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Select a letter to view definitions




Agreement of Purchase and Sale: A legal agreement offering a price for a home.  Offers may be firm or conditional.

Amortization: A mortgage is amortized over a period of years. This amortization period is the length of time it takes to pay off the mortgage in full. The usual amortization period is 25 years.

Appraised Value: An estimate of the properties market value. 

Assumable: Some mortgages are assumable with qualification. This means that should you sell your house before the term of the mortgage is completed, the purchaser can take over your mortgage if they qualify. This allows you to avoid paying a penalty to break your mortgage.

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Certificate of Location or Survey - A document specifying the exact location of the building on the property and describing the type and size of the building including additions, if any.

Certificate of Search or Abstract of Title - A document setting out instruments registered against the title to the property, e.g. deed, mortgages, etc.

Closing Date: The date on which the sale of a property becomes final and the new owner takes possession.

CMHC: Canada Mortgage and Housing Corporation. CMHC administers the National Housing Act of Canada and provides default insurance on mortgages where the down payment is less than 25%.

Commitment Letter: This is the document that your lender will confirm the basic terms and conditions upon which the lender will provide the mortgage and indicate the conditions that must be met before funding. 

Conventional Mortgage - A mortgage that does not exceed 75% of the purchase price of the home and require insurance.

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Debt-Service Ratio - The percentage of the borrower's gross income that will be used for monthly payments of principal, interest, taxes, heating costs and condominium fees.

Deed (Certificate of Ownership) - The document signed by the seller transferring ownership of the home to the purchaser. This document is then registered against the title to the property as evidence of the purchaser's ownership of the property.

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Early Pay-out Penalty: Many people don’t think about breaking their mortgage when they are in the midst of arranging it, however, this possibility cannot be overlooked.  Some mortgages are fully closed and cannot be broken under any circumstance. Other mortgages have a sales clause allowing for early payout of the mortgage upon an arms-length sale of the property, subject to a penalty (for example, three months interest). Some mortgages allow the borrower to break the mortgage, for any reason, upon payment of a penalty.

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Gross Debt Service (GDS) Ratio - The percentage of gross income required to cover monthly payments associated with housing costs. 

Most lenders recommend that the GDS ratio be no more than 32% of your gross (before tax) monthly income

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High Ratio Mortgage - If you don't have 25% as a down payment your mortgage must be insured against payment default by a Mortgage Insurer, such as CMHC.

Home Equity: The difference between the value of the property and the mortgage.

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Interest Adjustment Date: This may apply to mortgages that close on any day other than the requested day of payment. 

For instances: since some lenders want monthly payments to be made on the first day of the month, they will adjust the interest due on closing so that interest on your mortgage is paid up until the first of the coming month. If you close on the 20th of the month (and the month has 30 days), you will have to pay interest for 10 days so that you are paid up until the first of the coming month. Then your first full mortgage payment will be due on the first of the following month.

Interest Rate: The rate of interest is a key consideration when arranging your mortgage. The interest is the payment to the lender for the use of the mortgage money.

The interest rate can be fixed (where the rate remains constant for the term) or variable (where the rate changes at regular intervals). 

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Maturity Date - Last day of the term of the mortgage agreement.

Mortgage: A contract between a borrower and a lender, where the borrower pledges a property to a creditor as security for the payment of a debt. "Charge" is another word for mortgage.

Mortgage Life Insurance: Life insurance that pays off the balance of the mortgage in the case of the borrowers death (i.e., if a spouse dies, the remaining spouse would not have to worry about mortgage payments – it would be paid in full). The monthly cost of getting this insurance through the lender is typically less costly than similar coverage obtained directly from an insurance company.

Mortgage Term - The number of years or months over which you pay a specified interest rate. Terms usually range from six months to 10 years.

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Payment frequency options: You will often have the choice of making payments on your mortgage on a monthly, semi-monthly, bi-weekly or weekly basis. Increasing the payment frequency, i.e., bi-weekly instead of monthly, can shorten the amortization of your mortgage and save you a considerable amount of interest.

Pre-authorized chequing/debit: In this computer age, mortgage payments are normally made by pre-authorized chequing or debit where the lender takes your regular monthly, semi-monthly, bi-weekly, or weekly payment out of a predetermined bank account automatically.

Prepayment privileges: Prepayment privileges allow you to make extra lump sum payments, double your payments or increase your regular payments. 

Principal: The amount of the mortgage.

Portable: If you have a good mortgage rate and a number of years remaining on your term, you may want to take your mortgage with you to a new home when you move. This can be done if the mortgage is portable. The property you are moving to will have to be reviewed and approved by the lender before you can "move" the mortgage to the new property.

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Refinancing - Renegotiating your existing mortgage agreement. May include increasing the principal or paying out the mortgage in full.

Rate Guarantee: The period of time, prior to closing of your house purchase ("the completion date") that a lender will guarantee that the interest rate they have offered will not rise. This is usually for a period between 60 and 90 days.  The commitment letter will also state under what conditions (if any) that they will decrease the interest rate if and when rates in general drop prior to your completion date.

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Standard mortgage fees: All mortgages have standard fees associated with them such as renewal fees, discharge fees, NSF fees, etc.

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Tax holdback: When property taxes are included with your mortgage payments, your lender will hold back funds from your mortgage proceeds to cover interim or final property taxes payable to the municipality. The amount depends on the month the mortgage was funded and on the dates when interim and final taxes are due. Holdbacks are used to pay for the current year’s taxes, while your monthly tax installments are accumulated in the account to pay for the next year’s taxes.

Term: This is the period of time that the interest rate and the loan is contracted for. Terms can vary from 3 months to 25 years.

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