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General information about Mortgages

Beginning to search for your dream home can be a lot more successful if you are already pre-approved for a mortgage. After all, it would be disappointing to look at a home only to discover you can't afford it. This is when it is important to take your time and shop around for the mortgage most suitable to your needs.


Shop Around There are two main components to a mortgage; the principal and the interest. The principal is the amount you actually borrow, and the interest is what you are charged for borrowing it. The interest rate is always changing, and each institute has a different rate, so this is why it is important to look around, compare, and get the most for your money.


Features to Look For:

  • Competitive interest rate: You may have the opportunity for a lower rate, but may lose the opportunity to get other features
  • Rate guarantee: This protects you from fluctuating interest rates until you have locked in.
  • Payment options: Some institutes offer features with their mortgages such as double-up and skip, or principal payments on the mortgage anniversary date.

Most importantly, though, remember not to rush into any decisions. Although you may need to move fast in some cases, keep in mind that this decision will affect your finances for years to come.

A short list of Mortgage Terminology

Abstract of Title
Registry System: A condensed history of the title to a parcel of land. The abstract consists of a synopsis of every recorded instrument affecting the title to that land arranged in chronological order of recording.


Accelerated Weekly Payment
A mortgage repayment plan in which the borrower makes 52 payments per year instead of 48 which would be required if the payment plan called for four payments per month. The extra four payments each year have the effect of "accelerating" the repayment of the mortgage.


Acceleration Clause
A clause in a mortgage which provides that where default has occurred in making any mortgage payment, the outstanding mortgage amount becomes due.


Acceptance
The offeree's consent to enter into a contract and to be bound by the terms of the offer.


Accrued Interest
The interest charged for the period of time that has elapsed since the last interest date.


Amortization Period
The time over which the mortgage is to be completely repaid, assuming equal payments. This means that when looking, for example, at a mortgage with a 25-year amortization period, it would take 25 years to reduce the balance to zero, if all regular payments were made on time and the terms (payment, interest rate) remained the same.


Amortization Schedule
A table showing the amounts of principal and interest which make up each of the periodic level payments and the outstanding principal balance of the loan after each level payment is made.


Anniversary Date
The same date in each calendar year during the term of the mortgage. The first anniversary date occurs one year from the date interest is adjusted and the periodic repayments begin.


Assessment Roll
An annual list of the assessed values of all properties in a municipality. The assessment roll includes the name of the property owners or tenants and their addresses. Assessment rolls are usually delivered to a municipality before the end of the year. The term "roll" comes from ancient times and refers to the way information used to be stored - on paper or parchment, rolled up into cylinders.


Assignment of Rentals
A contract in which the borrower grants the lender the right to collect future rents on a given occurrence, normally default. This assignment is normally taken as additional security on rental loans.


Assumable Mortgage
An existing mortgage that can be taken over (assumed) by the buyer of a property when that property is sold.


Balloon Payment
Any payment of principal over and above the regular payment.


Bank Act
The Canadian Bank Act regulates all Canadian banking activity conducted through a federally chartered institution. This includes banks, trust companies, loan companies, and insurance companies.


Blanket Mortgage
A single mortgage registered against two or more individual parcels of real property.


Blended Payments
Regular equal mortgage payments combining, or blending, interest and principal components in one constant payment.


Bridge Financing
A loan provided to borrowers to provide financing for purchase, pending closing of the sale of their existing property.


Bridge Loan
A bridge loan is a short-term, high interest loan intended to offset financial hardship until a long-term loan is secured.


Brokerage
The aspect of business concerned with bringing parties together for the transaction of business and the execution of contracts. Brokerage involves sales, exchanges and rentals.


Broker
One who acts as an intermediary between parties in a transaction. A broker, for a fee or other consideration, arranges a transaction (a sale) by a seller to the buyer.


Caveat Emptor
"Let the buyer beware". Buyers must examine the goods or property they are buying since they buy at their own risk.


Charge
The name given to a mortgage document when title is registered under the Land Titles System. Also known as Certificate of Charge.


Chattels
Movable possessions, personal property (generally items that may be removed without injury to the freehold estate).


Closed Mortgage
A mortgage agreement that cannot be repaid, refinanced or renegotiated until maturity, unless otherwise stated in its terms.


Closing Date
The date on which a sale becomes final, funds are transferred from the purchaser to the vendor, and the new owner takes possession of a property.


Compound Interest
Interest charged not only on the principal sum but also on interest amounts charged, but not paid, in preceding periods that accumulate as new principal.


Conventional Mortgage
A loan based on the credit of the borrower and on the collateral for the mortgage. A conventional mortgage does not exceed 75% of the market value of the property. This means that the borrower must have 25% or more available for the down payment.


Debt Service Ratios
Ratios that are used to compare borrowers' debts to their incomes to determine if they can afford loans.


Debt-to-Assets Ratio
This ratio identifies how much of a company's operations are funded through borrowing. It is calculated by dividing total liabilities by the total assets.


Debt-to-Equity Ratio
Another ratio (see debt-to-assets) which assesses how much of a company's operations are funded through borrowing, compared to the amount of money provided by the owners. It is calculated by dividing total liability by owners' equity.


Debtor
One who owes a debt.


Deed
A legal document in writing, duly executed and delivered, that conveys title or an interest in real property.


Default
Failure to fulfill contractual obligations.


Demand Letter
A letter sent by the lender to the borrower demanding immediate payment of all arrears, together with costs.


Discharge of Mortgage / Charge
A legal document executed by the lender, and given to the borrower when a mortgage loan has been repaid in full, releasing him or her from all obligations and covenants contained in the mortgage.


Fixed Rate Mortgage
In a fixed rate mortgage the interest is determined and is set for the term of the mortgage. Fixed rate mortgages are most desirable when current interest rates are low.


Foreclosure
A legal remedy available to a lender when there is default under any of the covenants in the mortgage. It deprives the borrowers of their equitable right to redeem.


High Ratio Mortgage
A mortgage is considered high ratio when the loan-to-value is 75% or more. This occurs when the borrower's down payment is 25% or less of the property value.


Owner Occupied
The owner of the land also resides in that property. The opposite of an investment property.


Second Mortgage
A mortgage placed on real property which is already encumbered with one mortgage. Determination of first, second, third mortgage, etc. is determined by priority of registration (time and date).


Title
The legal evidence that shows the rightful owner of land.


Title Fraud
A range of fraudulent activity regarding the ownership of property. One form of title fraud involves taking out a mortgage against a home that the fraudster does not own. The fraudster assumes the homeowner's name and credit history, but absconds with the loan proceeds.


Title Insurance
A contract by which the insurer, usually a title insurance company, agrees to pay the insured a specific amount for any loss caused by insured defects to title of a property, for which the insured has an interest as purchaser, lender or otherwise.


Title Search
An examination of public records to determine the state of title.


Vendor Take-Back Mortgage (or Seller Take-Back Mortgage)
A mortgage in which the vendor uses his or her own equity to provide some or all of the mortgage financing in order to sell the property.



Mortgage Terms courtesy of the Canadian Association of Accredited Mortgage Professionals. A full list of Mortgage terms can be found at the Canadian Association of Accredited Mortgage Professionals website.