Adjustment Date: The date the purchaser assumes responsibility for the property.  This is also the date at which all taxes, utilities, etc. become the responsibility of the new owner.

Amortization: The length of time that it would take to pay off your mortgage with no rate changes and all payments were made.  A 25 -30 year amortization is the typical period.  This means that the amount of your mortgage is spread out over that amount of time.  Typically, the longer the amortization period, the lower the monthly payments and the more interest you pay.  On the other hand, the shorter the amortization period, the higher the monthly payments and the less interest paid.

ARM – Adjustable Rate Mortgage:  Also called variable rate mortgages.  The interest rate is dependent on the Bank of Canada’s Prime Lending Rate.  Therefore, your payment each month is variable depending on the changes in interest rates. If interest rates are dropping (as in today’s markets), your monthly payment will drop because the dollar amount you are paying in interest is less.  Your monthly amount that goes to principal never changes, just the amount of interest you are paying.

Assets: An asset is anything that gives you net worth.  For example, an awned car that is valued at more than you owe on it, is an asset.  A house with a mortgage less than the appraised value, is an asset.  Cash in the bank, RRSP’s, investments, are all assets.

BC Property Transfer Tax: In BC all purchases must also pay Property Transfer Tax (PPT).  PPT is calculated as 1% on the first $200,000 and 2% on the remaining amount.  First Time Home Buyers are exempt from PPT as long as the property is being purchased for less than $250,000.

Bi-Weekly Payments:  Many people elect to make their mortgage payments bi-weekly (twice per month) versus monthly (once per month).  This typically saves you money because you pay one extra months payment per year.

Blended Mortgage: A blended mortgage is when you hold two mortgages on the same house.  For example, if you already have a mortgage on your home, but you would like to borrow more for a renovation, you can get another mortgage on your home (as long as you have adequate equity in your home) while maintaining your first mortgage.  Often this happens when the first mortgage has a lower interest rate than is currently being offered, and you don’t want to refinance to a higher rate for the whole mortgage.

Bonus Income: If you receive bonus income from your job, you can only declare that income when trying to qualify for a loan if you can document that you receive bonuses at approximately the same amount over time.  For example, You can use a bonus that comes to you every year for approximately $6000.  You cannot use a bonus that you received this year for $20,000 when you have received bonuses for $6000 every other year.

Bridge Financing:  Short-term financing that allows you to purchase a property while trying to sell another one, or the closing dates don’t match up, or you are waiting for an investment to come in, etc.  Bridge financing is typically loaned at a much higher interest rate.

Canada Mortgage and Housing Corporation (CMHC):  Typically when you hear the term CMHC it is being referred to with a High-Ratio Loan.  CMHC is a mortgage insurance company that insures mortgages that do not have the lender required 25% down payment.  If you have between 5% and 24% to put down on a purchase, you will need to insure it through CMHC for a premium that is added to your mortgage.

Cash Back Mortgage: Many lenders offer an incentive for choosing them as your lender, often this happens by means of a “cash-back incentive”.  Typically it is a percentage of the total loan amount. 

Closed Mortgage: Often called Fixed Rate Mortgage.  This means that you pay the same amount every single month for the duration of your term (unless you would like to make additional payments).  Your interest rate is determined by market rates at the beginning of your term and it is unaffected by fluctuations in the prime lending rates throughout the term of your loan.

Commission Income: Because commissions differ from year to year, lending institutions require additional income verification documents.  Typically they require 2 years of tax returns and a copy of your Notice of Assessment.  They will then average your NET income over 2-3 years.

Commitment Letter: A written letter from the Lender to the borrower confirming a specified mortgage amount and outlining the conditions for the mortgage.

Conventional Mortgage: This refers to a mortgage that has at least 25% down on a purchase, or 25% equity in a refinance and DOES NOT require CMHC insurance.

Conveyance: The transfer of ownership from one person to another.

Co-Signer: This refers to a mortgage where there is more than one borrower; every borrower must be on title and is listed as a co-signer.  All signers are responsible for the debt, if one cannot pay, the others are responsible for the whole mortgage.

Closing Costs: There can be many added fees when closing on a home.  The following is not an exhaustive list: Appraisal, Inspection, GST (if new construction), house insurance, Property Transfer Tax, legal fees, property tax adjustments, survey certificate, title insurance.

Credit Bureau: Your credit bureau is an account of your credit history and essentially reports your propensity for paying your debts.  Your credit bureau is affected by bankruptcy, late payments, how much debt you carry etc.  

Credit Line (LOC):  A credit line is when you have a limited amount of money available to you and you only start paying interest when you withdraw money off of it.  Interest on LOC’s are typically based on a floating rate and vary with the Prime Lending Rate.  You will be charged interest monthly, but when and how much you pay towards principal is up to you.

Default:  Non-payment of a mortgage payment.  

Discharge of Mortgage:  A legal document issued to the Borrower by the Lender upon full re-payment of the mortgage loan.

Down Payment:  The amount of money you are paying towards the purchase of your home.  This can be from savings, investments, cash, proceeds from the sale of another home, or a gift; however, you must have PROOF of where this money came from in the form of account statements or a gift letter.

Employment Letter:  When applying for a mortgage, all applicants must show proof of employment and income.  The letter should be on company letterhead and include the following: income, date of employment, current position, whether you are full-time, commission, causal, etc.

Equity:  The amount of money you have left in your property after you have paid off your mortgage.  For example, a property appraised at $400,000 with a mortgage loan of $275,000 has $125,000 in equity.

Fair Market Value:  This is the dollar value the appraiser evaluates your home to be worth.  This value is determined through many measures including recent sales of comparable properties, amenities that your home has, and any upgrades that have been done etc.  Lenders typically determine their loan amount based on the lowest number between the purchase price and the fair market value.  

Foreclosure:  This is when the Lender has taken back a property because the Borrower has defaulted on their mortgage and was unable to pay the contracted payments.

Gross Debt Service: This is one of the first things a Lender looks at when evaluating a mortgage application.  As a rule of thumb, your housing costs cannot exceed 32% of your gross monthly income.  Housing costs include monthly mortgage payments, property tax payments, heating costs, and half of your strata fees (if you have them).  Your total Housing Costs divided by your Gross Monthly income will equal your GDS.

Gift Letter:  If your down payment is coming from a gift, you will need to have the person gifting you the down payment to write a letter stating that the money was a gift and you are not responsible or required to pay it back.

Gross Income: Gross income is the total annual income that you are paid before any deductions.

Guarantor: If you cannot qualify for a loan by yourself, you may be able to qualify if you have a guarantor sign the mortgage.  The guarantor promises the Lender they will repay the loan if the principal defaults.

High-Ratio Mortgage: A Mortgage where you have between 5% and 24% down payment.  This means that your Loan to Value (LTV) is between 76% and 95%.  High Ratio Mortgages require mortgage insurance such as CMHC.

Interest:  Essentially interest is the cost of borrowing money.  Interest is typically charged on the outstanding balance of the loan.

Interest-Only Mortgage: This type of mortgage is essentially the same thing as a Credit Line (LOC).  You pay interest monthly, and pay back the principal on a schedule determined by the Borrower.

Interest Rate: Amount of interest charged to the borrower stated in a percentage.  

Interest Rate Differential: This typically refers to the difference between the interest rate you are paying on your mortgage and the current lending interest rate.  This is often used to calculate the penalty charged by the Lender to the borrower when breaking a term.

Legal Description:  The formal description or identification of the property.  You can typically find this on your real estate listing, and legal documents concerning your property, or your BC Assessment notice.

Legal Fees: Lenders require your mortgage paperwork to be drawn up and registered by a lawyer or notary of your choice.  Your lawyer will meet with, you prior to the completion date, to explain the mortgage documents and give you a Statement of Adjustments which explains what exactly you owe to complete the purchase and where that money is going.

Lender/Lending Institution: The financial institution that is loaning you the money for your mortgage.  

Liabilities: Any outstanding debts.  These include credit card balances, loans, leased cars, and any other money you owe that is registered.

Loan to Value (LTV): The ratio between the mortgage amount and the appraised value of the property, expressed as a percentage.  

Lump Sum Payments: A lump sum payment is a large sum paid toward the principal of your mortgage.  Typically, Lenders allow up to 20% lump sum payment.  Check with your specific Lender.

Market Value: The price the market is able to bear for a property.  AS the number of homes on the market increase, the market value decreases.

Maturity Date: The last day of the term of your mortgage.  This date is the last date in which you can renew, pay-off, or refinance your loan.

Mortgage: The sum of money borrowed from a Lender to finance a real estate purchase.

Mortgage Approval: Letter from the Lender approving a mortgage amount and conditions.

Mortgage Broker: Role of a Mortgage Broker is to find the Borrower the best Lending Institution and Mortgage Product to fit with their current situation.  The cost of a Mortgage Broker is paid for by the Lending Institution.

Mortgage Contract: The legal contract between the Lender and the Borrower that outlines the terms and conditions for repaying the money borrowed.  This includes the interest rate, payment amounts, payment dates, and the renewal date.

Mortgage Insurance: insurance through either the Lender, or a private insurer that covers the outstanding balance of the mortgage .

Mortgagee: The Lender

Mortgagor: The Borrower

Net Income: Income before any deductions

Net Worth: Total value of all your assets minus the total of your debts.

Open Mortgages: A type of mortgage that allows you to pre-pay all or part of the mortgage with no penalties.  Typically Open Mortgages have higher interest rates and a shorter term. 

Penalties: Most mortgages require the Borrower to pay a penalty if they wish to pay off the mortgage before the term is up.  There are different methods each Lender uses to calculate the penalty.  Typically, Lenders charge the greater of three months interest or the interest rate differential.  

Posted Rates: Advertised interest rates.  Posted rates can typically be negotiated to better rates and terms.

Pre-Approval: From information given to your Mortgage Broker or Bank, they will determine what loan amount you can qualify for and if submitted to a lender you may also be able to get an interest rate guarantee.  

Prime Rate: Lenders set their own prime rate that is based on the Bank of Canada’s Prime Lending Rate.

Principal: The amount of money borrowed on your mortgage.

Private Mortgage: Money borrowed is from a private source, not a Lending Institution.  The lending rate/interest rate is typically higher than that of a Financial institution.

Refinance: Getting a new mortgage to replace an existing mortgage.  People refinance for a variety of reasons including: taking cash out of the equity in your home, lowering your monthly payments, and taking advantage of lower interest rates.

Renewal: At the end of your mortgage term, you have to renew your mortgage by paying out your existing mortgage and getting a new one.  Your existing Lender will send you a Renewal Letter with the POSTED rate.  You absolutely should shop around as these posted rates are definitely too high!

Self-Employed Income: When you are self-employed, Lenders typically ask for 2 years of tax returns and NOA’s (Notice of Assessment).  Currently, it is more difficult to qualify being self-employed than being a salaried employee.

Skip a Payment: Many Lenders allow you to skip a payment once per year.  When you skip a payment, the interest portion gets added onto your balance owing.

Statement of Adjustments: The Statement of Adjustments is given to you during your meeting with your lawyer just prior to your completion date.  It outlines where all of your money is going.  The following is a list of what is typically included on a Statement of Adjustment: purchase amount, minus the deposit, minus the mortgage amount,minus the Seller’s portion of property tax, plus the down payment you owe, plus your portion of the property tax, plus lawyers fees.  The balance of these deductions and additions is the amount you owe at completion.

Term: A portion of the amortization period in which you have a contract and set conditions.  For example, If you sign a fixed-mortgage with 5.5% interest rate, 5 year term, 25 year amortization.  Your mortgage is spread across 25 years, however your interest rate is guaranteed for the 5 year term.

Title: Ownership of a property.

Vendor: Entity selling a property.

Vendor Take Back Mortgage: This occurs when the seller agrees to help finance part of the mortgage for a buyer.  This mortgage is between the seller and the buyer, not with and Lending Institution.

What is a mortgage broker?  Essentially, a mortgage broker is an independent agent that works as an intermediate between the Borrower and the Lender.  Mortgage brokers are not affiliated with any Lending institution, bank, or other financial institution and works on behalf of the Borrower.  They spend their time looking for the best mortgage products for their clients by reviewing their financial needs and goals.  Once the client’s needs and goals have been established, the Mortgage broker looks for the best combination of product, term, and interest rate.

Why use a mortgage broker?  A broker works solely on the client’s behalf.  In addition, there are so many Lending institutions out there that it would take a significant amount of time for the average person to research every Lender’s products for the most appropriate product for them.  In essence, the benefit of using a mortgage broker is the unbiased advice, the ability to have someone research the market for you, and the peace of mind knowing that your largest investment is being professionally managed.

Who Pays Mortgage brokers?  This question is probably the biggest misconception about mortgage brokers.  Many people assume that because brokers are offering a service to them, it costs money.  However, the Borrower does not pay a broker anything.  In the majority of cases, the Lending institution pays the Mortgage broker a fee for bringing the mortgage to them.  The client/Borrower pays nothing.  It does not get built into the mortgage, it is paid solely by the Lending institution.  Therefore, the cost of a mortgage broker is $0 to the Borrower.

Where can I find a Mortgage Broker?  Most Mortgage brokers have their own websites or have advertising in some capacity.  There are many great Mortgage professionals, however the most important quality is your comfort level with them.  You will have to give them a number of personal financial documents, divulge personal credit information, and trust them with probably your largest investment.  You need to trust them as a professional, and as a person.  As with other professionals you hire, the best way to find a qualified Mortgage broker is by referral.  Ask your friends or family if they have had a great experience with a broker.