Glossary

A

Amortization Period: the number of years it would take to pay off your entire mortgage at your current mortgage payment. This is usually longer than the term of the mortgage. For example, you may have a mortgage with a five-year term and a 25-year amortization period.

Annual Percentage Rate (APR): the annual cost of a mortgage, including interest payments as well as all other fees and costs associated with your mortgage loan. Because the APR includes all the costs, it is usually higher than the interest rate alone. The APR follows a standard formula, which enables you to compare mortgages from different lenders.

Appraisal: the process of estimating the current value of a property. Lenders may get an appraisal done before they approve a mortgage to ensure they are lending on the accurate value of the property.

Appraisal Cost (or Appraisal Fee): fee charged by an expert to estimate the current value of a property. You may have to pay this fee as part of your closing costs.

Appraised Value: an estimate of the current value of a property. The value is generally determined by sale prices of similar properties in the same area and does not include a home inspection. The appraised value of the property may or may not be the same as the purchase price.

B

Blended Rate: an interest rate you may be offered when you refinance your mortgage. It’s a blend of the previous mortgage rate and the new rate.

Bridge Financing: money lent when the property you are purchasing closes before the property you are selling. Because you haven’t yet received the money from the property you are selling, you may need to apply for a bridge loan in order to finalize the closing on the new property. You then pay back this loan when your current property closes. The cost of bridging varies – in addition to the mortgage payment and interest cost, there may also be a set-up fee.

C

Canada Mortgage and Housing Corporation (CMHC): one of the companies offering mortgage insurance for high-ratio mortgages. In Canada, you are required to insure your mortgage if your down payment is less than 20% of the purchase price of the property. CMHC is a federal Crown Corporation that administers the National Housing Act and implements all federal housing policies and programs.

Canada Mortgage and Housing Corporation (CMHC) insurance premium: amount added to your mortgage payment to cover the CMHC mortgage insurance. Mortgage insurance is required on all high-ratio mortgages, that is, all mortgages greater than 80% of the purchase price of the property. It insures the lender against loss in the event the client defaults on the mortgage. CMHC is one of the companies offering mortgage insurance for high-ratio mortgages.

Closed Term: a mortgage that is locked for a specific term, during which the mortgage cannot be prepaid beyond a lender’s prepayment privileges, renegotiated or refinanced without penalty. For example, if you have a mortgage with a 5-year term and you sell your house before the five years is up, you will pay a prepayment penalty to the lender in order to close the mortgage. The amount of the penalty can be found in the terms of the mortgage.

Closing Costs: costs that must be paid in order to finalize a property purchase or sale. Standard closing costs may include, but are not limited to, legal fees, appraisal fees, title insurance and land transfer taxes. Closing costs are not added to the mortgage and you should budget for approximately 4% of the purchase price to cover them.

Closing Date: the date when a property sale is official and the new owner takes possession. On or before that date, both the buyer and the seller will meet with their lawyers to sign all the documents and finalize the closing costs. On the closing date, the buyer now has the title to the property and the mortgage takes effect.

Conventional Mortgage: a mortgage for up to 80% of the appraised value of the home. If you have a down payment of 20% of the purchase price or more, then you qualify for a conventional mortgage and likely won’t have to obtain mortgage insurance.

Creditor Insurance: an optional insurance policy that pays your mortgage debt in the event of your death, and makes your regular mortgage payments for a period of time in the event of disability or job loss.

Credit Bureau: an organization that provides information on individuals’ borrowing and bill paying habits. Lenders use a credit bureau to determine a person’s ability to pay back a loan.

Credit Report: a record of someone’s payment history and debt load provided by a credit bureau. You can order a copy of your credit report by contacting the credit bureau. You should review your credit report regularly to ensure there are no mistakes.

Credit Score: a numerical rating ranging from 300 to 900 that represents a person’s creditworthiness. The rating is provided by a credit bureau and is determined by that person’s payment history and debt load. When you apply for any type of loan or credit, lenders will use your credit score as a basis for determining whether or not they will extend that credit to you.

D

Daily Closing Balance: the balance in your bank account, or owing on your mortgage, at the end of the business day.

Default (or Payment Default): usually means not making your mortgage payments. However, you can default on a mortgage if you are no longer meeting the terms of the mortgage, for example, if your home insurance gets cancelled or you don’t pay the property taxes.

Discharge Fee: fee paid to your lender to prepare a mortgage discharge. This fee varies from province to province and from lender to lender.

Discharge of Mortgage (or Mortgage Discharge): process of paying off your mortgage balance in full, switching your mortgage from one lender to another or selling your home and moving your mortgage to another lender. You may be required to pay a discharge fee to your lender for the preparation of your mortgage discharge.

Down Payment: cash portion of the home’s purchase price that you pay for yourself. If the down payment is less than 20% of the purchase price, then the mortgage is considered to be a high-ratio one and you may have to purchase mortgage insurance. This is the initial equity you have in your home.

E

Equifax Canada: a credit bureau providing information on individuals’ borrowing and bill paying habits. Lenders use a credit bureau like Equifax to determine a person’s ability to pay back a loan. You can contact Equifax to order a copy of your credit report.

Equity (or Home Equity): the value you own in your property above all other claims on the property. This is typically the difference between any outstanding mortgage registered against the property and the market value of the property. For example, if your home is valued at $300,000 and you have a mortgage balance of $200,000, your equity is $100,000 or 33%.

F

First Mortgage: The first mortgage that is registered against a property that secures the mortgage. A first mortgage has priority over all other claims on the property in the event of sale or default.

Fixed Rate: an interest rate that is predetermined and does not change throughout the term of the mortgage. For example, the mortgage may have a fixed rate of 4% for five years.

The Financial Consumer Agency of Canada (FCAC): an independent government body that oversees the conduct of federally regulated financial entities to ensure they comply with federal legislation and regulations. The FCAC also provides consumers with information relating to their rights and responsibilities in their dealings with Canadian financial institutions. For more information from the FCAC regarding mortgages and what you should know, please visit: http://www.fcac-acfc.gc.ca/eng/consumers/mortgages/index-eng.asp

G

Genworth Financial Canada: one of the companies offering mortgage insurance for high-ratio mortgages. In Canada, you are required to insure your mortgage if your down payment is less than 20%.

Gross Debt Service Ratio (GDS): the percentage of your gross annual income that should be used for housing-related expenses such as mortgage principal and interest, property taxes and heating costs. Your GDS ratio should not exceed 32% of your gross annual income.

H

High-Ratio Mortgage: a mortgage that exceeds 80% of the home’s purchase price. Mortgage insurance is required on all high-ratio mortgages in Canada. It insures the lender against loss in the event the client defaults on the mortgage.

Home Buyers’ Plan (HBP): a federal program that allows eligible individuals to withdraw up to $25,000 from their Registered Retirement Savings Plan (RRSP) to purchase or build a qualifying home. If you repay the withdrawn amount within 15 years, you won’t pay tax on it. Visit the Canada Revenue Agency website for complete details.

Home Equity: see Equity

I

Interest: the amount a lender charges for borrowing money.

Interest Rate: a percentage of the amount borrowed which is paid by the borrower to the lender. The interest rate may be fixed or variable. While the interest rate is usually provided as an annual rate, the interest may be calculated monthly, semi-annually or another time period depending on the terms of the contract.

Interest Rate Differential: a penalty that may apply if you prepay more of your mortgage principal than your prepayment privileges permit. It is the difference between your mortgage rate and the rate of a mortgage that is closest to the remainder of your term, multiplied by the outstanding balance of your mortgage for the time that is left on your term. It is calculated on the amount of principal being prepaid.

Interest Rate Guarantee: a mortgage interest rate that’s guaranteed for a certain period of time, for example 120 days. Many lenders will guarantee an interest rate when you apply for pre-approval. The guarantee means that if interest rates go up, you will still get the original, lower rate.

L

Land Transfer Tax: a fee paid to the municipal and/or provincial government for the transfer of property ownership from the seller to the buyer.

Legal Fees: closing fees you will pay to a lawyer or notary for help preparing the offer to purchase, your mortgage documents and conducting the title search.

Loan-To-Value Ratio (LTV): the ratio of the loan to the appraised value of the property. For example, the LTV on a mortgage amount of $160,000 for a home with a purchase price of $200,000 is 80%.

M

Maturity Date: last day of your selected term as outlined in your mortgage agreement. By this date, you must either pay your mortgage balance off in full or renew your mortgage for another term.

Mortgage (or Mortgage Loan): a loan used to purchase or refinance a home. The property is used as security for repayment of the loan.

Mortgage Disability and Job Loss Insurance: see Creditor Insurance

Mortgage Discharge: see Discharge of Mortgage

Mortgage Life Insurance: see Creditor Insurance

Mortgage Loan Insurance: If you have a down payment of less than 20%, you will need to purchase Mortgage Loan Insurance. Mortgage Loan Insurance protects the lender in the unfortunate event that a property forecloses. This insurance is offered by the Canada Mortgage and Housing Corporation (CMHC) or Genworth Financial. In some instances, it is required even if the down payment is 20% or more. Those cases can be explained to you by your Banking Consultant. If you do require Mortgage Loan Insurance, we will provide you with a Mortgage Loan Insurance Disclosure form that clearly identifies your premium and all your personalized details in relation to it.

Mortgage Term: see Term

Mortgagee: the lender, who advances the funds to the borrower for the mortgage loan. The repayment of the mortgage loan is secured by the borrower’s property.

Mortgagor: the borrower, who uses their property as security for the mortgage loan provided by the lender.

O

Offer to Purchase: a formal written document, prepared with your real estate agent, lawyer or notary, that sets out the terms under which you agree to purchase a property from the seller. It can be firm, meaning there are no conditions attached, or conditional, meaning there are certain conditions that must be fulfilled, such as completion of a home inspection or the sale of your existing home. Once accepted by the seller, it’s a legal contract.

Open Term: a mortgage that can be partially or fully prepaid at any time without penalty. Because of this added flexibility, the interest rates for open term mortgages are generally higher than those for closed term mortgages.

P

Payment Default: see Default

Payment Frequency: according to your mortgage agreement, how often you make your regular mortgage payments. Many mortgage providers have the following payment frequency options: weekly, accelerated weekly, bi-weekly, accelerated bi-weekly, semi-monthly, monthly. By choosing to make more frequent payments, you can pay down your mortgage faster.

Porting a Mortgage: when you move, porting your mortgage is like taking your mortgage with you. The principal and regular payment amount may be different depending upon the balance of your mortgage when you move, the selling price of your existing home and/or the purchase price of the new home. When you port your mortgage you do not have to discharge your existing mortgage and therefore do not have to pay any discharge fees or any prepayment penalties.

Pre-Approval: a process that involves the mortgage company reviewing your credit history and qualifying you for a mortgage before you start shopping for a home. For a set period of time, the interest rate is locked in, protecting you from the potential of rising interest rates. By getting pre-approved for your mortgage, you know exactly how much you can spend on your new home.

Prepayment Penalty: in the case of a closed term, a fee for repaying more than your permitted prepayment privileges before the end of the mortgage term. Consult your mortgage agreement to determine what the penalty is. Prepayment penalties can be avoided by making prepayments within the prepayment privileges or porting your mortgage when you move. For fixed-rate closed terms on Manulife Bank Select, Preferred Rate Mortgage and Manulife One sub-accounts the penalty is the higher of three months interest or the Interest Rate Differential. For the 5-year variable closed rate term on Manulife Bank Select the penalty is three months interest.

Prepayment Privileges: as set out in your mortgage agreement, the right to periodically repay more than your scheduled amount without incurring a prepayment penalty. By paying down your mortgage faster, you could save interest and shorten the time it will take you to pay off the loan. Lenders typically offer one or both of these prepayment privileges: a lump-sum payment based on a percentage of the original mortgage principal and/or a percentage increase in the regular mortgage payment. For Manulife Bank Select and the Preferred Rate Mortgage the annual prepayment privileges are: lump-sum payments up to 20% of your original mortgage amount and increasing your regular mortgage payment by up to 25%. With Manulife One fixed rate sub-accounts, the annual prepayment privileges are lump-sum payments up to 20% of your original sub-account borrowing amount.

Prime Interest Rate (or Prime Lending Rate): an interest rate used by banks as an index in calculating rate changes to variable rates. You will often see variable mortgage rates expressed as a percentage above or below prime.

Principal: at any point in time, the balance of the borrowed amount that you owe to the lender. You will likely be charged interest on this outstanding amount.

Property Tax: a tax paid to your municipality for your portion of local resources such as hospitals, schools and waste pickup, as calculated by your property size. All else being equal, the larger your property, the higher your property taxes.

R

Refinance: the act of renegotiating your current mortgage agreement, perhaps looking for an increased mortgage amount, a better rate or different prepayment terms.

Renewal: at the end of your mortgage term, the act of extending your mortgage agreement with your lender. Your interest rate and other conditions may change. If you don’t renew your mortgage at the end of the term, you will have to repay the mortgage balance in full.

S

Second Mortgage: a mortgage where there is already an existing mortgage registered against the same property. A second mortgage often has a shorter term and higher interest rate than a first mortgage. A second mortgage has second priority to the first position mortgage on claims on the property in the event of sale or default.

Security: property used as collateral for the mortgage loan, to secure repayment of the loan.

T

Term (or Mortgage Term): the length of time the mortgage agreement is effective and the interest rate, payment and other conditions are set. At the end of your mortgage’s term, you will have to either repay the balance of the principal in full or renew the mortgage at a possibly different interest rate and terms. A mortgage term is typically six months to ten years.

Title: the right of ownership of a property, or the legal document showing evidence of ownership. If you have title on a property, you own it.

Title Insurance: this insurance, which you obtain through a title insurance company, covers the buyer and lender against any questions about a property’s ownership. If a loss is caused by a mistake in the title search or a dispute over ownership, this insurance will cover you.

Title Search: the process of reviewing title records to ensure that the seller of a property is actually the owner of the property, and that they can legally sell it to you.

Total Debt Service ratio (TDS): the percentage of your gross annual income that should be used for all your debt payments, including housing costs (mortgage payments, property taxes and heating costs), credit cards, car loans and any other personal loans. Your TDS ratio should not exceed 40% of your gross annual income.

TransUnion Canada: a credit bureau providing information on individuals’ borrowing and bill paying habits. Lenders use a credit bureau like TransUnion to determine a person’s ability to pay back a loan. You can contact TransUnion to order a copy of your credit report.

Trigger Interest Rate: the interest rate at which your regular payment is no longer sufficient to pay the required interest. Your lender may automatically increase your regular payment at that time to incorporate the increased interest amount.

U

Underwriting: the process a mortgage lender uses to assess your eligibility for their mortgage products. Lenders will complete a detailed credit analysis before they agree to loan the mortgage amount to you.

V

Variable Rate: an interest rate that may fluctuate from time to time throughout the term of the mortgage according to changes in the lender’s prime interest rate. The lender typically has either a variable or a flat mortgage payment. If the mortgage payment changes as the prime interest rate changes (eg, a variable mortgage payment), the portion of the payment that goes to interest and to principal continues. If the mortgage payment remains the same throughout the term (eg, a flat mortgage payment), the amount of your payment that goes to interest and to principal changes as your interest rate changes.

*Examples are used for illustrative purposes only.

*Clients should consult their own tax and legal advisors with respect to their particular circumstance.