Finding the perfect mortgage, meeting with a broker, and working to get the right “fit” can be difficult on it’s own. Throw some confusing terms into the mix and you’ve got a recipe for miscommunication or exhaustion! But no need to fear, here is your personal guide to understanding those mortgage industry terms
High Ratio Mortgage
- You are putting less than 20% down
- Requires mortgage insurance
Conventional Mortgage
- You are putting more than 20% down
- Generally, does not require mortgage insurance
Subject Property
- What you are buying
Non Subject Property
- Other properties that you own
LOAN to VALUE (LTV)
- What you owe on your “loan” to what to what the property is valued at
SECURED and UNSECURED Lines of Credit
Secured
- “Tied” to something you own – usually your home
Unsecured
- Not “Tied” to anything
Amortization
- The length of time it takes to pay off your mortgage
- Affects your monthly payment at times much more than the rate
Fixed term mortgage
- Locked in for a “fixed term” you have chosen
- 1 -1 0 years
- Penalty if you break the “fixed term” typically calculated on the remaining term of the mortgage based on Bank of Canada 5 year posted rate OR discounted contracted rate OR 3-month interest penalty whichever is greater
Variable Rate Mortgage (AVRM)
- Can be Open
- No penalty if you break
- Can be FIXED TERM
- Penalty to break is typically 3-month interest
Flex down
- Using untraditional sources for your down payment such as loan from your Employer, Credit Cards, Unsecured Lines of Credit
Stated Income – self employed (Business For Self – BFS)
- What you report as income to Canada Revenue Agency vs what you “STATE” your income to be to the Lender based on the amount of time you have been self employed for and the amount of time you have been working in the industry.
Refinancing
- To take a percentage (currently 80%) of the equity out of your home and use that money to pay off debt or set up lines of credit for reinvestment purposes.
Transfer/Switch
- Taking the your existing mortgage and not changing any of the details of the mortgage (loan amount, names on title and amortization) from one lender to another
RENTAL terms when using RENTAL INCOME for a mortgage application
ADDBACK (subject and non-subject properties)
- To take a % of the rental income from investment properties and ADD it BACK to your income
OFF SETS (subject and non-subject properties)
- Reduces the rental expense add balance back to Gross Income
NET RENTS (subject non-subject properties)
- Taking the 2-year reporting average from your T1 Generals (Statement of Rental Activities)
- Determine if there is a surplus/loss
- Input that surplus/loss into the application
- Do not include any NON-SUBJECT and SUBJECT properties debt into the file
DEBT CALCULATION RATIOS (DCR) (subject and non-subject properties)
- Calculate the NON-SUBJECT and SUBJECT property debt
- Determine if there is a surplus/loss
- Input that surplus/loss into your application
- Do not include NON SUBJECT and SUBJECT properties debt into the application
