fixed-rate mortgage

A mortgage with an interest rate and payment amount that do not change for the length of the term.

Gross debt service ratio 

A ratio, expressed as a percentage, of the carrying costs of a home (using the stress test interest rate) - mortgage payment, property taxes, heat, and condo fees - compared to a borrower's gross income. The maximum gross debt service ratio guideline is generally 35%, but can go as high as 39% on a high-ratio mortgage.

Gross income

An individuals income before taxes and other deductions.

High-ratio mortgage

A high-ratio mortgage is any mortgage with less than 20% down payment/equity, or any mortgage with a loan-to-value ratio between 80.01% and 95%.

Home buyers plan

Up to $35,000 from your RRSP can be withdrawn to purchase a home without paying income tax on the withdrawal. The funds must be replaced within 15 years.

Home equity

This is the amount of ownership that you have in your home. It is calculated by taking the balance you owe on your mortgage and subtracting it from the market value of your home. 

Home equity line of credit (HELOC)

A revolving credit facility secured by home equity. The maximum borrowing limit is 65% of the market value of the property, minus the amount of mortgage still owing.

Home inspection

An examination of the condition of the property carried out by a home inspection professional. The report will review and report on the condition of major home systems such as the roof, heating and ventilation, electrical, and plumbing, as well as the general condition and maintenance status of the finished areas of the home. 

Interest

An amount charged to borrowers as incentive for lenders to lend money. The interest rate is expressed as a percentage.

Interest adjustment date

The interest that accumulates between your closing day and the day your first mortgage payment is withdrawn. If you select monthly payments on the 1st, and your mortgage closes on the 15th of January, a payment will be taken on the 1st of February for the interest that accrued between January 15th and February 1st. The first full mortgage payment would be taken on March 1st.

Land transfer tax

This is a tax amount paid when the ownership of property changes. Most provinces have a land transfer tax, which is a percentage of the property value. In Alberta and Saskatchewan a smaller transfer fee is charged to home buyers. 

Loan-to-value ratio

The ratio of your mortgage compared to the value of the property. If a property is worth $100,000 and the outstanding mortgage is $50,000, the loan-to-value ratio is 50%.

Lump-sum payment

A one-time payment made by the borrower against the principal balance of the mortgage.

Market value

The current value of a property. The market value is determined mostly by the price a buyer is willing to pay. This price may need to be validated by an appraisal.

Maturity date

Final day of your mortgage term.

Maximum affordability

This is the most money that a lender will give you to purchase a home. 

Monthly mortgage payment

Mortgage payments that are taken from your account once a month. There are 12 withdrawals made in a year. 

Mortgage

A loan that you take out from a lender to cover the costs of purchasing a home.

Mortgage application

Forms and documentation you provide to a lender in hopes of qualifying for a mortgage loan. 

Mortgage approval

Once a seller has accepted your offer to purchase, you seek mortgage approval from a lender by filling in a mortgage application. 

Mortgage default insurance

Also called CMHC insurance, this is coverage required for high-ratio mortgages in case you default on the payments. Home buyers that put less than 20 percent towards a down payment are required to have mortgage default insurance. 

Mortgage pre-approval

A formalized preparation step where a borrower completes a mortgage application, but does not have a specific property in mind. It is as close to a full approval as one can get. A pre-approval allows home buyers to shop with confidence by knowing their maximum affordability ahead of time.

Mortgage rate

Lenders charge interest on the money you borrow and the interest rate they use, which is expressed as a percentage, is your mortgage rate.

Mortgage renewal

If you still owe money on your mortgage loan at the end of your term, you will need to renew your mortgage. You are free to select a new lender at that time without paying a penalty to move.

Mortgage term 

This is the amount of time that you commit to the mortgage agreement. During the term, your interest rate and the terms and conditions of the mortgage remain the same.

New to Canada mortgage

Non-Canadian citizens will need to go through some extra work to get a mortgage. Often this means extra documentation proving your ability to pay the mortgage back. There are also special new to Canada mortgage programs that can help new residents buy a home. 

Offer to purchase

When you find a home you like you give the seller an offer to purchase. This document formally expresses an interest by you to purchase the property. Buyers often offer a deposit along with the offer to show they are serious and able to complete the transaction. If a buyer changes their mind, the seller can keep the deposit.

Open mortgage

With an open mortgage you can put any extra payments on it to bring down the balance without having to pay prepayment penalty fees. The trade-off is that these mortgages usually have higher rates. 

PITH

This is a term used to refer to your monthly housing costs, including mortgage principal and interest payments, taxes and heating expenses. It is a part of the debt service ratio calculations. 

Portable mortgage

This type of mortgage can be moved with you if you sell your home and buy a new one. Home buyers who have a mortgage rate that is lower than what is currently offered may benefit by porting the mortgage versus paying the penalty charge and taking a new mortgage.

Prepayment options

These are part of the terms and conditions in your mortgage agreement and they define how and when you can pay off your mortgage ahead of schedule.

Prepayment penalty

If you break your mortgage term early you will be charged an early termination fee, or a mortgage prepayment penalty charge.

Prime rate

This is the interest rate that guides all other lending rates for a bank or lending company. The Prime rate is typically (but not always) the same from one bank/lender to the next. Variable mortgages use the prime rate to set the interest rate for the borrower. It is indicated in a mortgage agreement as Prime +/- ___. Many personal and car loans are variable interest rates and are also pegged to Prime.

Principal

This is the amount of your mortgage that you owe, not including any interest owed.

Property tax

A tax that home owners pay to the municipality. The revenue is used for roads, garbage removal services and recycling initiatives for the municipality.

Purchase price

This is the actual price you pay for the home, which may be higher or lower than the market value. Generally, the price someone pays for a property is one measure of its market value.

Rate hold

When a lender holds a mortgage rate for you for up to 120 days. However, if interest rates drop in this time, you should be able to get the lower rate. 

Real estate agent/realtor

An experienced professional that can help you find a property to buy or help you sell your home. 

Real estate lawyer

When you buy or sell a home, your real estate lawyer ensures that the paperwork is done correctly and, and handles the movement of large sums of money. They are also protecting your interests in the transaction.

Second mortgage

A mortgage that is taken out on a property that already has a mortgage on it. Not all lenders offer this product because it is riskier. In the case that a home owner defaults on the mortgages, the first mortgage would get paid off first. Second mortgages come with higher rates because of the risk. 

Self-employed mortgage

Mortgage products for self-employed borrowers.

Skipped payment

Some mortgage products allow home buyers to skip up to four payments in a year. However, although you don’t have to pay down on the principal that payment, the interest will still add up and be added to your mortgage balance. 

Statement of adjustments

On closing day your real estate lawyer will present you with a statement of adjustments that show where all the money goes, including closing costs. 

Stress Test

A calculation used to see if you can probably still afford your mortgage in the future, when it renews at the end of the term with potentially much higher interest rates. 

Terms and conditions

These are listed in your mortgage agreement and define what you can and can’t do during the term. It is important to be clear on your options such as whether you can pay a lump sum at some point without facing a prepayment penalty. Other terms that may be offered including the option to port or assume the mortgage or a skip-a-payment option.

Total debt service ratio

This is one of the calculations that lenders do to see what your mortgage affordability is. It is calculated by adding up your mortgage payment, property taxes, utilities and debt payments then dividing that total it by your gross monthly income. That total needs to be under 42 percent for a lender to be confident you can make your payments.

Utilities

Monthly costs you pay for services in your home like power, water, phone, internet, etc.

Variable mortgage rate

This is a mortgage rate that varies if your lender’s Prime rate changes. It is listed in your mortgage agreement as Prime +/- and a number. If the prime rate changes, your mortgage interest rate will go either up or down by the amount Prime changes, but the discount/premium to Prime (the +/- part) stays the same for the entire term. While these rates are usually (not not always) lower than fixed-rate mortgages, they lack the stability of a fixed-rate. 

Weekly mortgage payment 

A mortgage payment that is withdrawn from your account every week. That means there will be 52 payments per year. 

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