Mortgage Glossary

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.

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

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.

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.

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.