I've put together a list of standard mortgage and home-buying terms to help you better understand buying a home or refinancing your mortgage.
This type of mortgage remains unchanged during the term you agree to. Prepayment costs will apply if you payout, renegotiate, or refinance before the end of the mortgage term.
This is a mortgage that offers the same security as a closed mortgage but can be converted to a longer, closed mortgage at any time without prepayment costs, typically associated with fixed-rate mortgages.
This type of mortgage may be repaid, in part or in full, at any time during the term without any prepayment costs. Rates are typically higher.
An interest rate that does not change during the entire mortgage term.
An interest rate that will fluctuate with a lender’s prime rate during the mortgage term
The interest you pay on top of the loan principal that is expressed as a percentage. For example, you have a mortgage of $100,000 at a rate of 5%. Your monthly payments will consist of a portion of the original $100,000, plus 5% 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. 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. Not applicable in Alberta.
Some of the legal costs associated with selling or purchasing a property. It’s in your best interest to engage the services of a real estate lawyer (or a notary in Quebec.)
The amount you will owe if the person selling you the home has prepaid any property taxes or utility bills. The amount to reimburse them will be calculated based on the closing date.
A legal description of your property and its location and dimensions.
The number of years you take to fully pay off your mortgage (not the same as your mortgage term). Amortization periods are often 15, 20, 25 or 30 (some conditions apply) years long.
Taking over the obligations of the previous owner’s mortgage when you buy a property. You are still required to qualify for the mortgage.
A Crown corporation that administers the National Housing Act for the federal government and encourages the improvement of housing and living conditions for all Canadians. One potential source of mortgage insurance for high-ratio mortgages.
Costs that are in addition to a property’s purchase price and 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 upfront for a house. Down payments 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.
Insurance to cover your home and its contents (also called property insurance). This is different from mortgage life insurance, which pays the outstanding balance of your mortgage in full if you die.
The process of having a qualified home inspector identify potential repairs to the property you are interested in and their estimated cost.
An extra payment that you make to reduce the amount of your mortgage principal.
A loan that you take out to buy property. The collateral is the property itself.
This form of insurance pays the outstanding balance of your mortgage in full if you die. This differs from home or property insurance, which insures your home and its contents. Manulife offers Mortgage Protection.
A computerized listing of the properties available in your area, including information and sometimes pictures of each property.
A legally binding agreement between you and the person who owns the house you want to buy. It includes the price you are offering, what you expect to be included with the house, and the financial conditions of the sale (your financing arrangements, the closing date, etc.).
A fee or charge imposed by a lender if a borrower breaks the terms of their mortgage agreement. This penalty is typically levied when a borrower pays off their mortgage early, refinances their loan, or makes additional payments exceeding the allowable limit specified in the mortgage contract. Mortgage penalties are designed to compensate lenders for potential financial losses incurred due to the borrower’s early repayment or contract breach. The specific calculation and amount of the penalty can vary depending on the terms and conditions outlined in the mortgage agreement.
Transferring an existing mortgage from one home to a new home when you move. This is known as a “portable” mortgage.
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 about how you’ll pay for it.
Repaying part of your mortgage ahead of schedule. Depending on your mortgage agreement, there may be a prepayment cost for pre-paying.
The process of paying out the existing mortgage and increasing the mortgage amount 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, switching it to a new 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 typically amortized over 20-25 years, with a shorter term (typically 6 months to 5 years). After the term expires, the interest rate is renegotiated with the lender.