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Glossary

 

Amortization: The number of years it will take you to pay off your mortgage if you keep your payments the same. Typically most amortizations are 25 years to 35 years. People need to increase their amortization to make mortgage payments more affordable and easier to qualify.

Closed Mortgage: A mortgage whose terms state that it cannot be paid out, even with a penalty, unless the lender agrees. In some cases, a closed mortgage may be discharged at a defined cost, usually Interest Rate Differential (IRD), but sometimes with a punitive penalty such as full interest to maturity.

Conventional Mortgage: A mortgage usually amounting to 80% (Loan to Value ratio) or less of the value of the property.

Fixed-Rate Mortgage: The interest rate on the mortgage is fixed for the entire term of the mortgage. This is by far the safest bet which guarantees the rate and payment will not change for a number of years.

High-Ratio Mortgage: A mortgage which is greater than 80% (Loan To Value ratio) of the value of the property. Normally requires insurance to be paid to protect the lender. (see Mortgage Insurance) Interest Rate Differential (IRD): A penalty for early prepayment of your mortgage. This amount is more than simply three months interest penalty. IRD takes place because the lender wants to charge you what they will lose out on when you pay out your mortgage. Banks will have to lend out your money on the new lower rates. IRD allows them to pass on the loss over to you.

Portable Mortgages: An option that some lenders allow where you can take your existing mortgage to another property without paying any penalties.

Prepayment Privileges: Most lenders will offer some additional prepayments without penalty. The most common privilege is 20% per year lump sum as well as a 20% increase in regular payment.
Subject to Financing: When making an offer on a property we always recommend adding the clause “subject to financing”. Give yourself about 5 to 7 business days to work on removing this particular subject.

Survey: The legal written and/ or mapped description of the location and dimensions of your land. The survey should also show the dimensions and placement on the lot of any structure, including additions such as pools, sheds and fences. An up-to-date survey is often required by a lender as part of the mortgage transaction.

Term: Typically, most mortgages are anywhere from 1 to 10 years. We will place you in a mortgage term and once this portion is up, we will transfer you to a new lender for another term. Term after term, you slowly eat away at the principal, shrink your amortization and eventually pay off your mortgage.

Variable Rate Mortgage: A type of mortgage where the interest rate is based on the Bank of Canada’s Prime. It fluctuates and is totally dependent upon what the Bank of Canada does with it’s interest rates. It can be a great tool to pay down your mortgage faster. It is also kind of scary for the Baby Boomer generation. Don’t even talk about variable mortgages in front of your dad.