Bank Loan Officers vs Mortgage Brokers

Bank Loan officers: are employees at the banking institution. The banks are the actual lending institution and determine the conditions themselves. Banks may offer some discounting for consolidating your services with them.

Mortgage brokers: shop around for the lowest rate and negotiate on your behalf; lenders pay them a commission for finding them clients. Your mortgage broker will pull your credit history once and then use that one “pull” to market you to prospective lenders.

We advise you to do your research and find the best professional to help you achieve your goals.

Adjustable Mortgage Interest Rate

With an adjustable rate, both the interest rate and the mortgage payment vary, based on market conditions.

All-in-One-Accounts

Combines all your chequing, savings and borrowing accounts into one big pot. Since financial institutions typically charge more in interest on loans than they pay on deposits, combining everything into one account can help you save on interest costs. You receive one statement for everything monthly.

Amortization

Length of time over which the debt will be repaid.

Appraisal

Process for estimating the market value of a property.

Appraiser

Certified professional who carries out the appraisal.

Appreciation

The increase in value of something because it is worth more now than when you bought it.

Blended Payment

A mortgage payment that includes principal and interest. It is paid regularly during the term of the mortgage. The payment total remains the same, although the principal portion increases over time and the interest portion decreases.

Canada Mortgage and Housing Corporation (CMHC)

A Crown corporation that administers the National Housing Act for the federal government and encourages the improvement of housing and living conditions for all Canadians. CMHC also develops and sells mortgage loan insurance products.

Closing Costs

Costs in addition to the purchase price of the home, such as legal fees, transfer fees and disbursements, that are payable on closing day. They range from 1.5% to 4% of a home’s selling price.

Closing Day

Date on which the sale of the property becomes final and the new owner takes title to the home.

Commitment Letter (or Mortgage Approval)

Written notification from the mortgage lender to the borrower that approves the advancement of a specified amount of mortgage funds under specified conditions.

Conditional Offer

An Offer to Purchase that is subject to specified conditions, for example, the arrangement of a mortgage. There is usually a stipulated time limit within which the specified conditions must be met.

Conventional Mortgage

A mortgage loan up to a maximum of 80% of the lending value of the property. Typically, the lending value is the lesser of the purchase price and market value of the property. Mortgage insurance is usually not required for this type of mortgage.

Counteroffer

If, for example, your original offer to the vendor is not accepted, the vendor may counteroffer. This means that the vendor has amended something from your original offer, such as the price or closing date. As this new offer varies the terms of the original offer, this rejects the original offer. If a counteroffer is presented, the individual has a specified amount of time to accept or reject.

Credit Bureau

A company that collects information from various sources and provides credit information on a person’s borrowing and bill paying habits to help lenders assess whether or not to lend money to the person.

Credit History/Report

The main report a lender uses to determine your creditworthiness. It includes information about your ability to handle your debt obligations and your current outstanding obligations.

Deed

A legal document that transfers ownership in the real property to the purchaser. This is often called a “Transfer. This document is registered as evidence of ownership.

Deposit

Money placed in trust by the purchaser when an Offer to Purchase is made. The sum is held by the real estate representative or lawyer/notary until the sale is closed and then it is paid to the vendor.

Fair Market Value (FMV)

A selling price for an item to which a buyer and seller can agree.

First Time Home Buyer's Plan

A Government program allows you to borrow up to $25,000 from your own RRSP to use for the down payment of your primary residence. Repayment starts in second year after withdrawal over 15 years to recontribute back into your RRSP. Minimum annual repayment amount is 1/15th of what you withdrew.

Fixed Mortgage Interest Rate

A locked-in rate that will not increase for the term of the mortgage.

Gross Debt Service Ratio (GDS)

The percentage of the gross income that will be used for payments of principal, interest, taxes and heating costs (P.I.T.H.) and 50% of any condominium maintenance fees or 100% of the annual site lease for leasehold tenure.

Interest

The cost of borrowing money. Interest is usually paid to the lender in regular payments along with repayment of the principal (loan amount).

Ex. 2.70% (prime rate) + 3.0% (bank rate) = 5.70%

Mortgage

A mortgage is a security interest given in the property you are purchasing which secures repayment of the loan related to the property.

Mortgage Loan Insurance

Also known as default insurance for less than 20% down payment.

TIP: Mortgage loan insurance is required for residential mortgage loans with a loan-to-value ratio of more than 80%, and is available from CMHC or a private company. Because mortgage loan insurance protects the lender against losses in the event that a borrower fails to pay his or her mortgage, it enables more Canadians to purchase their home earlier, at competitive interest rates and benefit from the growth in home equity sooner.

To obtain mortgage loan insurance, lenders pay an insurance premium. Typically, your lender will pass this cost on to you. The premium payable is based on a percentage of the home’s purchase price that is financed by a mortgage. The premium can be paid in a single lump sum or it can be added to your mortgage and included in your monthly payments.

Mortgage loan insurance is not to be confused with mortgage life insurance which guarantees that your remaining mortgage at the time of your death will not be a burden to your estate.

Offer to Purchase

A written contract setting out the terms under which the buyer agrees to buy the home. If the Offer to Purchase is accepted by the seller, it forms a legally binding contract that binds the people who signed to certain terms and conditions.

Operating Costs

The expenses that a homeowner incur each month to operate a home. These include property taxes, property insurance, utilities, telephone and communications charges, maintenance and repairs.

Prime Rate

The interest rate that commercial banks charge their most creditworthy customers. Set by the Bank of Canada.

Realtor or Real Estate Agent

A person who acts as an intermediary between the seller and the buyer of a property.

Term

Mortgage term is the length of time that the mortgage contract conditions, including interest rate, are fixed.

Variable Mortgage Interest Rate

Fluctuates based on market conditions but the mortgage payment remains unchanged.