Glossary of Canadian Mortgage Terms
Whether you’re a First-Time Home Buyer, Renewing or Refinancing your Mortgage, this glossary of Canadian Mortgage Terms will help clarify some otherwise confusing jargon. Cory is available to answer his client’s questions and make sure they feel comfortable and confident during every step of the process.
Adjustable Rate Mortgage
With an adjustable-rate mortgage, similar to a variable rate, your mortgage rate is floating; however, unlike variable rate, your mortgage payment will change when interest rates change. If interest rates go up, your mortgage payment will go up. If interest rates go down, your mortgage payment will go down.
Agreement of Purchase and Sale
An agreement of purchase and sale is a legally binding contract between the buyer and the seller. It includes price, deposit, closing date and other important information about a real estate deal. It sets out the terms on which the buyer must buy, and the seller must sell, the home on the specified date. An offer to purchase, when accepted by a vendor, becomes an agreement of purchase and sale.
Amortization period
Amortization period is the length of time it takes to pay off a mortgage, including interest. It may be between 5 and 30 years. For a new mortgage, the amortization period is usually 25 years.
If you want to pay down your mortgage faster, you can shorten your amortization period and make higher mortgage payments. You can negotiate an amortization as short as 5 years.
If you want smaller mortgage payments, you can increase the amortization period to 30 years maximum. But for high-ratio mortgages, the amortization period is 25 years maximum.
Amortization period differs from mortgage term, which is the length of the contract with your lender. When a term ends, you either pay off your mortgage or renew it if your lender agrees. Terms range from 1 to 10 years, although 4- to 5-year terms are most common.
Appraisal
An appraisal is a report that indicates the estimated value of a property. It’s written by a professional appraiser. You might need an appraisal for financing purposes. As the buyer, you pay the appraisal cost.
Bridge loan
A bridge loan is a short-term loan. You may need a bridge loan if you own a home, but need funds from the value of your existing home to close a deal on a new one. This loan is usually only available if you already have a signed, unconditional sale offer on your current home.
Canada Mortgage and Housing Corporation (CMHC)
Canada Mortgage and Housing Corporation (CMHC) provides mortgage default insurance for high-ratio mortgages. A mortgage is high ratio when your down payment is less than 20% of the property value. This insurance is mandatory for federally regulated lenders, like banks. CMHC is a Crown corporation and a leading authority on the Canadian housing market.
Closing costs
Closing costs are expenses you pay to close a property purchase and sale. As the buyer, your closing costs include land transfer tax, legal fees and any costs the lawyer pays on your behalf, such as title insurance, survey costs, courier charges, among others. The seller’s closing costs include real estate commission (if applicable), legal fees and any costs their lawyer pays on the seller’s behalf.
Conditional offer
A conditional offer is an offer to buy a property only if certain conditions are met. For example, an offer could be conditional on the property passing a home inspection, or on the buyer selling their current home by a certain date.
Convertible mortgage
A convertible mortgage is a type of short-term mortgage that can be converted to a longer-term mortgage without paying a prepayment charge. If you have a convertible mortgage, you might choose to convert it to a longer-term mortgage when interest rates fall.
Down payment
A down payment is the amount of money, including deposit, you put towards the purchase price of a property. Minimum down payments vary from 5% to 20%, depending on location. If your down payment is less than 20% of the property value, your mortgage is high-ratio and you need to buy mortgage default insurance.
Firm offer
A firm offer is an unconditional offer to buy a property. Often, sellers prefer firm offers because the home sale is more likely to go through without major holdups.
Fixed-rate mortgage
If you have a fixed-rate mortgage, your interest rate and monthly payments stay the same for the entire mortgage term. If mortgage interest rates go up during the term, you’re protected because your rate stays the same.
Gross household income
Gross household income is the total income, before deductions, for all people who live at the same address and are applicants on a mortgage.
Home Buyers' Plan (HBP)
The Home Buyers’ Plan (HBP) is a program typically for first time home buyers that allows you to withdraw from your registered retirement savings plans (RRSPs) to buy or build a qualifying home for yourself or for a related person with a disability. Currently, the HBP withdrawal limit is $35,000. This applies to withdrawals made after March 19, 2019.
Home Equity
In the simplest terms, your home’s equity is the difference between how much your home is worth and how much you owe on your mortgage.
Home inspection
A home inspection is an objective visual evaluation of a property’s structure and major systems conducted by a professional home inspector. It usually includes (but is not limited to) an examination of the foundation, basement and attic.
Interest adjustment
The interest adjustment amount is a one-time interest expense. You pay it when you get mortgage funds before the interest adjustment date (IAD) shown on your mortgage document. You may also pay an interest adjustment amount if you change your mortgage payment date or mortgage payment frequency during the mortgage term.
Many borrowers set their mortgage payments to monthly on the first of the month. If you buy a home on another day, your lender calculates interest from your closing day to the nearest first day of the month. As the borrower, you pay the interest adjustment amount.
Land transfer tax
When you acquire land or a beneficial interest in land, you pay land transfer tax to the province when the transaction closes. Land transfer tax is normally based on the amount paid for the land, in addition to the amount remaining on any mortgage or debt assumed as part of the arrangement to buy the land.
Legal fees and disbursements
Legal fees and disbursements are part of the closing costs. Buyers and sellers pay them to their lawyers or notaries to close a purchase, sale or mortgage transaction. These fees vary by province and are subject to GST or HST. You should review all fees and other costs associated with your legal services.
Mortgage assumption
With mortgage assumption, you take over, or assume, the seller’s mortgage on the purchased property. You accept full responsibility to pay the mortgage according to the existing mortgage terms. You need the lender’s approval before you can assume the seller’s mortgage.
As the buyer, mortgage assumption may be a good option for you if market interest rates are higher than the interest rate in the seller’s mortgage on the closing date.
Mortgage assumption may be a good option for the seller if they’re selling their home before the mortgage maturity date and not getting a mortgage on a new property. Mortgage assumption helps the seller avoid prepayment charges.
Mortgage discharge
When you pay off your mortgage and meet the terms and conditions of your mortgage contract, the lender doesn’t automatically give up the rights to your property. There are steps you need to take. This process is called discharging a mortgage.
Mortgage pre-approval
A pre-approval is a preliminary evaluation of a potential borrower by a lender to determine whether they can be given a pre-qualification offer.
Mortgage principal
Mortgage principal is the amount of money you borrow from a lender. If a mortgage is for $250,000, then the mortgage principal is $250,000. You pay the principal, with interest, back to the lender over time through mortgage payments.
Prime rate (also called prime interest rate)
A lender’s prime rate is usually based on the interest rate the Bank of Canada sets each night. It can change at any time. Lenders usually base the interest charge for their variable-rate mortgages on their prime rate.
Qualifying rate
A qualifying rate is the rate a lender uses when determining whether you qualify for the mortgage you applied for. Your lender uses this rate to calculate your debt-service ratio — the ratio between your debt and income. This helps your lender determine if you can repay the mortgage.
Refinancing (also called renegotiating)
Mortgage refinancing is a transaction that replaces an existing mortgage before it matures with a new one, on different mortgage terms. In some cases, prepayment charges apply. Refinancing is a financial tool you can use to consolidate debt and access the equity in your home to pay for other expenses.
Survey (also called property survey)
A survey is a property plan that identifies property boundaries, lot size and building position. It also shows if there are any overhanging structures or shared driveways that could impact property value. A professional land surveyor prepares the survey. Your lender may ask you for a current survey of the property during the mortgage application process.
Variable-rate mortgage
With a variable rate mortgage, while the mortgage rate is floating, your mortgage payment is not. When interest rates change, typically, your mortgage payment will stay the same. The benefit to this is that it makes it easier from a budgeting standpoint. However, the downside to this is that unless you voluntarily start paying more, it will take you longer to pay off your mortgage and cost you more in interest.
Cory Hubbard, Mortgage Broker
Verico, The Mortgage Station, #11707
As a young father of two, Cory’s personal experiences with flipping houses, new-builds and rental properties has ignited his enthusiasm to become a Mortgage Broker. For Cory, it’s about building genuine relationships with his clients, to make the process of obtaining a mortgage seamless. As a Toronto Firefighter, he prides himself on his compassion to help others during one of the most stressful times in their lives.
Whether you’re a First-Time Home Buyer, Renewing, or Refinancing their mortgages, Cory will take the time to ensure you feel comfortable and confident during every step of the process. During his down-time, Cory enjoys watching football, cheering on his Leafs (as they lose), and loves watching his sons run wild. Cory looks forward to helping you focus your time and energy on the things you love, too!
Get a Free Consultation
Whether you’re a First-Time Home Buyer, Renewing, or Refinancing your mortgages, I will take the time to ensure you feel comfortable and confident during every step of the process.
Cory Hubbard
Mortgage Broker
Verico, The Mortgage Station, #11707
cory@mortgagehubb.ca
p: 877.512.0007 x 280 | c: 705.229.2293
Stay in Touch
Cory Hubbard
Mortgage Broker
Verico, The Mortgage Station, #11707
cory@mortgagehubb.ca
p: 877.512.0007 x 280
c: 705.229.2293