Demystifying mortgages, one term at a time.
Welcome to the JMACmortgage glossary, your comprehensive resource for understanding the language of mortgages. Whether you're a first-time homebuyer or an experienced investor, we're here to explain complex terms clearly and simply, helping you navigate the world of real estate with confidence.
Understanding Amortization
Amortization Period: This refers to the total number of years it will take to pay off your mortgage completely. In Canada, typical amortization periods can range from 20 to 30 years, though shorter or longer periods may be available depending on the mortgage type and down payment.
Decoding Down Payments
Down Payment: The initial lump sum of money you pay upfront when purchasing a property. In Canada, the minimum down payment for a home under $500,000 is 5%, while homes between $500,000 and $999,999 require 5% on the first $500,000 and 10% on the remaining amount. Properties over $1 million typically require a 20% down payment.
These are the the typical down payment requirements:
For properties with a purchase price of $500,000 or less: minimum down payment: 5% of the purchase price.
For properties with a purchase price between $500,000 and $1 million: minimum down payment: 5% of the first $500,000, plus 10% of the portion exceeding $500,000.
For properties with a purchase price of $1 million or more: a minimum down payment of 20% is required.
Exploring Interest Rates
Interest Rate: The cost of borrowing money for your mortgage, expressed as a percentage. This can be either fixed (stays the same for the term) or variable (fluctuates with market rates). Understanding your interest rate is crucial as it directly impacts your monthly payments and the total cost of your mortgage.
Amortization Period
The length of time you agree to take to pay off mortgage (usually 25 years and can be 30 years for first-time home buyers).
Closing Date
The date when the sale of the property becomes final, the new owner takes possession of the home and receives the keys! CONGRATS!
Conventional Mortgage
A loan that is equal to or less than 80% of the lending value of the home. Requires a down payment of at least 20%.
High Rate Mortgage
A loan that is over 80% of the lending value of a home. This means the down payment is less than 20% and will likely require mortgage loan insurance.
Default
Failing to make a mortgage payment on time or to otherwise abide by the terms of a mortgage loan agreement. If borrowers’ default on their mortgage payments, their lender can charge them a penalty or even take legal action to take possession of their home.
Equity
The cash value that a homeowner has in their home after subtracting the amount of the mortgage or other debts owed on the property. Equity usually increases over time as the mortgage loan is paid. Changes in overall market values or improvements to a home can also affect the value of the equity.
Default Insurance
(Also known as Mortgage Loan Insurance): This insurance protects the lender in the event that the borrower defaults on their mortgage.
Home Inspection
A thorough examination and assessment of a home’s state and condition by a qualified professional. The examination includes the home’s structural, mechanical and electrical systems.
Land Transfer Tax
A tax charged by many provinces and municipalities (usually a percentage of the purchase price) that the buyer must pay upon closing.
Maturity Date
The last day of the term of a mortgage. The mortgage loan must either be paid in full, renegotiated or renewed on this day.
Mortgage Disability Insurance
Protects your debt obligation by making mortgage payment for a specified time in the event you should become disabled.
Mortgage Life Insurance
Protects the family of a borrower by paying off the mortgage if the borrower dies.
Mortgage Term
The length of time that the options and interest rate you choose are in effect. When the term is up, you can renegotiate your mortgage and choose the same or different options.
Payment Schedule
How often you make your mortgage payments. It can be weekly, every two weeks or once a month. You can accelerate your weekly and bi-weekly payments, which can help pay of the mortgage faster.
Open Mortgage
Lets you pay off your mortgage in full or in part at anytime without any penalties.
Closed Mortgage
Offers limited (or no) options to pay off your mortgage early in full or in part, but it usually has a lower interest
Portability
Allows you to transfer or switch your mortgage to another home with little or no penalty when you sell your existing home. Mortgage loan insurance can be transferred to the new home as well.
Pre-Approved Mortgage Certificate
A written agreement that you will get a mortgage at a set interest rate provided your financial circumstances don’t change. Getting a pre-approved mortgage allows you to shop for a home with a good indication of what you’ll be able to borrow.
Pre-Payment Options
The ability to make extra payments, increase your payments or pay off your mortgage early without incurring a penalty. Each lender has their own options.
Principal
The amount a person borrows for a loan (not including the interest).
Property Tax
These are taxes that are charged by the municipality based on the value of the home. In some cases the lender will collect property taxes as part of the borrower’s mortgage payments and then pay the taxes to the municipality on the borrower’s behalf.
Refinancing
The process of paying out the existing mortgage for the purpose of establishing a new mortgage on the same property under new terms and conditions. Refinancing can sometimes be an option when you require additional funds. Refinancing will increase your mortgage principal at a specified interest rate yet can often be more affordable than other forms of borrowing. Refinancing your mortgage you may also incur pre-payment penalties.
Renewal
Once the original term of your mortgage expires, you have the option of renewing it with the original lender or paying off all of the balance outstanding.
Title Insurance
Protects against losses or damages that could occur because of anything that affects the title to a property (for example, a defect in the title or any liens, encumbrances or servitudes registered against the legal title to a home).