Real estate mortgage & home-buying tips
Adjustable-rate mortgage (ARM)
A type of mortgage where the interest rate fluctuates with CMLS Prime. When the prime lending rate set by your lender changes, your payments adjust upwards and downwards, ensuring that your amortization period remains constant.
Agreement of purchase and sale
A legal agreement that offers a certain price for a home. The offer may be firm (no conditions attached), or conditional (certain conditions must be fulfilled before the deal can be closed).
The number of years it would take with regular payments to fully pay off your mortgage. Amortization periods are often 15, 20, 25 or 30 years long.
A written estimate of the market value of the property prepared by an appraiser. It may be less than the purchase price of the property.
A mortgage agreement that can't be prepaid, renegotiated or refinanced before maturity. The lender may elect to allow a prepayment with the payment of a prepayment charge. Closed mortgage terms can range from 1 to 10 years.
Closing costs are the legal and administrative fees and disbursements associated with buying your home. Combined together they can represent between 3% and 4% of the purchase price, and they will vary by province and city. These costs can include, but are not limited to, legal/notary fees and disbursements, land transfer taxes, as well as adjustments for prepaid property taxes or condominium common expenses, if any.
The date on which the sale of a property becomes final and the new owner takes possession.
An offer to purchase subject to conditions, such as the sale being subject to a home inspection, financing approval or sale of your existing home.
Debt ratios (GDS / TDS ratios)
There are two standard measures that lenders use to determine a borrower's ability to pay the mortgage.
Gross debt service (GDS)
The percentage of the borrower's gross annual income that is needed to pay all costs associated with housing. Includes mortgage principal and interest, property taxes, secondary financing, heating costs and 50% of condominium fees. GDS should not exceed 32% of gross annual income.
Total debt service (TDS)
The percentage of the borrower's income that is needed to cover housing costs (GDS) plus any other monthly obligations that an individual has, such as credit card payments and car payments. TDS requirements vary from 40% to 44% depending on the CMHC Mortgage Loan Insurance product.
The difference between the market value of the property and any outstanding debts or claims against the property.
An offer to purchase a home without any conditions attached.
The interest rate is fixed for a specific period of time and your monthly mortgage payments remain the same throughout the term of the mortgage.
A mortgage loan that exceeds 80% of the lesser of the appraised value or purchase price of the property. This is generally a mortgage where the borrower has put down less than 20%. This mortgage must be insured against payment default by a Mortgage Insurer, such as CMHC, Genworth, or Canada Guaranty.
Qualified home inspectors perform a complete visual inspection of a home to assess its condition and all of its systems.
Interest rate differential (IRD)
A prepayment charge that may apply if you pay off your mortgage prior to the maturity date, or pay the mortgage principal down beyond the amount of your prepayment privileges. It is the difference between your current mortgage interest rate and the interest rate that the lender can charge today when re-lending the funds for the remaining term of the mortgage.
The last day of your mortgage term.
Mortgage brokers are impartial experts who specialize in finding you the best mortgage products at fair and competitive interest rates from a variety of possible lenders. CMLS Financial offers residential mortgages exclusively through a network of knowledgeable Canadian mortgage brokers.
An additional payment you can choose to make on your mortgage. Any mortgage prepayments go directly to the principal which saves you interest for the remainder of your amortization period.
How often you make your mortgage payments. When arranging your mortgage you can choose to make regular payments every week, bi-weekly, twice a month or monthly.
A mortgage that can be paid off at any time without incurring penalties. You can also choose to make additional payments at any time without penalties.
Offer to Purchase
A formal, legal agreement that offers a certain price for a specified real property. The offer may be firm (no conditions attached) or conditional (certain conditions must be fulfilled).
Renegotiating your existing mortgage agreement to replace it with a new mortgage. This can be done to manage borrowing costs if interest rates change or if you want to borrow more money to pay for home renovations, consolidate debts, etc.
The length of your current mortgage agreement. When the term expires, you can repay the balance owing or renew your mortgage with a new term.
With a variable rate mortgage the mortgage rate changes as the prime lending rate changes, but your payment amount stays fixed for the term. A variable rate is quoted as Prime plus or minus a specified amount (Prime +/- a). If the interest rates go down, more of your payment goes towards paying off your principal; if interest rates go up, more of your payment goes towards interest costs.
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