Mortgage Terminology

  • Agreement of Purchase and Sale: Sometimes referred to as an Offer to Purchase, this is essentially the contract between Buyer & Seller that sets out the details of the purchase / sale of the home as well as the conditions of the sale. Mortgage Lenders need a copy of this document in order to grant a final mortgage. This document assures the lender of precisely the amount of money they will need to issue to the buyer.
  • Amortization Period: This is the length of time over which the loan is to be repaid. In Canada, a typical new mortgage amortization period is 25 years.
  • Appraised Value: This is an estimate of the market value of a property. In some cases, Mortgage Lenders will send an appraiser to evaluate the cost of the property in order for them to lend the mortgage. It is the Lender’s way of verifying that the offer for the property accurately matches the market value of the home.
  • Closing Date: The date when the buyer assumes ownership of the purchased property and the Mortgage Lender has the money ready for the purchase. Sometimes referred to as the Date of Possession.
  • CMHC (Canadian Mortgage & Housing Corporation): Mortgage Lenders in Canada will insure themselves against default by the borrower by using a principal Mortgage Insurer. Any new mini home mortgage will require a CMHC Insurance premium.
  • Home Equity: The difference between the price for which a home could be sold (market value) and the total debts registered against it.
  • Interim Financing: Also referred to as Bridge Financing, is a short-term financing to help a buyer bridge the gap between the closing date on the purchase of a home and the closing date on the sale of an existing home.
  • Mortgagee / Mortgagor: Mortgagee is the Lender. The Mortgagor is the borrower.
  • Mortgage Pre-Payment: These are special payments above the regular payment scheduled as outlined in the mortgage agreement. Mortgage Pre-Payment is a great strategy for both paying off the principal on a mortgage more quickly, and therefore saving money on interest in the long run.
  • Mortgage Term: The time frame (number of years) over which you pay a specific interest rate. Terms can range from 6 months to 10 years, but are typically 4-5 years in length. Many people sometimes confuse the Amortization Period of a mortgage and the Mortgage Term. Whilst Amortization Period refers to the payment schedule over 25 years of a certain mortgage, a Mortgage Term is the period of time for which a specific interest rate applies. Therefore, people have to renew a mortgage periodically at the latest interest rates set by the banks.
  • Pre-Approved / Pre-Approval: A pre-approval on a mortgage lets a buyer know approximately how much they can expect to borrow when buying a home, therefore giving buyers a price range of homes for which to search for. A pre-approval, especially from banking institutions, also guarantees an interest rate and term for a set amount of time. In other words, a pre-approval will “lock in” an interest rate & term, to protect you from further interest rate hikes until the closing date.
  • Principal: The amount of money borrowed for a new mortgage or current amount, still owing on an existing one.

Comments are closed.