Canada Guaranty Mortgage Insurance Company
Canada Guaranty is a private mortgage insurance company and the second largest private provider of Mortgage Default Insurance in Canada (Sagan is the first).
Canada Mortgage and Housing Corporation (CMHC)
The Canada Mortgage and Housing Corporation (CMHC) is a crown corporation of the Government of Canada and the largest provider of Mortgage Default Insurance in Canada. CMHC acts as Canada’s national housing agency and provides Mortgage Default Insurance to protect lenders if a Borrower defaults on their mortgage.
Cash-Back Mortgage
When you purchase a home you’ll probably find the need for a little more cash flow than you might have expected. From new furniture to closing costs there are expenses galore. Enter the cash-back mortgage. If you have a cash-back mortgage, you will receive a certain percentage of the mortgage principal balance in cash. The downside? The interest rates on these mortgages may be higher than on some other mortgages.
Closed Mortgage
Overachiever looking to pay off your mortgage early? Then, a closed mortgage might not be right for you. The interest rate for a closed mortgage is generally lower than the interest rate for a comparable open mortgage. However, this type of loan restricts the Borrower’s ability to pay off their mortgage early by imposing penalties. Most contain some form of prepayment privilege but they are limited. For a variable-rate closed mortgage (or ARM) the penalty is typically equal to 3 months of interest. For a fixed-rate closed mortgage the penalty is typically the greater of 3 months interest or the Interest Rate Differential.
Closing Costs
Closing costs are a not-so-fun surprise to a lot of first time homebuyers. So, let’s make sure you’re prepared. Closing costs are the expenses you will need to pay when closing the purchase of your home and obtaining your mortgage. Typical closing costs you can expect include fees for lawyers, title insurance, appraisal, home inspection, the PST on Mortgage Default Insurance as well as land transfer taxes. As a general rule of thumb, it is recommended to have funds totalling at least 1.5% of the property value to account for closing costs.
An even bigger surprise to a lot of people is that the seller has closing costs too. These include real estate commission (if applicable), their own legal fees and any costs related to discharging a mortgage they may have had on the property.
Closing Date
The closing date is an exciting (and expensive day). On your closing date, you will pay the balance of the home purchase price to the seller, and the seller transfers title or ownership of the property to you. This is handled by your lawyers and the seller’s lawyers. Your lender will work with your lawyer to ensure all of the legal documents are in place and the requirements of the lender have been met in order to make sure the mortgage funds are available on the closing date.
Co-Borrower/Co-Applicant
When there is more than one borrower on a mortgage, the lead borrower is referred to as the Primary Borrower. Any other borrowers are considered Co-Borrowers, or Co-Applicants during the mortgage application process. The Co-Borrowers share the legal obligations of the mortgage.
Collateral Mortgage Charge
A mortgage charge that is secured by a borrower’s property where the registration on title can be for an amount higher than the mortgage amount. The charge is registered as a lien on the property financed by the mortgage. The result is often a re-advanceable mortgage where the lender has a claim against the property for more than the amount of the original mortgage. If the borrower fails to make the required payments, the lender can take legal action to enforce their rights under the mortgage charge and recover the amounts that are owed. Their legal remedies include a right to sell the property.
Commitment Letter
Your commitment letter is a legal agreement between you and a lender that confirms that the Lender is prepared to loan you the necessary funds and outlines both the terms of the mortgage and a list of conditions that need to be met by you in order for your mortgage to be funded on a specific date.
Conditional Offer
A conditional offer is an offer to purchase a property that contains certain conditions that must be met before the purchase can occur. Common examples include an offer being conditional on the purchaser obtaining financing, or the property passing a home inspection, or on the buyer selling their current home by a certain date.
Condominium (aka: Condo)
If you live in a big city you’re probably more familiar with condos than homes. A condo is a form of property ownership in which the owner has title to a dwelling unit that is part of a larger property and owns a share of the common elements (such as elevators, hallways and the land).
Conventional Mortgage (aka: Low-Ratio Mortgage)
A mortgage that provides financing for up to 80% of your property’s value. A Conventional Mortgage does not require mortgage default insurance. However, borrowers will be happy to know that if a lender decides to insure a Conventional Mortgage, the cost is borne by the lender, not the borrower.
Credit Report
Your credit report is a summary of your credit history dating back to the very first time you applied for credit. Lenders of all types share your credit and payment information with credit reporting agencies. The data on your credit report includes current and past financial debts for up to the prior 7 years, and a record of debt payment history.
A lender uses the information from a credit report, together with other information you have provided, to decide whether to accept or deny your mortgage application. Lenders get credit reports from third party credit reporting agencies, like Equifax and TransUnion.
Credit Score
Ah, the golden ticket to a great mortgage. A credit score is a three-digit number that is calculated using a person’s prior credit history. Lenders use this number as an indication of a potential borrower’s capacity to repay a loan. So, what gets factored into your credit score? Things like your track record for making debt payments on time, the length of your credit history, the amount of debt you have and your utilization rate. Third party credit reporting agencies, like Equifax and Transunion, perform these calculations.
The better you manage your credit the higher your credit score. Your credit score will change over time as current activity is updated. Looking to improve your credit score? Focus on consistently making payments on time, paying down debts and avoiding taking on too much debt.
Credit scores range between 300 and 900 and are generally grouped as follows:
Excellent (741-900) – rare late payments, generally pay down debts, and low credit utilization;
Good (681-740) – very few late payments and low utilization;
Average (641-680) – several late payments combined with a higher overall debt load. Possibly defaulted on a loan in the past;
Below Average (575-640) – have experienced serious credit trouble in the past including defaults on more than one loan;
Poor (300-574) - have experienced serious credit trouble in the past including defaults on more than one loan with high debt loads and possibly prior bankruptcy.
Lenders in the Canadian market generally consider 680 and above to be prime credit scores and borrowers with these scores often qualify for the best rates. A credit score of 620 or lower is generally considered a poor credit score and borrowers with these credit scores can often find mortgages from B-lenders that charge higher rates. A mid score between 620 and 680 is still considered ok but the outcomes for borrowers in this range can vary.
Creditor Life Insurance
Also referred to as mortgage critical illness insurance, mortgage disability insurance or mortgage life insurance, Creditor Life Insurance helps you prepare for the unexpected. This type of insurance can cover your mortgage payments or reduce or pay off your mortgage in the event of death, critical illness, disability or job loss. Creditor Life Insurance is typically offered to Borrowers whenever they take out a new mortgage.