We’ve put together of list of common mortgage and homebuying terms to help you better understand the process of buying a home.
This type of mortgage must usually remain unchanged for whatever term you agree to. Prepayment costs will apply if you payout, renegotiate, or refinance before the end of term.
The mortgage you obtain when you have less than 20% of the total purchase price to put down as your downpayment. This type of mortgage must be insured (through sources such as CMHC or Genworth Financial Canada).
This type of mortgage may be repaid, in part or in full, at any time during the term without any prepayment costs.
Fixed rate mortgage
An interest rate that does not change during the entire mortgage term.
An interest rate that will fluctuate in accordance with the prevailing market prime rate during the mortgage term.
The percentage interest that you pay on top of the loan principal. For example, you may take out a mortgage of $100,000 at a rate of 12%. Your monthly payments will consist of a portion of the original $100,000, plus 12% interest.
The process of determining the lending value of a property. There is usually a fee to have an appraisal done.
The amount of interest due between the date your mortgage starts and the date the first mortgage payment is calculated from. Sometimes there is a gap between the closing date of your home purchase and the first payment date of your mortgage. Let’s say that the closing date on your new house is August 10th – but your mortgage payments are on the 15th of each month (so your first payment is calculated from August 15th and paid on September 15th). That leaves five days (August 10th to 14th) that aren’t accounted for in your first mortgage payment. You have to make an extra payment to make up for these five days; the payment is generally due on your closing date. You can avoid all this by arranging to make your first mortgage payment exactly one payment period (e.g., one month) after your closing date.
A tax that is levied (in some provinces) on any property that changes hands. As a first time home buyer, some of these fees are credited back to you. Click here to see the latest Bulletin from Minister of Finance. https://www.fin.gov.on.ca/en/bulletins/ltt/2_2005.html
Some of the legal costs associated with the sale or purchase of a property. It’s in your best interest to engage the services of a real estate lawyer (or a notary in Quebec).
Taxes applied to the purchase cost of a property. Some properties are sales tax exempt (GST and/or PST), and some are not. For instance, residential resale properties are usually GST exempt, while new properties require GST. Always ask before signing an offer.
General Mortgage Terms
Costs that are in addition to the purchase price of a property and which are payable on the closing date. Examples include legal fees, land transfer taxes, and disbursements.
The date on which the sale of a property becomes final and the buyer takes possession of the property.
The money that you pay up front for a house. Downpayments typically range from 5%-20% of the total value of the home.
A private mortgage insurance company. One potential source of mortgage insurance for high-ratio mortgages.
A written agreement that you will get a mortgage for a set amount of money at a set interest rate. Getting a pre-approved mortgage allows you to shop for a home without worrying how you’ll pay for it.
The process of paying out the existing mortgage for purposes of establishing a new mortgage on the same property under new terms and conditions. This is usually done when a client requires additional funds. The client may be subject to a pre-payment cost.
Once the original term of your mortgage expires, you have the option of renewing it with the original lender or paying off all of the balance outstanding.
The length of time during which you pay a specific rate on the mortgage loan (i.e., the number of years in your mortgage contract). This is different than the amortization period. A mortgage is usually amortized over 20-25 years, with a shorter term (typically 6 months to 5 years). After the term expires, the interest rate is usually renegotiated with the lender (your bank, for example).
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