Agreement of purchase and sale
A legally binding contract between the buyer and the seller. It includes price, deposit, closing date and other important information about a real estate deal. It sets out the terms on which the buyer must buy, and the seller must sell, the home on the specified date. An offer to purchase, when accepted by a vendor, becomes an agreement of purchase and sale.
Amortization period
Amortization period is the length of time it takes to pay off a mortgage, including interest. It may be between 5 and 30 years. For a new mortgage, the amortization period is usually 25 years.
If you want to pay down your mortgage faster, you can shorten your amortization period and make higher mortgage payments. You can negotiate an amortization as short as 5 years.
If you want smaller mortgage payments, you can increase the amortization period to 30 years maximum. But for high-ratio mortgages, the amortization period is 25 years maximum.
Amortization period differs from mortgage term, which is the length of the contract with your lender. When a term ends, you either pay off your mortgage or renew it if your lender agrees. Terms range from 1 to 10 years, although 4- to 5-year terms are most common.
Appraisal
An appraisal is a report that indicates the estimated value of a property. It's written by a professional appraiser. You might need an appraisal for financing purposes. As the buyer, you pay the appraisal cost.
Bridge loan
A type of temporary financing that helps “bridge” the gap between the time a borrower’s existing home is sold and their new property is purchased
Closed mortgage
With a closed mortgage, the borrower may only prepay a limited amount of the principal without paying a prepayment charge. If you have a fixed rate closed mortgage, the prepayment charge is usually 3 months' interest or the interest rate differential (IRD), whichever is greater. The interest rate for a closed mortgage is generally lower than the interest rate for a comparable open mortgage.
Closing costs
Closing costs are expenses you pay to close a property purchase and sale. As the buyer, your closing costs include land transfer tax, legal fees and any costs the lawyer pays on your behalf, such as title insurance, survey costs, courier charges, among others. The seller's closing costs include real estate commission (if applicable), legal fees and any costs their lawyer pays on the seller's behalf.
Co-borrower
If 2 or more people are borrowers on a mortgage, they are co-borrowers.
Collateral mortgage
A charge, or mortgage, is the document registered on title to secure a loan. A collateral charge may secure more than one loan or line of credit.
Commercial mortgage
In a commercial mortgage, the mortgaged property is an income-producing commercial building rather than a residence. Commercial mortgages are usually much larger than residential mortgages. Lenders secure these loans with mortgages registered on title against multi-unit residential buildings, retail plazas, shopping centres, office and industrial buildings. Lenders review the commercial property’s appraised value and monthly income generation to determine how much the owner, often a business or corporation, may be approved for.
Conditional offer
A conditional offer is an offer to buy a property only if certain conditions are met. For example, an offer could be conditional on the property passing a home inspection, or on the buyer selling their current home by a certain date.
Construction mortgage
A construction mortgage is a mortgage that finances the construction of a new home or other building on a property.
Debt ratios
Debt ratios measure your ability to repay a mortgage by ensuring debt doesn't exceed a certain percentage of your income. Lenders and mortgage insurers use 2 debt-service ratios to determine if you qualify for a mortgage: gross debt service ratio (GDS) and total debt service ratio (TDS).
Down payment
A down payment is the amount of money, including deposit, you put towards the purchase price of a property. Minimum down payments vary from 5% to 20%, depending on location. If your down payment is less than 20% of the property value, your mortgage is high-ratio and you need to buy mortgage default insurance.
Firm offer
A firm offer is an unconditional offer to buy a property. Often, sellers prefer firm offers because the home sale is more likely to go through without major holdups.
Fixed rate mortgage
If you have a fixed-rate mortgage, your interest rate and monthly payments stay the same for the entire mortgage term. If mortgage interest rates go up during the term, you're protected because your rate stays the same.
Foreclosure
If you default on your mortgage payments, your lender takes a legal action called foreclosure. Your lender takes over your property under a legal process called power of sale. You receive notice and have the chance to bring the mortgage back into good standing. If not, the lender can sell your property to recover money you owe them, including principal, interest, legal fees and charges.
Gross debt service ratio
The gross debt service ratio (GDSR) is the ratio or proportion of a borrower’s housing-related debt to their income. Lenders take GDSR into account when considering whether to approve a mortgage application.
Gross household income
Gross household income is the total income, before deductions, for all people who live at the same address and are applicants on a mortgage.
High-ratio mortgage
A high-ratio mortgage has a principal greater than 80% of the property value. If you have a high-ratio mortgage, you need mortgage default insurance because this is a high-risk loan. If you default on the mortgage, the insurance pays the lender for certain losses. Not all lenders offer high-ratio mortgages.
Home equity
Your home equity is the value of your home, minus total outstanding debt — such as mortgages and liens — registered against title to the property. Calculate as follows:
Property value – total debt secured by the property = home equity
Example: If your property is worth $500,000 and the mortgage is $400,000, your home equity is $100,000 ($500,000 - $400,000 = $100,000).
Your home equity increases as the debt secured by the property decreases.
Home inspection
Buyers, sellers, owners or anyone who needs independent information about a property can hire a Registered Home Inspector (RHI) to do a home inspection.
The inspection confirms a home's condition, identifies needed repairs and helps you decide whether to buy a property. Lenders may ask for a home inspection report when you apply for a mortgage.