What Does That Mean?
TERMS TO KNOW
The mortgage industry is full of terms that are foreign to many people. The following glossary of terms should help you translate the mortgage language into English and help you make sense of the mortgage process.
Appraisal
An expert opinion on the value of a property
Annual Percentage Rate
This is not the rate applied for, but rather is a government mandated formula that shows the cost of the loan in a yearly rate by using the note rate plus certain other upfront costs
ARM Loan
Adjustable Rate Mortgage. Mortgage characterized by an interest rate that can adjust up or down at certain intervals based on The Bank of Canada Prime Lending Rate plus a preset margin.
Capital Gains
The tax paid upon certain types of real estate transactions. Contact your accountant for specifics (see links for details)
Cash to Close
The amount needed from the borrower at closing. Consists of down payment, closing costs and prepaid items. This amount needs to be in the form of a cashier check made payable to the buyer. Lenders require 1.5% of mortgage purchase amount
Closing Date
Date stated on the purchase agreement that buyer and seller agree to finalize or close the transaction
Closing Costs
Various costs of setting up and funding the transaction – including: appraisal fees, legal costs, property purchase tax, etc.
Condo/Town Home
Property types that usually have the following characteristics: they are attached, have a homeowners association (strata) and dues, the outside maintenance is taken care of by the association, and common areas and amenities available to all owners in the association.
Conventional Financing
Standard, non-government insured financing (80% or less loan-to value).
Credit Bureaus
Agencies that provide compilations of your credit history. The main credit bureau company in is Equifax
Credit Report
Report provided by the credit bureau which shows the borrowing history, current status, and profile of an individual
Credit Scores
The number generated by the credit bureau which is a numerical representation of the subjects credit profile, range is from 450 on the low side to 900 being the highest score possible.
Debt Ratios
Ratio of debt to pretax income, often expressed as GDSR (gross debt service ratio – housing payment only) or as TDSR (total debt service ratio – all debt) ratios. Ex- $5000 monthly income, $1400 housing payment, $1700 total debt would equal ratios of GDSR of 28% and TDSR of 34%.
Down Payment
Difference between loan amount and purchase price.
Deposit
Money toward the down payment submitted with a purchase agreement as evidence of the buyers commitment
Equifax Information Services
www.equifax.ca
Fixed Mortgage
Most common type of financing. Terms ranging from 1 to 10 years. Interest rate and P&I payment remains constant throughout life of loan.
Floating
Not locking in a rate, but rather choosing to float the interest rate with the Bank of Canada rate. Rate moves up or down.
HELOC
Home Equity Line of Credit. Mortgage product, generally characterized by interest only payments and the ability to draw, pay back, and redraw.
Home Inspection
Not required by lender. This is a private inspection done by the buyers choice to confirm that the property is in acceptable condition.
Homeowners Insurance
Insurance which covers damage or loss to the property.
Loan-to-Value (LTV)
Ratio of mortgages versus value of property or sales price. Ex. 80,000 owed on a property worth 100,000 equals an 80% LTV
Lock-in Period
Time period that a rate is protected for during the loan process
Locking in
Choosing to protect a particular rate and program for a specific period of time
Mortgage Insurance
Insurance which protects the LENDER against default. Generally the higher the loan-to-value the higher the monthly premium.
PIT
Monthly payment. Stands for Principal, Interest, Taxes,
Pre-Approval
Approval based on documented income, assets, and credit report.
Pre-Qualification
Based on stated income, assets and debt. Information not verified, not as useful or informative as a Pre-Approval.
Pre-Payment Penalty
An option on certain fixed term mortgage types.
Purchase Agreement
Contract between buyer and seller outlining the terms of the agreement.
Single Family Residence
Standard, one unit home, as opposed to a Condo/Town Home with a strata association
Strata Fees
Amount paid by owner of a townhome or condo to cover various amenities or services provided by the strata corporation (examples — common areas, insurance, garbage, mowing, snow removal, central heating etc…)
Title Insurance
Policy provided by the title company on their title work guaranteeing the accuracy and completion. Lenders Policy is required and only protects the Lender from loss, Owners Policy is available at buyers discretion and protects the owner
Underwriting
Act of approving a loan application. Underwriters are bound by guidelines set forth by the Bank of Canada.
