Mortgage Facts

Here’s a brief explanation of common mortgage words and expressions. Your Mortgage Specialist can give you more complete explanations and help you design a Mortgage that best suits your needs and resources.

“Accelerated” weekly or biweekly payments
are calculated so you make the equivalent of 13 monthly payments per year, rather than 12 monthly payments. This results in a large interest saving over the amortization period of your mortgage, and you’ll be mortgage-free sooner.
Amortization period
The number of years it will take to repay the loan in full (usually no longer than 25 years). Longer amortization periods result in lower payments, but increases the total amount of interest paid.
Assumable
If you sell your home, the Purchaser may assume your mortgage. This may help make your home more marketable, especially if your mortgage has a low interest rate.
 
Conventional mortgage
A loan for up to 80% of the appraised value or purchase price of the property, whichever is less. You provide at least 20% of the financing as a down payment.
High-ratio mortgage
A loan for up to 95% of the appraised value or purchase price of the property, whichever is less. Canada Mortgage and Housing Corporation or the G.E. Insurance Company of Canada insure this type of mortgage against nonpayment through mortgage insurance. The borrower pays the application fee and the insurance premium.
Interest rate increase protection
The interest rate on your mortgage will be the lesser of the rate at application or on a set day before closing. The rate is guaranteed for 90 days (depends on institution) or until closing, whichever comes first. If rates increase, you’re protected. If rates decrease, you’ll receive the lower rate.
Mortgage life insurance
Insurance coverage on your life, and will pay off the outstanding mortgage balance owing, to a maximum, in the event of your death.
Portable
If you buy another home, you can take your mortgage with you to help finance the next property. There are usually costs associated with this feature.
Prepayment privileges
Save interest over the remaining period of the mortgage and significantly reduce the time required to pay off the loan. Check on details and costs (if any) of these privileges.

Increase regular payments – Payments will be applied directly to your principal. The percentage under this privilege will vary from one institution to the other.

Annual payments – Usually between 10% and 15% of the principal amount can be applied directly to the principal. The percentage under this privilege will vary from one institution to the other.

Pre-approved mortgage
Pre-qualifies you for a mortgage so you know the maximum house price you can afford before you start looking at homes. You can also make a firm offer, without financing conditions (subject only to satisfactory appraisal), because your mortgage is already arranged. The interest rate is guaranteed for 60, 90 days usually. Other guarantees of interest are sometimes available. Inquire with your mortgage specialist.
Term
The length of time for which the interest rate is fixed. At the end of the term, the mortgage can be either be paid off or renewed for another term.
Open mortgage
Allows payment of the principal, in part or in full, at any time without penalty. Open mortgages tend to be for a short term – usually six months or one year.
Closed mortgage
Locks you into a specific payment schedule. A penalty usually applies if you repay the loan in full before the end of the term.

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