Guarantor
A person that is not a Borrower on the mortgages but promises to make the mortgage payments in the event the Primary Borrower is unable to pay off the loan. Why might a lender require a guarantor? Usually, because the person applying for the mortgage has sufficient income to support the mortgage but doesn't have sufficient credit strength/history to qualify for the mortgage on their own.
High-Ratio Mortgage
A mortgage is considered a high-ratio mortgage when your down-payment is less than 20% of the home value/purchase price. If you have a high-ratio mortgage, you need Mortgage Default Insurance. This is a hard and fast rule because financial regulations do not permit regulated lenders to have high-ratio mortgages on their balance sheets unless they are insured. If you Default on the mortgage, the insurance will pay the lender for certain covered losses.
Home Buyers' Amount (HBA) (aka: Home Buyers Tax Credit, or HBTC)
The federal HBA may provide a non-refundable tax credit for first-time home buyers that allows you to claim up to $5000 in the year you purchase a home if you are eligible. In order to qualify:
You or your spouse or common-law partner must acquire a qualifying home
You must be a first-time home buyer. Meaning:
You did not live in a home that either you or your partner owned in the four years prior to purchasing your new home
Home Buyers Plan (HBP)
The Home Buyers' Plan is a federal government program that allows eligible first-time homebuyers to withdraw up to $35,000 from an individual's RRSP savings, tax free, to buy, build or maintain a qualifying home. So, what’s the catch? To avoid paying income tax on the funds, you must repay the full amount you withdraw from your RRSP over the next 15 years.
You are considered an eligible first-time home buyer if, in the four years prior to your home purchase you did not live in a home that you owned, or one that your current spouse or common-law partner owned.
Home Equity
Your home equity is the value of your home, minus the total amount of debts (most likely mortgages) and other liens registered against title to the property.
Let’s look at an example:
Your property is worth $400,000
The debt secured by your home, including the mortgage is $300,000
This means your home equity is $100,000 ($400,000 - $300,000 = $100,000).
Your home equity will increase (yay!) if;
the market value of your home increases
the debt secured by the property decreases.
Home Equity Line of Credit (HELOC)
A HELOC is a lot like a credit card. It is a revolving source of funds a borrower can draw from up to a set credit limit. Again, much like a credit card, you are required to pay interest monthly on the aggregate balance drawn. HELOCs do not have a set amortization schedule.
Up to 65% of the purchase price or appraised value of the property may be borrowed with a HELOC. However, if a HELOC is combined with a Mortgage, the combined amount can go up to 80% of your home's value. The additional 15% is an amortizing portion. This means, it must be repaid in regular monthly instalments, similar to the payments on a regular Mortgage.
Home Inspection
A detailed inspection of the mechanical, plumbing, roofing, electrical systems of a home, and other details of a house.
Interest Adjustment
The interest adjustment amount is a one-time interest expense that is typically paid on the Closing Date of your Mortgage. It occurs whenever you receive mortgage funds (ie. close your mortgage) before the Interest Adjustment Date (IAD).
Most borrowers set their mortgage payments to be monthly on the first of the month. If you buy a home on another day of the month, your lender calculates interest from your Closing Date to the IAD. The interest amount that covers this short period is called the Interest Adjustment amount.
Let’s take a look at an example:
You buy a home on June 20, but mortgage payments are set to occur on the first of each month (ie. the IAD is July 1).
You pay the Interest Adjustment amount on the Closing Date for the period from June 20 to July 1.
Your first regular mortgage payment will then be one month after the IAD; in this case, August 1.
You may also pay an Interest Adjustment amount if you change your mortgage payment date or mortgage payment frequency during the mortgage term.
Interest Adjustment Date (IAD)
The date on which the Mortgage Term will commence. It is most commonly the first day of the month after Closing.
Land Transfer Tax
One of those sneaky closing costs many buyers forget to account for. A land transfer tax is a form of tax paid to the government on the closing of a property purchase. This tax is paid by the purchaser of a property and is calculated based on the property's purchase price. Land transfer taxes are typically a Provincial charge and can vary by Province, but some municipalities also charge a land transfer tax. First-time home buyers are sometimes exempt from part of the cost.
Land Transfer Tax Rebate
In Ontario, B.C. and PEI a first-time homebuyer may be eligible for a rebate on land transfer taxes if they meet certain conditions. There is also a land transfer tax rebate available to first-time homebuyers in the City of Toronto.
Lenders
So, who is actually giving out these mortgages to home buyers? Mortgage lending in Canada is done by a variety of financial institutions including, but not limited to, banks, credit unions and unregulated lenders.
Lenders fall into two major categories.
Lenders in the higher credit quality mortgage market offer a variety of mortgage products, often with competitive low mortgage rates.
The ‘B’ lenders specialize in customers that do not qualify for prime, or A, quality mortgages. B lenders (aka: Sub-Prime Lenders) charge higher interest rates and usually require larger down payments from their customers. B mortgages tend to have terms of only 1 or 2 years. Usually, the objective for the borrower is to make their mortgage payments and improve their credit score, allowing them to potentially qualify for a prime mortgage once their B mortgage matures.
Legal Fees and Disbursements
Another one of those tricky closing costs! Buyers and sellers need to have their own lawyers and pay these legal fees and disbursements to close a purchase, sale or mortgage transaction. These fees vary by province and are subject to GST or HST. Make sure you get a quote from your lawyer for these charges before engaging them and do your due diligence so that you understand what other disbursement charges are likely to be incurred.
Leasehold Mortgage
A type of Mortgage on a home where the building is on leased (rented) land. The lender typically takes a security interest in the lease. If you are considering a leasehold property, it’s important to know that most prime lenders in Canada do not provide mortgages on leasehold property.
Letter of Employment
During the Underwriting process, Lenders typically require that a Letter of Employment be provided by the employer of the mortgage applicant. In your Letter of Employment, your employer will verify that you work at their company, share how long you have worked there and how much you make. Your Lender may also request additional information from your employer that they should include in your letter.
Lien
A lien is a claim or a legal right against assets that are being used to secure a debt. In the case of a mortgage, your lender places a lien on your house to secure your mortgage debt. This means they have a right to maintain possession of your home until your mortgage has been paid off in full.
Loan-To-Value Ratio (LTV)
The LTV is one factor lenders use in evaluating the risk of a mortgage. The ratio, expressed as a percentage, is calculated by taking the amount of the mortgage loan and dividing it by the value of the property. In Canada, if the LTV is greater than 80%, the mortgage usually needs to be insured against default.