| GE Capital Mortgage Insurance Corporatio |
Canada's only private default mortgage insurer. For more details see Mortgage Insurance. |
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| Gross Debt Service ratio (GDS) |
The percentage arrived at by dividing your monthly shelter costs (principal, interest, property taxes, heating and half of condo fees) by your gross monthly income and multiplying by 100. This is used by all lenders as a yardstick by which to measure the ability of a borrower (or borrowers) to make mortgage payments. For example, most lenders require that this ratio be no more than 32% for a particular application, while others allow higher limits. This is also the maximum qualifying GDS for most default insurance applications. |
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| Hedge |
A fairly complex money market instrument the simple purpose of which is essentially to insure a mortgage lender (or borrower, through a protected or split-term mortgage) against interest rate movements. In the lender's case the price of this insurance will vary depending upon many political and economic factors, but will generally be lower when interest rates and the economy are less volatile. The buyer on the other hand can hedge at no cost, or at a reasonable rate premium by using specifically designed products. |
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| High-Ratio Mortgage |
A mortgage which is greater than 75% (Loan To Value ratio) of the value of the property. Normally requires insurance to be paid to protect the lender. (see Mortgage Insurance) |
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| Home Inspection Report |
A report commissioned by a property owner or purchaser, usually to verify the condition of a property prior to the "firming up" of a Real Estate transaction. The scope and detail may vary, but most reports indicate the specific problem and the cost to repair. Unfortunately, no licensing is required, and this service is not specifically regulated other than by general consumer protection legislation. The best safeguard against inadequate work is to ask for the resume of the Inspector, and if possible check references from previous customers.
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| Interest Rate Differential |
A penalty for early prepayment of all or part of a mortgage outside of its normal prepayment terms. This is usually calculated as "the difference between the existing rate and the rate for the term remaining, multiplied by the principal outstanding and the balance of the term". Example.
- $100,000 mortgage at 9% with 24 months remaining.
- Current 2 year rate is 6.5%.
- Differential is 2.5% per annum.
- IRD is $100,000 * 2 years * 2.5% p.a. = $5,000.
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| Land Transfer Tax (LTT) |
A tax payable to the Provincial Government by the purchaser upon the transfer of title from a seller. In Ontario a simple formula applies*:
- First $55,000; One half percent. (0.5%)
- $55-250,000; One percent.
- Over $250,000; One and a half percent.
Example: Price = $370,000: LTT = ($55,000 * 0.5%) + ($195,000 * 1%) + ($120,000 * 1.5%) = $275 + $1,950 + $1,800 = $4,025. *Please check with your Realtor as to the rates applicable in your location. SUBJECT TO CHANGE |
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| Lien |
This is a claim made against a property for the payment of a debt or obligation related to the property or its owners. |
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| Loan-to-Value ratio (LTV) |
The percentage of the value of the property for which a mortgage is required. This ratio is important in determining whether or not default insurance is required, and if so, what the cost of that insurance will be (see "Mortgage Insurance") For example, if the property value is $200,000, the down payment available is $20,000 and the required mortgage is $180,000. The LTV is $180,000 / $200,000 or 90%. |
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| Mortgage |
Also known as the "lender" - the funder and holder of the mortgage. |
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| Mortgage Broker |
A registered agent who negotiates with lenders on behalf of a borrower to obtain the best overall mortgage for that borrower's circumstances. Mortgage Brokers are particularly useful in financing "non standard" situations which cannot be funded by a major national lender. This is possible because a Mortgage Broker has access to lenders who do not advertise nationally or operate retail locations. |
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| Mortgage Insurance |
If your down payment is less than 25% of the purchase price of the property, the lender is going to require either private mortgage insurance or public mortgage insurance through Canada Housing and Mortgage Corporation (CMHC) or GE Capital. The fee is calculated as a percentage of your mortgage. This is known as default insurance. (Please note that we calculate this amount for you automatically if your mortgage falls into this category.) |
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| Multiple Listing Service (MLS) |
A service of a local Real Estate Board which publishes and exchanges details of properties registered with them. While this used to be for the exclusive use of registered Realtors, it is now possible for a private individual to "list" a property without committing to pay a Realtor a "listing commission" if the property sells. The majority of properties sold in Canada are sold through the local MLS. |
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| Municipal Levies |
Special levies can be charged by municipalities to recover the cost of special services, if these services cannot, for some reason, be funded out of general revenues, or apply primarily to homebuyers. Examples: Water meter installation; road improvements, sewer improvements. |
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| Open Mortgage |
This allows you to pay back the borrowed funds without notice or penalty. There are two types of open mortgages:
- Fixed rate mortgages; the term is usually fairly short (6 months to a year) although themortgage.com contains some longer open terms; and the interest rate will be higher than on a closed mortgage.
- Variable Rate Mortgages (VRM's) are usually open (and are "collateral" type mortgages) but recently, several institutions have introduced closed versions.
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| PITH |
Principal, Interest, Taxes, Heating and half of Condo Fees, if applicable. Otherwise known as your "shelter expenses". This is a basic component of the ratios used to determine whether or not you qualify. |
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| Portable Mortgage |
A mortgage which allows you to transfer the amount and terms over to a new property without cost or penalty. The mortgage will, of course, have to be registered on title of the new property, so strictly speaking it is not identical in all respects. While most mortgages have a portability feature, in the event you might need more money when you transfer the mortgage over to the new property, make sure you either have the right to blend in any new funds required, or can arrange the additional funds separately. |
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| Prepayment Penalty |
If your mortgage is not fully open, you may be charged a penalty if you want to pay off all or part of your mortgage before the end of the fixed term. The normal prepayment penalty is the greater of three months' interest or the Interest Rate Differential (IRD) on the amount to be prepaid. CMHC (for insured mortgages) and a few of the major lenders set the maximum penalty at 3 months interest after the mortgage has been in effect for three years, regardless of the number of times it has been renewed. |
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| Prepayment Privilege(s) |
The right to repay periodically more than the scheduled principal payment. Historically this was limited to a single annual payment on the anniversary date of no more than 10% of the original principal. In recent years, however, prepayment privileges have become more lenient, reflecting peoples' desire to pay their mortgages off on an accelerated basis. See also Double Up. |
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| Principal |
The amount of money owing on your mortgage, including accrued unpaid interest. |
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| Refinance |
Obtaining a new mortgage on an existing property. You might be looking for more money, a better rate, or different prepayment terms. |
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| Registered Retirement Savings Plan (RRSP) |
A Federal Plan which allows a taxpayer to contribute approximately 18% of earned income - to a maximum of $13,500 into a retirement plan "tax free". If the taxpayer has already paid tax on personal income, then the RRSP contribution (which can be made until March 1st of the year following the year in which the income was earned and taxed) can result in a significant tax rebate.
Since RRSP's can be caught up retroactively, this facility and the large cash refunds it can generate are central to numerous Realtor-driven programs designed to get first time buyers to take the plunge. |
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| Registration Fees |
Fees paid to the provincial government for recording a title transfer, mortgage registration or other instrument such as an Assignment or Lien with the local authorities. |
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| Secured Visa Card |
- Build or re-build your credit, even if you've had credit difficulties in the past, or have never had a credit card before! An excellent opportunity to establish your credit rating.
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| Simple Interest |
Interest which is computed only on the principal balance. It is not compounded by calculating interest payable on accrued interest. |
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