A mortgage is amortized over a period of years. This amortization period is the length of time it takes to pay off the mortgage in full. The traditional amortization period is 25 years and is the longest available for a high ratio mortgage (20% equity or less). A 30 year amortization may be available if you have at least 20% equity/down payment which may reduce the monthly payment.
Some mortgages are assumable with qualification. This means that should you sell your house before the term of the mortgage is completed, the purchaser can take over your mortgage if they qualify. This allows you to avoid paying a penalty to break your mortgage.
- Bridge Financing
Bridge financing is typically short term financing in the event that your purchase date is prior to your sale date. It will allow you to access your current equity and “bridge” between the two known dates.
- Closed Mortgage
A closed mortgage allows you certain pre-payment privileges but you cannot pay off the mortgage without a penalty.
- Closing/Completion Date
This is the date the purchase transaction happens and monies exchange hands between seller and buyer. This transaction is facilitated and processed by a lawyer for each the seller and the buyer.
- Commitment Letter
This is the approval document provided by the lender that contains their basic terms and conditions of the financing. The standard conditions typically include, but are not limited to, income documentation and verification, statements to confirm the down payment source and history, appraisal requirement, and solicitor contact details.
- Condo/Strata/Maintenance Fee
If you purchase a condo or townhouse you will have to pay a monthly fee that goes towards the maintenance of the building and it’s grounds. In Alberta this fee is called a condo fee, in other provinces it could be referred to as a strata fee or a maintenance fee.
- Conventional Mortgage
When a purchaser has at least 20% down payment.
- Early Pay-out Penalty
This is a charge for pay-out out your mortgage prior to the end of the term. The calculation of the penalty varies depending on the type of mortgage you have, and the lender’s process for calculating it. Since each is penalty is different, let me find out what it might be and what options you may have to avoid it.
- Fixed Term/Rate Mortgage
A fixed term/rate mortgage has an interest rate and payment that will remain the same during the entire chosen mortgage term.
- High Ratio or Insured Mortgage
When a purchaser has less than 20% down payment the mortgage is insured via CMHC, Sagen, or Canada Guaranty. An insurance premium is added to the requested mortgage and the monthly payment is based on the total. This is default insurance and protects the lender from loss in the event of foreclosure.
- Home Equity Line of Credit, or HELOC
This is another option for financing other than a traditional mortgage that gives more flexibility in most cases. The HELOC can offer interest only payments, and an open term. As with any other line of credit, it allows you to re-use the equity that has been paid off again and again. We can discuss the details together and determine if this is a good option for you.
- Interest Adjustment Date (IAD)
An interest adjustment payment will be calculated if your transaction funds on certain date and you or the lender require a different date for the first monthly payment, such as the 1st of each month.
- Interim Financing
This financing will allow you to purchase another home prior to selling your current home, if you qualify to do so. Different than Bridge Financing, you don’t have a known sale date.
A contract between a borrower and a lender, where the borrower pledges a property to a creditor as security for the payment of a debt. “Charge” is another word for mortgage.
- Mortgage Life Insurance
Life insurance that pays the balance of the mortgage in the event of an owner’s death. Disability insurance and Critical Illness insurance may also be good insurance options.
- Open Mortgage
An open mortgage gives you the most flexibility in making extra payments and typically allows you to off the mortgage entirely without penalty.
- Payment Frequency Options
You will often have the choice of making payments on your mortgage on a monthly, semi-monthly, bi-weekly or weekly basis. Increasing the payment frequency, i.e., bi-weekly instead of monthly, can shorten the amortization of your mortgage and save you a considerable amount of interest.
Move your current mortgage balance and rate to your next home, pending qualification. This may avoid you having to pay out your balance with penalty.
- Pre-authorized Payments
The lender will require that your mortgage payment is debited from your preferred account and will request a VOID cheque or banking details to facilitate that.
- Pre-payment Penalty
If you are in a fixed term and choose to pay off your mortgage prior to the end of the contracted term, you will pay a penalty. The penalty is calculated by the lender and is typically determined by the remaining balance, the time left in the term, and the interest rate you have vs the interest rate at the time of the request to pay out.
- Pre-payment Privileges
Most lenders allow you to pay extra over and above your required payment on a monthly and annual basis. The allowable amount varies between lenders so we can work together to determine which lender will work best for your goals.
The amount or balance of your mortgage, not including the interest.
- Property Purchase/Transfer Tax
In BC there is a tax that is charged to buyers which is generally based on the purchase price and is typically calculated as 1% of the first $200,000 and 2% of the balance. There are some instances where the tax may be fully or partially waived and your lawyer can confirm that for you.
- Rate Hold
The period of time where the lender will guarantee or hold an interest rate for you, prior to you making an offer on a property, typically up to 120 days.
- Strata Fee
If you purchase a condo or townhouse you will have to pay a monthly fee that goes towards the maintenance of the building and it’s grounds. In BC this fee is called a strata fee, in other provinces it could be referred to as a condo fee, or a maintenance fee.
- Tax Holdback
When property taxes are included with your mortgage payments, your lender will hold back funds from your mortgage proceeds to cover interim or final property 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. Holdbacks are used to pay for the current year’s taxes, while your monthly tax instalments are accumulated in the account to pay for the next year’s taxes.
This is the period of time for which the interest rate and loan is contracted. Terms can vary from 6 months to 10 years. We can discuss what will work best for you and your plans.
- Variable Rate/Term Mortgage
A variable rate/term mortgage has an interest rate that is based on the bank Prime rate and will fluctuate during the 5 year term. The payment may or may not change each time the Prime rate changes, depending on the lender.