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Mortgage Glossary

Amortization Period - The amount of time over which the entire mortgage will be repaid. Most mortgages are amortized over 20 or 25 years, composed of several terms. (If 5-year "terms" were consistently chosen with a 20-year amortization, then there would be four 5-year terms.) The longer the amortization, the lower the scheduled payment amount, but the higher the total interest will be.

Assumability - The ability of assuming (taking over) an existing mortgage on a property.

Buyer Agent - Not obligatory, but strongly recommended. A licensed real estate agent that will represent you when purchasing property.

CMHC - Canada Mortgage & Housing Corporation - Provides services for homebuilders, homeowners, and homebuyers. Primarily known for insuring high-ratio mortgages.

Closed Mortgage - A mortgage for a fixed term. Complete prepayment against the principal will probably incur a penalty, although limited "bonus" payments may be allowed.

Closing Date - The date when possession of the property takes place.

Conditions - Conditions precedent in a Purchase Contract must be fulfilled first in order for the Purchase Contract to become

Conventional Mortgage - The mortgage does not exceed 75% of neither the appraised value nor the purchase price. Mortgages that are not conventional are "high-ratio."

Equity - The difference between the market value of a home and total debts against the home.

Expandability - The ability of expanding the principal on a first mortgage at the original interest rate.

GDS - Gross Debt Service Ratio. The ratio of the borrower's gross monthly income that will be used for monthly payments of P.I.T., heating, and half of the condo fess. The GDS cannot exceed 32%.

High-ratio Mortgage - A mortgage where the down-payment is less than 25% of the purchase price. High-ratio mortgages must be insured.

Home Inspection - Not obligatory, but strongly recommended. An independent, professional inspection of the property to help ensure that there are no serious defects in the property.

Interim Financing - Also known as bridge financing. Short-term financing to care for the overlapping when purchasing one property and selling another.

Mortgage Loan Insurance - Required on high-ratio mortgages. Mortgage Loan Insurance can be paid separately, but is usually added to the mortgage amount. There are different sources of this insurance, which can seriously affect your mortgage. ENSURE THAT YOUR MORTGAGE BROKER EXPLAINS THESE DIFFERENCES.

Mortgage Life Insurance - Insurance that can offer mortgage coverage against death and sometimes disability or unemployment.

Open Mortgage - A mortgage that permits the payment towards the principal at any time without penalty. Usually of a term of 6 months, 1 year, or 2 years. Usually a higher interest rate than a Closed Mortgage.

P.I.T. - Principal, interest & taxes.

Principal - The amount of money actually borrowed.

Purchase Contract - A legally binding agreement that stipulates the arrangement of a buyer and seller to sell a property. A Purchase Contract often contains Conditions that must be fulfilled first. Sample

Real Property Report - A document that illustrates the property boundaries and measurements, the location of buildings, fences, driveways, easements and and encroachments. The buyer must be aware of these items BEFORE signing an offer to purchase. Sample

Survey - See Real Property Report

Term - The number of years or months during which you pay a specific interest rate. See Amortization Period

TDS - Total Debt Service Ratio. The ratio of the borrower's gross monthly income that will be used for monthly payments of GDS (above) and all other debts. The TDS cannot exceed 40%.

Variable Mortgage - A mortgage whereby the interest rate rises or falls according to the Bank Prime Rate. ENSURE THAT YOUR MORTGAGE BROKER FULLY EXPLAINS HIDDEN DETAILS.

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