Adjustable-Rate Mortgage (ARM)

Although they are often used interchangeably, there is actually one key difference between an adjustable-rate mortgage and a variable-rate mortgage. 

The interest rate on an ARM will fluctuate over time because the interest is pegged to a benchmark short-term interest rate, typically the prime rate. As the prime rate changes, the ARM rate will also change. What does that mean for you, the Borrower? It means if interest rates increase, not only will the cost of your debt increase but so will your monthly mortgage payment.

There are some ARM products that offer fixed-payments. This means your payment stays the same for the term even when interest rates change. In this case, your payment would stay the same but the amortization period could change.  

Agreement of Purchase and Sale (APS)

A written contract between a purchaser and a seller for the sale of a property from the seller to the purchaser.

Amortization Period

The amortization period is the length of time it will take you to completely pay off a mortgage. The most common amortization period in Canada is 25 years.

If your down payment is less than 20%, the maximum amortization period allowed is 25 years. Since most mortgages have a 5-year term, this gives you flexibility at the end of the 5 years to either continue with the amortization period remaining at that time or change it.

Your amortization period affects the size of your mortgage payment. The longer the amortization period, the smaller the monthly payment but, the longer it will take you to pay off your mortgage. While a longer amortization period can make your monthly payments more manageable, it also means that you will pay more interest over the life of your mortgage. 

A shorter amortization period results in a larger mortgage payment but will save you money in the long run because you’ll be paying less interest over the life of your mortgage. It will also allow you to be mortgage-free sooner.

Annual Percentage Rate (APR)

The APR is calculated by taking the contractual interest rate on the Mortgage and adding any non-interest finance charges. This rate must be disclosed to Borrowers as per the Business Practices and Consumer Protection Act. So, always make sure this rate is shared with you!

Appraised Value

The appraised value is the fair market value of a property as determined by an accredited appraiser. Appraisals are often required when obtaining financing secured by a house and typically paid for by the Borrower.