Mortgage Centre
The following are some terms that you may run into when dealing with a mortgage:
Amortization
The number of years that you take to fully pay off your mortgage (not the same as your mortgage term). Amortization periods are often 15, 20, or 25 years long.
Assuming a mortgage
Taking over the obligations of the previous owner's (or builder's) mortgage when you buy a property.
Buy down rate
This is the portion of the interest rate on a buyer's mortgage that you assume when they buy your home. If you're selling your home and the prospective buyer doesn't like the interest rate on their mortgage, you can offer to add a certain percentage of it onto your existing mortgage.
CMHC - Canada Mortgage and Housing Corporation
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. CMHC is one potential source of mortgage insurance for high-ratio mortgages.
Capped rate
An interest rate with a pre-determined ceiling - usually associated with a variable-rate mortgage.
Closed mortgage
A mortgage which has a fixed interest rate (usually lower than an open mortgage rate) and a set, unchangeable term. You cannot pay off a closed mortgage before the agreed end date without paying a penalty.
Convertible mortgage
A mortgage that you can change from short-term to long-term, depending on your financial needs.
GE Capital Mortgage Insurance Company of Canada (GEMI)
A private mortgage insurance company. One potential source of mortgage insurance for high-ratio mortgages.
High-ratio mortgage
The mortgage you obtain when you have less than 25% of the total purchase price to put down as your down payment. This type of mortgage must be insured (through sources such as CMHC or GEMI).
Interest adjustment
This is 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 four days (August 10th to 14th) that are not accounted for in your first mortgage payment. Interest adjustment is the extra payment that makes up for these four 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.
Lump sum payment
An extra payment that you make to reduce the amount of your mortgage. This is the same as pre-paying, which you cannot do if you have a closed mortgage.
Mortgage
A loan that you take out in order to buy property. The collateral is the property itself.
Mortgage rate
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.
Open mortgage
A mortgage which you can pay off, renew or refinance at any time. The interest rate for an open mortgage is usually higher than a closed mortgage rate.
Porting
Transferring an existing mortgage from one home to a new home when you move. This is known as a "portable" mortgage.
Pre-approved mortgage certificate
A written agreement stating 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.
Pre-payment
Repaying part of your mortgage ahead of schedule. Depending on your mortgage agreement, there may be a penalty for pre-paying.
Property survey
A legal description of your property and its location and dimensions. An up-to-date survey is usually required by your mortgage lender. If not available from the vendor, your lawyer can obtain the property survey for a fee.
Refinancing
Increasing the amount of your current mortgage, at a new interest rate. The term of the new mortgage must be equal to or greater than the term remaining on your current mortgage.
Renewal/renewing
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.
Term
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 from 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).
Variable rate mortgage
A mortgage with an interest rate that changes with the market. The rate changes each month, meaning that the portion of your monthly payment that goes towards interest may go up or down each month. However, your total monthly payment will probably stay the same.
