mortgage terms
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Calgary Mortgage Terms
Amortization period
This is the total length of time that it would take to pay off your mortgage, including any interest owed. Typically an amortization period would be between 5 and up to 30 years. The shorter the amortization period, the quicker you pay off your loan and the higher your monthly payments become.
Appraisal
The appraisal is a home report that outlines the property and determines an overall estimated value of your home, this is done by a professional and licensed home appraiser. There are times when a lender or mortgagee will require that you obtain an appraisal on a property prior to waiving any financing conditions.
Bridge loan
Bridge loans are short term loans that provides funds to individuals who need funds from the current value of their currently owned and existing properties, and are close to a firm deal on another property. Typically these loans are only available when your present home has an accepted unconditional offer.
Canada Mortgage and Housing Corporation (CMHC)
A term you frequently will see in the media or part of mortgage packages quite often is CMHC – This is default insurance provided by the Canada mortgage and housing corporation, when a mortgage is high ratio (i.e. under 20% for your down payment) a mandatory insurance is set in place federally and is a Crown corporation.
Cash-back mortgage
A cash back mortgage you obtain the principal amount of the mortgage and a percentage of the mortgage’s amount itself in cash as well. You’ll find interest rates on these mortgages to be higher. These mortgages are usually effective when you’re in need of cash for specific high ticket items like furniture or loan repayment.
Closed mortgage
When you have a closed mortgage, you, the borrower, can only pay or prepay a specific limited amount of the total principal without finding yourself with prepayment fees or charges. Typically the rate for a mortgage the is closed is generally lower than an interest rate you’d find for a similar open mortgage.
Closing costs
These are the costs and expenses that you would typically see in the purchase of a new home.. These fees can include a variety of things but the most common charges you’ll find are legal costs and fees, transfer taxes (in other provinces normally) insurances, appraisal costs, real estate commissions (for sellers) and other costs including home inspections, condominium document reviews, etc.
Closing date (or closing day)
Quite simply, your closing date is the day in which you will pay the balance of your property purchase (total) to the sellers, and at this point you will receive the title and ownership of the home you have now paid for.
Co-borrower
When there are two or more people that are borrowing on a specific mortgage, they are considered to be co-borrowers.
Collateral charge
This essentially may secure more than one line of credit or loan. A charge (mortgage) is the registered document on title to secure your loan.
Commercial mortgage
This is typically an income generating commercial property, primarily these mortgages are much bigger than your average residential mortgage. These can include retail plazas, offices, industrial facilities, and more. These mortgages are more complex and do require more difficult calculations and discussions between the mortgagee and mortgagor.
Conditional offer
An offer that is conditional is set to purchase a property once conditions detailed within the contract are met. These conditions for a deal can vary but include items such as a satisfactory home inspection or the condition of the buyers property being listed and selling by a specified date.
Construction mortgage
Similar to a typical mortgage, these are simply just mortgages that finance the construction and erection of a new build home.
Conventional mortgage
You’ll find that a conventional mortgage is one that is not insured by the CMHC or any other backed mortgage default insurer. These would typically fall under your 20+% down payments.
Convertible mortgage
This is a form of mortgage where a shorter term mortgage is able to be converted into a longer term mortgage without the consequences of having to face prepayment fees and charges. In a situation where interest rates fall, individuals with convertible mortgages would look to have their mortgages converted to long term loans to take advantage of the lowered rates.
Credit report
Your credit report or credit score is a history of your past credit. This data includes past financial debts and current debts as well, for up to 7 years! This score allows lenders and insurers to gauge your current scores as part of the determination whether they will allow or deny your application for a mortgage.
Creditor insurance
This form of insurance can cover your mortgage payments as well as the ability to reduce or completely pay off your remaining mortgage in the event of your death, critical illness, or the result of job loss.
Debt ratios
A debt ratio is the measurement of your ability to repay your mortgage by ensuring that your total debts and liabilities don’t exceed a specific percentage of your total income.
Deed
The deed is the legal doc that you receive and that is written and signed by a seller. It takes the ownership of the property of the seller and transfers it to the buyer.
Deposit
Your deposit is the total amount of money that you provide to a seller when you put together an offer to purchase (OTP) Deposits are decided upon between you and your REALTOR® and it forms part of your position in the negotiation. If a seller has two offers for example with similar total overall prices, conditions, etc, the difference between a bigger and lower deposit can be all the difference, most sellers will favor the buyer who comes in with a stronger offer and larger deposit, if the sale were to fall through, they’d secure the deposit and cover any losses they may have seen from the deposit forfeiture.
Down payment
The deposit is your total amount of money that you will put towards the purchase of your home, this also includes your deposit. For example, if you were looking to have a down payment of 20% on a $500,000 home, and as part of your offer you put a deposit in of $50,000. You would then be responsible for putting together an additional $50,000 for a total of $100,000 as your down payment.
Equity
Your equity is when you calculate the total value of your home/property and subtract the total debt that’s outstanding. This includes liens, mortgages, and anything that is registered and on title.
Example, if your home is appraised and would sell for $600,000 and your total mortgage remaining is $450,000. your total home equity would be $150,000. As your property value goes up, or your mortgage goes down, your equity will increase.
Some saavy investors in a good market will do financial maneuvers where they transfer equity out of their property and utilize and leverage this cash towards another investment property purchase. There are many options that you could consider, but we always advise that you speak with your financial planner and mortgage broker to ensure you’re covering all your basis and not over extending yourself or making moves that put you under unnecessary exposure.
Firm offer
When you’ve put in an offer to purchase a property, the moment the offer becomes firm is when all conditions have been met and satisfied (sometimes there are no conditions) and the deposit has been made.
Fixed-rate mortgage
When you have a fixed rate mortgage, your monthly payments and interest rate will remain steady throughout. If you see a drastic increase in mortgage rates during your term, you wont have any effects or changes to your bottom line.
Foreclosure
When borrowers are unable to make payments on their mortgage, and they default on their mortgage, the lender will take legal steps where they have the right to sell your home. You will receive proper legal notice and will have the ability to bring your mortgage back into better standing, however if you are unable to, the lender will have the right to sell your home to recover the money that is owed to them, this includes the pricipal, legal fees, charges, and interest.
Gross debt service ratio (GDS)
The gross debt service ration is when you calculate the proportion or ratio of the total housing related debt of a borrower and measure it against their income. This is a calculation that lenders will perform when reviewing and considering the approval or an application for a mortgage.
Gross household income
Your gross household total income is when you calculate the total household income, before any deductions, for all those living at the home who will be applicants on the mortgage, this includes co-borrowers.
High-ratio mortgage
When a mortgage has a principal that is greater than 80% of the properties value, when you have a high ratio mortgage, you will require some form of default mortgage insurance because your application and position is considered to be a high risk loan. Please note, not all lenders offer high ratio mortgage solutions.
Home inspection
Whether you’re the buyer or seller, or another interested party in the sale of a home, with contractual permission, you can perform a home inspection by a professional and registered home inspector to perform a licensed home inspection. These inspections are confirmation of a homes condition, will identify and point out and necessary or suggested repairs, and typically is utilized by buyers to ensure the home they’re buying is a sound investment. In some instances, lenders we work with may ask for a valid home inspection report as part of their due diligence.
Home insurance
While your home is locked under a mortgage, the lender will almost always require you to maintain insurance on your property. This is to ensure that if there were any major losses they would be covered. Typically a lender will require proof of property insurance before they will release the funds for your mortgage.
Interest
Interest is the sum of money that you pay towards your loan to your lender for the ability to utilize the funds that you presently borrow. Interest charges begin on the day that you obtain your money the is also known as the funding date.
Maturity date
The maturity date is the day when either your term for your mortgage ends or the date when you decide to renew your mortgage for another term or you agree to pay it off.
Mobile Mortgage Advisor
Mobile mortgage advisors are mortgage experts who have the ability to meet you on your own terms and time at a location that’s convenient for you!
Mortgage assumption
With mortgage assumptions in Calgary, a borrower will assume or take over a sellers existing mortgage on a property they had purchased, you in turn take on and accept any and all responsibility of the mortgage including the responsibility to pay the mortgage payments in accordance with the pre-existing mortgage terms.Please note that the lender must approve for this change to be approved.
Mortgage principal
The mortgage principal is the amount of money that you would be lent from a lender – Very basic, if you buy a home for $125,000 and you put down $25,000 then your principal mortgage amount would be $100,000
Mortgagee
The mortgagee is the one who lends the money aka the lender.
Mortgagor
The mortgagor is the one who borrows the money aka the borrower.
Multiple Listing Service (MLS®)
The multiple listing service or MLS® is the most widely utilized resource for home buyers, sellers, and REALTORS® alike. This is the database and system that contains all current and historic real estate data and information. This is the biggest platform that real estate agents have created and invested in to ensure that their equipped with an effective and mass distributed way of advertising a home along with the preservation of historic data in an effort to maintain accurate housing prices.
Open mortgage
An open mortgage quite simply is when a borrower has the ability to prepay a mortgage either in full or in part, but most importantly without any prepayment charges or fees. An open mortgage will typically have higher interest rates, but are typically more flexible then a closed mortgage.
Posted rate
When you see the term posted rate, which is quite common on a Calgary mortgage website, it is referring to a lenders specific advertised and posted rate for their mortgage services and products. The advantage of utilize our services for all your Calgary mortgage needs is that our mortgage brokers will force lenders to compete for your valued business and will take reductions off of their posted rates in an effort to draw in and win your business.
Property tax
Taxes are an every day part of our lives, with home ownership you’ll find yourself paying a new tax, this is called property tax. This tax is how municipal services are deployed, maintained, and grown, including fire departments, police, garbage collection and so much more. The amount of tax you pay is based off of your properties value. The city of Calgary provides home owners with a monthly tax payment service referred to as TIPP which is referred to as the tax instalment payment plan, allowing you to break your mortgage payments into monthly payments instead of paying just one lump sum every year when your property taxes are issued.
Refinancing
The term refinancing is when an existing mortgage is replaced with a newer one on similar or different terms, with some instances having prepayment charges, it’s a tool that some home owners utilize to consolidate their debts and obtain the equity from their home to pay for other expenses.
Renewal
The term renewal which can also be referred to as renewing, is a point in which your mortgage term ends and you have the option to negotiate terms with your current or other lenders. If there is no renewal with anyone, you would be expected to pay the remaining mortgage off in full.
Reverse mortgage
Home owners that are over the age of 55 have access to a reverse mortgage product with some of our Calgary mortgage lenders. This option allows you to borrow up to a total of 50% of your total home value. You do not make any payments while you’re on a reverse mortgage, however, interest grows within the mortgage debts until you eventually sell the property, etc.
Term
Quite simply, your term is the length in which you choose to commit to a mortgage rate. Once your term is over, you have the option to pay off the entirety of the mortgage or to take on another renewal term, the length of terms can range up to a total of 10 years, but often most home owners will select terms in the 3-5 year range.
Title
Is the legal document that provides verification of ownership for a specific property.
Title Insurance
Title insurance is the protection that buyers and their lenders are granted from title defects that are discovered after a property is closed on. These defects can include everything from surveyor errors, work orders, encroachments and more. Discuss the option of title insurance with your real estate lawyer handling your real estate transaction for more information.
Total debt service ratio (TDS)
The total debt service ratio is the calculation of a percentage of your total gross annual income that is required to cover your existing debts and current loans on top of the the addtional cost of servicing and owning the property (taxes, utilities, interest, etc)
Variable-rate mortgage
A variable rate mortgage is a flexible product that allows consumers to have a mortgage rate that changes and fluctuates in accordance with financial indexes by the Bank of Canada. Monthly payments can remain consistent, but if your interest rates are dropping, more of the money that you pay heads towards the principal. If our interest rates do go the other direction (up) more of the total payment will go towards the interest on the mortgage.