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Mortgage Term Definitions

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Mortgages can be daunting, don’t worry, we will explain everything in plain English.

Mortgage Rates

Fixed Rates are constant for the term of your mortgage.  This is a great option if you want the security of knowing exactly what your mortgage will cost each month.

Variable Rates

Fluctuate based on several factors including inflation and domestic and global economy.  When the Bank of Canada changes its rates you will typically see lenders change their rates accordingly.  If interest rates go up, your mortgage payment will also go up.  On the flip side when interest rates fall, your mortgage payment will go down. 

Amortization

is the time it takes to pay off your mortgage in its entirety.  The most common amortization period is 25 years, but shorter and longer periods are available.

Mortgage Term

is the length of time your mortgage contract is in effect with your lender.  Terms can range from just a few months to five years or longer. 

Mortgage Renewal

occurs when your current mortgage term ends.  When your Mortgage Term ends, you have the option to renew with your current lender or switch to another lender. 

Mortgage Types:​

 

Open Mortgages

have flexible options to increase your mortgage repayments, either by increasing your regular payments or via a lump sum. You can pay off your mortgage typically without any penalties and you can renegotiate your mortgage contract before it expires.  Open mortgages are a great option if you are expecting a cash windfall, or you plan on relocating. ​

 

Closed Mortgages

restrict the amount of extra money you can pay over and above your regular payments.  If you want to pay off or renegotiate your mortgage contract you will typically be charged a penalty. Closed mortgages often have lower interest rates than open mortgages.  

Down Payment ​

Down payments of 20% of the home purchase price or appraised value will allow you to avoid mortgage default insurance (available through CMHC, Sagen, and Canada Guaranty) which most lenders require for mortgages with less than 20% down payment. Additionally, a down payment of at least 20% will reduce your mortgage payment and lender rates will be lower.  

Closing Costs

Closing Costs is the term used to describe fees you will incur as part of your home purchase and will be required on your closing date.  Closing Costs typically range from 1.5 to 4% of the price of the home or property.  Your Creditlinx Mortgage Agent will help you determine what your closing costs will be and we can recommend a few lawyers. 

Land Transfer Tax

is based on the purchase price of your home and typically only applies to resale properties. If you live in Toronto, you’ll have to pay both the Toronto and Ontario land transfer taxes. If you’re a first-time homebuyer, you may be eligible for a land transfer tax rebate. 

HST

is charged on new homes, although many builders include the cost in the purchase price, so it will be included in your mortgage amount.  In some cases, you may be eligible for both federal and provincial rebates.

Appraisal Fee

is a charge for an unbiased estimate on the value of your home which is a lender requirement.  Appraisals typically cost $300-$500.

Legal Fees

are charged by your lawyer/notary to finalizing your mortgage/home purchase paperwork. Legal fees typically cost $800-$1,000.

Disbursement Fees

are charged by your lawyer for Courier/Banking/Title searching/Faxing.  Disbursements typically cost $200-300.

Government Registration Fees

are charged by your lawyer to cover the registration of your mortgage and property transfer.  Government Registration Fees typically cost $150.

Surveys

show where the property sits within the property lines. Surveys typically cost $750-$1,000, however many lenders will accept a copy of an existing survey.

Interest Adjustment

is the interest charged by your lender for the number of days between your closing date of the purchase and your first mortgage payment date. 

PST

is charged if the down payment is less than 20% and CMHC insurance is applicable on your mortgage.

Statement of Adjustments

will be prepared by your lawyer/notary and will outline the amount you owe for utilities, property taxes and other bills prepaid by the current owner. 

Title Insurance

protects against losses in the event of a property ownership dispute or title fraud.  Most lenders require title insurance, which is arranged by your lawyer/notary, and typically costs $200-300.

Home Inspection

is an objective visual examination of the physical structure and systems within a house. Home inspections typically cost $350-500.

Lenders Explained:

 

A lenders

for example banks and credit unions, are regulated federally or provincially and have strict criteria for prospective mortgage applicants, which typically includes a strong credit score, a stable income, and passing the mortgage stress test.

 

B lenders

for example Mortgage Finance Companies, tend to be more accommodating to an individual’s needs and have more flexibility in the products they offer. For those who do not meet an A lender’s criteria, for example if you are self-employed or you have bad credit, a B Lender can be the best choice.  For those with strong credit and a stable income, a B lender’s rates can be better than rates offered by A lenders, again making a B lender the best choice. Many B lenders only work through a mortgage agent.  

 

Private lenders

typically offer only short-term mortgages, with some being interest-only. Private mortgages are an alternative for those with bad credit or low income that have been declined by other lenders.   Private lenders can also be used by those needing more flexible financing options, such as short-term investments or debt consolidation.  Taking short term financing from a private lender provides a great opportunity to build or improve credit scores. Private lenders only work through a mortgage agent.

Mortgage Lingo