Glossary of Terms

Amortization Period

The actual number of years it will take to repay a mortgage in full. This period is usually 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 a property that is pledged as security for the mortgage. This value may be more or less than the purchase price of the property.

Blended Rate Mortgage

A mortgage that combines the amount you owe under an existing mortgage with additional money that you require. The interest rate for the new amount is blended between the interest rate of the old mortgage and the interest rate for the additional amount to be borrowed.

CMHC

The Canadian Mortgage and Housing Corporation is a federal Crown corporation that administers the National Housing Act. It provides mortgage default insurance for high ratio mortgages. It allows people to qualify for mortgages with less than 20% down payment or equity.

Closed Mortgages

A mortgage that usually may not be prepaid or renewed early, without an interest penalty. Which could be the greater of three months interest or the interest rate differential.

Closing Date

The date that the purchase of a property becomes final and the new owner takes possession.

Conventional Mortgage

A first mortgage of up to 80% of the property’s appraised value or purchase price, whichever is lower.

Down Payment

The amount of money put forth by the buyer towards the purchase price of a home.

Equity

The difference between the appraised value of a property and the amount owing against it.

First Mortgage

A mortgage that is registered first against the property. This mortgage has to be paid first in the event of sale or default.

Five Percent Down Program

This allows buyers to obtain up to 95% financing on properties up to a certain value. The loan must be insured by either CMHC or GE. The Maximum loan amount will vary according to location and eligibility can vary with personal circumstances.

Fixed Rate Mortgage

A mortgage where the rate of interest is fixed for the entire period of the term.

Gross Debt Service Ratio

The percentage of your gross monthly income that can be used to pay the housing costs, including monthly mortgage payments (principal and interest), heating costs and property taxes ( condo fees when applicable). It is usually 32% of your gross monthly income.

High Ratio Mortgage

A mortgage for more than 80% of either or both a property’s appraised value and purchase price. In other words, the down payment amount is less than 20% of the purchase price or appraised value.

Interest

The amount paid on the amount borrowed.

Loan-to-Value Ratio (LTV)

The percentage of the value of the property for which a mortgage is required. This ratio is important in determining whether or not default insurance is required. It also sets the premium for the default insurance.

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 Broker

A registered agent who negotiates with lenders on behalf of a borrower to obtain the best overall mortgage package for that borrower’s circumstances.

Open Mortgage

This type of mortgage allows you to pay back the borrowed funds without notice or penalty. There are two types of open mortgages:

  • Fixed rate mortgages; usually a very short term, 6 months to a year. Interest rates will be higher than a closed mortgage with the same term.
  • Variable Rate Mortgages (VRM’s) which are usually open. However, many lenders now have a closed term product.

Principal

The amount of money owing on your mortgage, including accrued unpaid interest.

Refinance

Obtaining a new mortgage on an existing property. You might be looking for more money, a better rate or different prepayment terms.

Survey / Real property report

The legal written or mapped description of the location and dimension of your land. The survey should also show the dimensions and placement on your lot of any structure, including additions such as pools, sheds and fences. An up-to-date survey is often required by a lender as part of the mortgage transaction.

Switch

This is used when you are changing lenders at the end of a term, when the mortgage becomes “open.”

Title Insurance

Insurance offered by Title Companies to protect a landowner, and thus the mortgage lender against any legal uncertainties on the title to the real estate, or of legal priority of the mortgagee. This is usually considerably less expensive.

Total Debt Service Ratio (TDSR)

The percentage arrived at by dividing your monthly housing costs (principal, interest, property taxes, heating and half of condo fees) Plus all other monthly debt obligations by your gross monthly income and multiplying it by 100. This is used by all lenders as the “upper limit” by which to measure the ability of the borrower to make the mortgage payments.

Underwriting

The process of deciding whether or not to lend you money based on all the information you have provided to the lender. Every lender has different processes that they follow with different lending criteria.

Variable Rate Mortgage (VRM)

The interest rate is usually compounded monthly and fluctuates with the prime rate.

Verification of Employment

The lender will request a job letter as well as a current pay stub to confirm income, length of employment, position etc. Some lenders also contact an applicants employer to verify the details provided in the mortgage application.

Current Mortgage Rates

Term Rate
Prime Rate (P) 2.70%
Closed Variable P - .71%
Open Variable P + .80%
6 Month Closed 3.05%
1 Year Closed 2.39%
2 Year Closed 2.14%
3 Year Closed 2.34%
4 Year Closed 2.54%
5 Year Closed 2.64%
7 Year Closed 3.19%
10 Year Closed 3.79%
As of February 10, 2017. Rates subject to change without notice, OAC, E&OE