Mortgage Dictionary

To help make mortgage shopping as easy as possible, here's a list of common mortgage terms and what they mean. If you have any questions relating to your specific mortgage, please ask us.

Amortization:

The length of time it will take to pay off the mortgage in its entirety.

Appraisal:

Lenders require an independant assessment of the value of your home you are buying before agreeing to finance the purchase. The cost of the appraisal is normally the only cost associated with qualifying for an actual residential Mortgage. Please note a real estate evaluation/appraisal done by a Realtor does not quality as an appropriate appraisal for the purchase of your home.

CMHC/GE Insurance:

If you put less than 25% down, you must have Canada Mortgage and Housing Corporation or Genworth Insurance. It insures the bank or other lenders against you defaulting on your mortgage. The insurance premiums are added into your mortgage amount and vary according to the size of the down-payment, may also vary for a construction mortgage.

Commitment Letter or Letter of Interest:

A letter from the lender outlining the amount, terms and conditions under which a lender is willing to offer a mortgage.

Home Inspection:

Is a very good idea, the inspector looks for major and minjor defect/ or repairs on the home which might affect your decision in purchasing the home, or affect the purchase price.

Mortgage Life Insurance:

Often referred as Mortgage Insurance which can be very confusing. We strongly recommend that you protect your family in the event of illness or in the event of death. Our Mortgage life insurance is portable.

Interest Adjustment Date:

Most lenders prefer to have mortgage payments come due on the first of the month. But if your home purchase closes on another date, the funds are disbursed on that date. In order to keep your regular payment date on the first of the month, lenders ask you to make an interest adjustment payment. It's paid on the closing date by cheque or by deduction from the mortgage advance and covers the interest owed for the number of days between the closing date and the end of the month.

IRD (Interest Rate Differentials):

When paying out your mortgage early, in most cases, you will incur a payout penalty. The lender will charge you the IRD clause or the 3 months penalty whichever is greater. The IRD is the difference between the interest rate on your existing mortgage and the current interest rate in the market.

Portability:

The ability to transfer your mortgage, including rate and terms, from your existing property to a new property.

Prepayment Clause:

A clause in a mortgage agreement that lets you pay off all or part of the mortgage before the maturity date.

Rate Commitment:

Used mostly in pre-approval, the interest rate is protected anywhere from 30 to 180 days from now until you move into your home. If market interest rate decreases during this time period you receive the lower rate, the adjustment period varies from lender to lender. If the interest rates increase during this same time period, you are protected and will still receive the interest rate in the commitment letter provided you move in to your new home/ or your lawyer has requested the mortgage funds prior to the expiration of the "rate commitment."

Tax Hold Back:

When your property taxes are included with your mortgage payments, your lender will hold back funds from your disbursement to cover interim or final 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. Hold backs are used to pay for the current year's taxes, while your monthly tax installments are accumulated in an account to pay for the next year's tax bills.

Term:

The length of time a mortgage has been committed for. The interest rate usually remains constant during this term unless the commitment states otherwise.

Weekly and Biweekly Payments:

You can usually choose to make your mortgage payments once a week or once every two weeks. This accelerates the reduction of your mortgage because you are making the equivalent of one extra monthly payment per year. Reducing the outstanding balance of your mortgage at this faster rate saves you interest.