- An official estimate of your home’s property value, conducted by an accredited real estate appraiser. The appraiser assesses factors including: the home’s size, condition, and comparable homes in the same area.
- Appreciation refers to the increase in your home’s value over time. Your value may increase for a number of reasons, including but not limited to, interest rates, supply & demand, inflationary periods, & even emotional causes.
- The amortization period is the total length of time the borrower will take to repay their mortgage loan. Conventionally in Canada, this is as long as 30 years.
Assuming a Mortgage
- Taking over the previous owner ‘s or builders’ mortgage upon purchasing a property
- Like the United States’ federal reserve, the Bank of Canada (BoC), is Canada’s central bank and is responsible for directing the economic and financial welfare of Canada.
- A bridge loan is a short-term loan that helps you bridge the gap between the sale of your current home & the closing date of your new home. If you require funds from the sale of your home as the down payment source for your new purchase, but your sale closes after the completion of your purchase, a bridge loan may be for you.
- Capital gains tax is a government tax on the profits realized on the sale of an appreciating asset. In real estate today, if you sell an investment property for MORE than your acquisition cost, you will realize that capital gain and be taxed accordingly.
- Whether you’ve purchased a stand-alone rental property or have a rental component to your home, this secondary source of income, ideally above & beyond your total monthly bills, provides great value.
- A closed mortgage is one at which the borrower cannot repay, renegotiated, refinance, or break the contractual term without paying a penalty. Due to the commitment, the lender will provide a more competitive rate. In these circumstances, there are strategies to minimize potential penalty costs.
- Closing costs represent the additional cost to a real estate transaction, in addition to the purchase price. These costs must be paid on your closing date. Some examples include land transfer tax, legal fees, disbursements, & your remaining down payment.
- A co-sign is the addition of another borrower added to your application for the purpose of increasing your total qualifying power.
- A mortgage where the borrower puts down 20% or more of the purchase price as their down payment. This includes refinancing your mortgages at a maximum 80% LTV.
Conditions / Subjects
- There may be conditions attached to the offer, for example: offer being subject to arranging mortgage financing or selling a home. Typical conditions are in place for 7-10 days, and are ultimately put there protect you, the buyer.
- A consolidation mortgage allows you to combine all your high interest debt payments, including credit cards, car loans, unsecured loans, personal loans, student loans, medical bills, high mortgage interest rates, and more, into one single mortgage payment. This gives you the peace of mind of having one single payment at a far lower interest rate. Thus, resulting in a lower overall monthly payment and savings in your pocket.
Contract of Purchase & Sale
- A written contract outlining the terms under which the buyer agrees to purchase the property.
- A mortgage that gives you the option to change from short-term to long-term.
- Debt service ratios are used to calculate the percentage of a borrower’s income used against their total debts for the purpose of qualifying. These ratios include a borrower’s monthly mortgage payments, property taxes, heating costs, strata fees (if applicable) & any consumer debt like credit cards & car loans.
- Debt servicing refers to the relationship of your total household income & the ability to pay your acquired mortgage, property taxes, heat, strata & all other debts.
- Default of a mortgage occurs when a borrower has not made payments or has been late on making their payments, otherwise breaking the terms of their mortgage agreement.
- A purchase deposit demonstrates the buyer’s good faith to the seller to close on their purchase. This deposit is held in trust & then credited back to the buyer at completion as part of their total down payment.
Deposit Loan Financing
- This temporary financing option comes into play when you have purchased a home, but your deposit is tied up in the sale of your current home.
- The funds you provide as your initial payment to secure a mortgage. The minimum down payment to purchase a home in Canada is 5% on the first $500,000 & 10% on the next $500,000, up to $1,000,000.
- Equity is the difference between the total value of your home and the amount owed on the property. This difference in value is what the homeowner actually owns.
- A fixed rate mortgage is a mortgage at which the payment remains static for the duration of your term.
- FTHB is an abbreviation referring to a First Time Home Buyer.
- When buying an owner-occupied home, you can secure financing with a gift from an immediate family member
Gross Debt Service Ratio (GDSR)
- GDSR is the income ratio that factors in your ability to cover the monthly costs of a property. This assumes a max 39% of you household income to cover
1. Your stress tested mortgage payment
2. Property taxes
3. Heat and
4. Strata fees *if applicable*.
See also: Total debt service ratio.
- A mortgage where the borrower’s down payment is under 20% of the home’s total purchase price. High ratio mortgages, also known as insured loans, require mortgage loan insurance. See also: Low ratio mortgage.
Home Equity Line of Credit - HELOC
- A HELOC, also known as a home equity line of credit, is a collateral charge option borrowers have in place to access their equity without having to reconstruct in any way. A HELOC is typically the second cheapest cost of borrowing behind a standard mortgage & no payments are owed until funds are advanced. Lenders will lend you up to 80% of your home’s value, less the mortgage.
- A home inspection is one that is conducted by a qualified professional who inspects the overall condition of your home. Your home inspector will give you a true, un-biased evaluation with a final report that outlines any deficiencies.
- All homeowners require this insurance policy as it covers your property & contents against fire, water damage, theft, & other forms of damage. It also provides a liability component protecting you in the event someone gets hurt on your property.
- Interest adjustment accounts for the amount of interest due between the start date of your new mortgage & the date of your first mortgage payment. There is often a gap between these two dates, in which you start paying down your mortgage principal as of your first mortgage payment.
- A JV partnership works great when one party has the down payment, and the other party has the credit and income to help qualify.
- Also known as property transfer tax, this tax is levied (in some provinces) on any property that changes hands.
Legal Fees & Disbursements
- Legal fees & disbursements will be the cost of your lawyer or notary, who in which will be responsible for legally binding your new real estate transition. This cost is due at closing.
Loan-To-Value – LTV
- Your loan-to-value, aka LTV, refers to the relationship between your total down payment or equity in your home & your property value. If your down payment / equity totals $50,000 & your property value is $500,000, your LTV is 90%.
Low Ratio Mortgage
- A low ratio mortgage, also known as a conventional mortgage, represent a mortgage that has more than 20% down. With low ratio mortgages, there is no mortgage default loan insurance required. See also: High ratio mortgage.
Lump Sum Payment
- Lump sum payments are a part of your pre-payment privilege options, in which allow you to pay down your mortgage faster should you wish. See also: Pre-payment privileges
- A mortgage is a loan that you take out in order to purchase property. The lenders collateral is the property itself.
Mortgagee & Mortgagor
- Mortgagee is the lender & mortgagor is the borrower.
Mortgage Default Insurance
- Mortgage default insurance, also known as mortgage loan insurance, is for those borrowers purchasing with less than 20% down. This insurance is added into the total mortgage, at which protects the lender in case of default.
Mortgage Life & Disability Insurance
- While 100% optional, life insurance will pay off your mortgage in full, for in the event that a borrower passes away. The disability component will cover your mortgage payments for up to 2 years, in the event one borrowers is found injured or sick & can’t earn an income.
- An open mortgage provides the flexibility to repay all or part of your mortgage at any time during the contractual term without a penalty. Due to the flexibility, the lender will often charge a higher rate. For this reason, we recommend an open mortgage for short term circumstances.
- Mortgage penalties typically come in two forms: an IRD penalty or a 3-month interest penalty. This penalty is charged when you break a closed term mortgage.
- Porting your mortgage is the transfer of an existing mortgage from one home to a new home when you move.
- A pre-approval is the process of establishing a borrowers total borrowing power and secures a rate hold for a period of 120-day. This option is free, with no obligation, & is put in place to protect the borrower should rates rise. The step also gives the borrower all their financial options, in turn, allowing the buyer to work with their realtor on the home hunting process.
- Pre-payment privileges are a perk of most mortgage products today. This option allows the borrower to pay down their mortgage faster without penalty. Most lenders will allow you to pay down between 15% & 25% of your mortgage balance each year, including the option to also increase your monthly payment.
- Prime rate is the benchmark rate that lending institutions use to determine lines of credit, mortgages, and personal loans.
- The amount you owe on the mortgage.
Principal Pay Down
- Principal paydown refers to the pay down of your total mortgage balance owing. As your total mortgage balance goes down & your property value goes up, your total equity grows.
- Renewing your mortgage occurs at the end of your term, resulting in a new term & rate.
- Refinancing is generally the process of restructuring your mortgage at a lower interest rate. Refinancing is also a common practice which involves the process of leveraging your equity to pay off high interest debt, investments, purchase property, finance renovations, take a co-signer off title, pull out cash reserves, and more.
Renewal / Renewing
- A rate hold is an interest rate held at today’s best rate and is put in place to protect you should rates rise during your home buying journey.
- Also known as contents insurance, this policy will be for your renters. It protects their contents, but more importantly to you, as a landlord, it covers their liability for property damage caused by their negligence.
- Sales taxes apply to the purchase cost of a property. Some properties are sales tax exempt (GST and/or PST), and some properties are not. For example, residential resale properties are typically GST exempt, while new build homes require GST. Always ask your team before signing.
- A self-employed mortgage product is specifically tailored for those business owners or self-employed individuals earning an income the non-traditional way. Self-employed mortgages can be accessed by those running full-time or part-time businesses inside of a corporation, partnership, or as a sole proprietorship.
Stress Test – Benchmark
- The stress test was implemented by the Canadian government to ensure Canadians could afford a mortgage in the event of a rate rising environment. This means that you will qualify at the benchmark rate (varies) or 2% above your contract rate, the greater of.
- Sweat equity refers to the physical improvement of upgrading your home through renovations.
- The mortgage term is the contractual length of time at which you & your lender’s agreement & rate are in affect. The most common term length in Canada is a 5-year term.
- Title insurance is now required by most mortgages & is put in place by your legal team to protect you & your lender from losses related to property title or ownership.
Total Debt Service Ratio (TDSR)
- Total debt service ratios, also known as TDSR, is the percentage of your household’s gross monthly income that goes towards housings costs associated with home ownership like your mortgage payment, property taxes, heating, & strata fees, if applicable. This also includes any consumer debt like car loans, credit cards, student loans, etc... Lenders use this calculation, along with your GDSR ratio, to assess your ability to qualify for a mortgage. A 39% GDS & 44% TDSR are the typical thresholds for most borrowers.
- As interest rates on variable rate mortgage products increase, the payments do not change. There will be a point where the principal and interest payments can no longer cover the interest charged on the mortgage. This happens when your rate has exceeded the Trigger Rate, otherwise reflecting an INTEREST ONLY payment with additional interest owed if your variable rate increases BEYOND that Trigger Rate.
- A floating interest rate, also known as a variable rate or adjustable rate, refers to any loan that is not fully fixed, but rather shifts with any changes to the Bank of Canada’s overnight policy rate.
- There are two types of variable rate products:
1. Variable Rate Mortgage (VRM) – Your payment is static on the day of closing, meaning your VRM payment will not change & only the principal & interest on the back end will fluctuate with any BoC change. This means your amortization will otherwise adjust accordingly.
2. Adjustable-Rate Mortgage (ARM) – Your payment is NOT static on the day of closing, meaning your ARM payment will change with any adjustments to the Bank of Canada’s overnight policy rate. This means your amortization will remain static & you will pay your mortgage off on time.