Acceleration clause: A provision in a mortgage that gives the lender the right to demand payment of the entire outstanding balance if a monthly payment is missed.

Agreement for sale: A formal, written document in which the purchaser agrees to buy certain Real Estate and the seller agrees to sell under stated conditions and terms. BEWARE - Title will generally not pass on to you until you have paid off the whole agreement amount. Consult a Lawyer if you are offered such a transaction. There are some situations, where this can be a good deal for you.

Amenities: In a Condominium Project - All aspects of a property that enhances its value. Reserved parking, nearness of good public transportation tennis courts, recreation facilities or swimming pool are a few examples.

Amortization: The gradual repayment of a mortgage by instalments.

Amortization schedule: A timetable for payment of a mortgage showing the amount of each payment applied to interest and principal and the remaining balance on the loan.

Appreciation: An increase in the value of a house due to changes in market conditions or other causes.

Assessed value: The valuation placed upon a property by a public tax assessor for purposes of taxation.

Appraisal: An independent evaluation of the property. The Lender will usually require that you hire an independent appraiser to estimate the current market value of the house. The appraiser has no vested interest in the purchase/sale and as such can estimate the "fair market value".

Assets: A list of things of liquid value owned by the applicant/borrower. These can include cash, term deposits, GIC's, RRSP's, real estate properties, automobiles, stocks, bonds, mutual funds, jewellery and other household goods.

Assumable mortgage: A mortgage that can be taken over ("assumed") by the buyer when a home is sold.

Buy Down: The cost of making the effective interest rate lower than the current market rate. This is usually paid by the vendor but may also be paid by the borrower. Example: Say current interest rates are 10% for a one year term and the vendor wants to make his property more attractive by offering financing at 7% on a mortgage of $100,000. for a one year term. The cost to "buy down" the interest would be approximately $2,700.00. This would be paid directly to the lender.

CMHC Canada Mortgage and Housing Corporation: This is a Crown Corporation set up under the National Housing Act (NHA) to insure lenders of high ratio mortgages against losses in case of default by the borrower.

CMHC Mortgage: Mortgage insured by CMHC. See High Ratio Mortgage

Clear title: A title that is free of liens and legal questions as to ownership of the property.

Closed Mortgage: A mortgage that CANNOT be prepaid or repaid in advance of the maturity date without penalty.

Common Tenancy: The ownership of property by two of more persons, where on the death of one, his share is credited to his own estate.

Completion: The date where the Real Estate transaction is legally concluded in the Registry Office. The Purchaser pays his money on this date and the Vendor receives it.

Conventional Mortgage: A mortgage where the loan does not exceed 80% of the value of a house/property. For example a $160,000. mortgage on a purchase price of $200,000. would be classified as a Conventional Mortgage.

Convertible Mortgage: A mortgage where a Borrower has a "window" of opportunity to renegotiate the term of the mortgage. This is a very worthwhile feature and should be investigated for persons wishing to wait a while before committing to a long term mortgage. The rates for convertible mortgages are typically 1/2 of 1% less than an "open" mortgage.

Co-Covenantor: An individual who contractually undertakes to discharge the responsibilities of the borrower in the event of the borrower's default.

Common Areas: Lands or improvements on land that are designated for common use and enjoyment by all occupants, tenants or owners. A pool, tennis court, hot tub or common halls would all be part of the Common Area.

Compounded: Indicates the frequency with which interest is computed and added to the principal to arrive at a new actual balance. The essential point to remember if you are a borrower is the the less frequent the compounding, the better deal for you. If you are a Lender (or saver at the bank) the more often the frequency of compounding, the more you will get in return. In Canada, Lenders, generally compound mortgages semi-annually.

Condominium: A form of property ownership in which the homeowner holds title to an individual dwelling unity plus an interest in common areas of a multi-unit project. Conveyance: Transfer of Title of real estate property from one individual to another.

Covenant: Solemn or written agreement.

Covenantor: In a mortgage this means the Borrower

Deed: The legal document conveying title to a property.

Delinquency: A loan in which a payment is overdue but not yet in default.

Deposit: Cash paid to the seller when a formal sales contract is signed.

Depreciation: A decline in the value of a property; the opposite of "appreciation".

Down payment: The part of the purchase price which the buyer pays in cash and does not finance with a mortgage.

Easement: A right to the limited use or enjoyment of land. The Easement is usually held by another and is a registered interest in land to enable sewer or other municipal services, power lines, roads or to allow for access to the property.

Encroachment: An improvement (building, fence, etc) that illegally violates another's property.

Equity: The difference between the market value of a property and the homeowner's outstanding mortgage balance. If your home is worth $100,000 and you owe $65,000, you are said to have 35% equity in your home.

Fair Market Value: The price or value at which property is transferred between a willing and informed buyer and a willing and informed seller, each of whom has a reasonable knowledge of all pertinent facts and neither being under any compulsion to buy or sell.

First Time Home Buyers: Defined by CMHC as one of the buyers who has not owned Real Estate property in the last 5 years. Different definition as it applies to BC Purchase Property Tax Exemption, where one must have NEVER owned a house anywhere.

First mortgage: The mortgage that has first claim (or "lien") in the event of a default.

Fixed-rate mortgage: A mortgage in which the interest rate does not change during the entire term of the loan.

Foreclosure: The process by which a mortgaged property may be sold when a mortgage is in default.

Gross Debt Service Ratio: GDSR or GDS The measure by which Lenders define the ability of the borrowers to pay for their mortgage debt. This is the total mortgage debt service expressed as a percentage of the borrowers income. This ratio is calculated by dividing the total of Principal, Interest, Taxes and a Heating component into the Borrowers total income. FOR EXAMPLE: Suppose a Borrower has a total monthly income of $5,000. and suppose the Principal and Interest component of his mortgage total $1,200. and that the monthly property tax component is $100. Also assume an arbitrary heating component of $50.00 a month for a total of $1,350. Therefore $5,000. divided by $1,350.00 would give you a GDS R of 27%. Lenders vary as the maximum they will allow a borrower's GDS to be. This can range from 27% to 33%. Most of our Lenders will allow 33% and up to 35% for First Time Home Buyers

Homeowner's insurance: An insurance policy that combines liability coverage and hazard insurance.

Homeowner's warranty: A type of insurance that covers repairs to specified parts of a house for a specific period of time.

High Ratio Mortgage: A mortgage for more than 75% of the value. of the purchase price or value. These have to be "insured" by CMHC and a premium is added to the loan. For example if you had a loan of $100,000.00 against a purchase price of $115,000.00, a "premium" of $2,500.00 would be added to the loan. Therefore the Borrowers would start with an indebtedness of $102,500.00. It should be pointed out that most all Lenders insure their High Ratio mortgages this way.

Inter Alia Mortgage: Also referred to as a Blanket Mortgage. The words "Inter Alia" are Latin for "Amongst other things". Therefore an Inter Alia Mortgage would cover more than one property. Typically it is a mortgage covering 2 or more properties.

Interest: Consideration in the form of money, paid for the use of money. Usually expressed as a percentage, compounded semi-annually. Can also mean a right, share or title in property.

Interest Rate Differential: IRD. Usually refers to compensation due to the Lender on payout. This is the value of the difference between the contractual rate of the mortgage and the rate the Lender can now get for his money. Example: A mortgage has a term of 3 years to go at 13% and now the Lender can only get a market rate of 8%. You want to pay out your mortgage. The Lender may ask you to pay the difference in interest. This can add up to thousands of dollars. Payout penalties are usually quoted as the "greater" of IRD or 3 months interest penalty. Borrowers not asking about the IRD may be in for a shock if rates decline considerably.

Late charge: The penalty a borrower must pay when a payment is made after the due date.

Joint Tenancy: Ownership of Real Property by two or more people. when one dies, his share automatically passes to the survivors.

Liabilities: The amount of debts a person owes

Lien: A legal claim against a property that must be paid when the property is sold.

Lifetime cap: A provision of an ARM that limits the total increase in interest rates over the life of the loan.

Loan Servicing: The collection of mortgage payments from borrowers and the related responsibilities of a loan service, such as foreclosure, tax and insurance escrow, etc.

Margin: The set percentage the lender adds to the index rate to determine the current interest rate of an ARM.

MICC: A private mortgage insurer, Mortgage Insurance Company of Canada. Not frequently used by Lenders. Generally has the guidelines as CMHC.

Mortgage Broker: A firm or more frequently and Individual who brings the Borrower together. Does the mortgage shopping for the Borrower. In B.C. the Broker must be licensed.

Mortgagee: The lender in a mortgage agreement.

Mortgagor: The borrower in a mortgage agreement.

Mortgage broker: A company that for a fee matches borrowers with lenders.

Negative amortization: Payment terms under which the borrower's monthly payments do not cover the interest due; as a result, the balance due is added to the loan balance making it rise - thus "negative amortization".

Net Worth: The residual after deducting Assets from Liabilities

Owner financing: A purchase in which the seller provides all or part of the financing.

Open Mortgage: A mortgage that can be prepaid at anytime during the contract, and before maturity, without penalty.

Prepayment Clause: In a mortgage, an agreement giving the Borrower the privilege of paying additional sums off the principal balance over and above the agreed contractual payments.

Prepayment penalty: A fee charged to a borrower who pays off a loan before it is due. Some loan programs contain a prepayment penalty, others do not - check with your loan officer for details.

Principal: The amount borrowed or remaining unpaid; also, that part of the monthly payment that reduces the outstanding balance of a mortgage.

Purchase Property Tax: In British Columbia, we have a Purchase Property Tax which applies to most properties. There are exemptions for First Time Buyers. Generally, the tax is 1% of the first $200,000.00 purchase and 1% of the balance. There are property purchase price limits. Generally, again, the tax applies on any purchase over $425,000.

Radon: A radioactive gas found in some homes that in sufficient concentrations can cause health problems. Your lender may require a radon check on your home.

Real Property - Real Estate Property: Land and appurtenances, including anything of a permanent nature such as structures, trees, minerals and the interest, benefits and inherent rights thereof. Sometimes called Real Estate.

Real estate agent: A person licensed to negotiate and transact the sale of real estate on behalf of either the borrower or seller, or in some cases both partied.

Refinancing: The process of paying off one loan with the proceeds from a new loan secured by the same property. This is most often done to get the better interest rates offered by the new loan.

Second Mortgage: A mortgage that has rights that are subordinate to the rights of the first mortgage. As such, these loans are often less secure and may demand a slightly higher interest rate.

Secondary mortgage market: The buying and selling of existing mortgages.

Strata Fees: Monthly levies by the corporation owning the Condominium for the maintenance of common areas, cleaning, reserves for repairs to major common areas like the roof, etc.

Survey: A drawing showing the legal boundaries of a property, it's fixtures, and any easements or encroachments.

TDS or TDSR: See Total Debt Service Ratio

Term: The amount of time that the contract is written for and that the interest rate is guaranteed for. Not to be confused with "Amortization". Typically in Canada terms range from 1 to 5 years.

Title: A legal document establishing the right of ownership.

Title company: A company that specializes in title searches and insuring title to property.

Title search: A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.

Transfer tax: State or local tax payable when title passes from one owner to another. Total Debt Service Ratio: TDSR or TDS. Add all other debt payments to the GDSR and measure as a percentage of the total income of the Borrower. Suppose in the Example of the GDSR above the Borrower had a monthly car payment of $300.00 on top of his PITH (principal, interest, taxes, heat) for a total monthly obligation of $1,650.00 This represents 33% of the Borrowers total income. Lender will usually allow up to 40 or 42% maximum TDS

Vendor: The Seller

MORTGAGE FAQ:

Q. Why use a mortgage consultant as opposed to a bank?
A. When dealing with a bank, you are limited to their product line, which may not be the best product for you. But they won't tell you that, because it's their job to sell you their products. As well, the bank has to look out for their bottom line and at times clients suffer by getting much higher rates than they deserve.

When dealing with a mortgage consultant like me, it's much different - a consultant can provide you with a wider range of mortgages designed to fit your needs, and you can benefit from lower rates without the haggling. You can also rest assured that I will be fully looking out for your best interests, and you can expect the highest level of customer service from me, as a result of my long experience in the financial industry.

Q. Are there any fees involved with a mortgage consultant?
A. In most instances, there are no fees involved. Mortgage consultants receive a commission from the lending institution that receives and funds your mortgage application. If you do not qualify normally due to bad credit, job instability or other unseen factors there may be a brokerage fee, but it will be disclosed to you prior to proceeding.

Q. Should I wait for my mortgage to mature?
A. No. Allow me to begin shopping around for an interest rate at least 120 days before your mortgage matures. Lenders will often guarantee you an interest rate as much as 120 days before your mortgage matures. As long as you are not increasing your mortgage, they will cover the costs of transferring your mortgage as well. This means a rate promised well in advance of your maturity date, which eliminates any worries about higher rates and if rates drop before the actual maturity date, the lender will adjust your interest rate to the lowest it has been during the 120 days since the application was submitted,

Q. What is mortgage insurance?
A. Mortgage loan insurance is provided by Canada Mortgage and Housing Corporation (CMHC), a crown corporation, and Genworth, an approved private corporation. This insurance is required by law to ensure lenders against defaults on mortgages with a loan to value ration of more than 80%. The insurance premiums, ranging from .50% to 2.75% are paid by the borrower and can be added directly into the mortgage amount. This is not the same as mortgage life insurance. There is also additional premium for extended amortizations. For 26 years and up to 30 years it is .20% and for 31 years and up to 35 years it is .40%. Click here for current CMHC mortgage insurance premiums.

Q. What is a conventional mortgage?
A. A conventional mortgage is usually one where the down payment is equal to 20% or more of the purchase price; a loan to value of less than 80%; and does not normally require mortgage insurance.

Q. What is a high-ratio mortgage?
A. A high-ratio mortgage is one where the amount to be borrowed is greater than 80% of the purchase price or appraised value. High-ratio mortgages generally require mortgage loan insurance provided by either CMHC, a crown corporation or Genworth, a private insurer.

The mortgage loan insurance premium paid to CMHC or Genworth protects the lender in case of default in the event the mortgage is not repaid, and the bank has to take back the property. The benefit to the borrower is that they can purchase a home with less than 20% down, to as low as 5% down. The insurance premium is paid by the borrower and can be added directly into the mortgage amount. This is not the same as mortgage life insurance.

Q. What can I use for a down payment?
A. In most cases:

• Registered Retirement Savings Plans (RRSP's) may be used as a down payment up to a maximum of $25,000 and is not subject to income tax if repaid within 15 years.
• Gift from immediate family
• Accumulated savings
• Sale of existing home
• Equity

Q. What is the minimum down payment needed to buy a home?
A. A minimum down payment of 5% is usually required to purchase a home, but there are exceptions. For instance at Aman Khatkar Mortgage Group we have relationships with lenders that will actually lend you 100% of the purchase price or appraisal value of your home. However to qualify for this your credit must be clean and in good standing. Regardless of the down payment chosen you must be able to show that you can cover the applicable closing costs (Legal fees, appraisal fees and a survey certificate when appropriate).

Q. How much can I afford to pay for a home?
A. To determine 'affordability' you will first need to know your taxable income along with the amount of any debt outstanding and the monthly payments. Assuming it is your principal residence you are purchasing, calculate 32% of your income for use toward a mortgage payment, property taxes and heating costs. If applicable, half the monthly condominium maintenance fees will also be included in this calculation.

Second, calculate 40% of your taxable income and deduct all of your monthly debt payments, including car loans, credit cards, lines of credit payments. Both of these two calculations will be used to help determine how much of your income will be used towards housing payments, including your mortgage payment. The calculations are based on lenders' usual guidelines.

In addition to considering what the ratios say you can afford, make sure you calculate how much you think you can afford. If the payment amount you are comfortable with is less than 32% of your income you may want to settle for the lower amount than stretch yourself financially. Make sure you don't leave yourself house poor. Structure your payments so you can still afford simple luxuries.

Q. How does bankruptcy affect my ability to qualify for a mortgage?
A. Depending on the circumstances surrounding your bankruptcy, generally some lenders will consider providing mortgage financing.

Q. What do I need to bring to my initial consultation?
A. Employment and income documents proving income such as recent paystub, letter of employment. For self employed, commissioned or seasonal workers (such as oilfield, construction, truck driving etc), you will need to provide 2-3 years of Notice of Assessment (NOA) from CRA.

Q. What paperwork do I need to provide for approval of my application?
A. While documentation requirements can vary depending on your circumstances and the lender who will be doing the financing, the following lists the most commonly requested documents:

• Employment Income Documents:
• Letter of employment
• Recent paystub
• OR 2-3 years Revenue Canada Notice of Assessments for self employed, commissioned or seasonal workers
• (if purchasing) Confirmation of Downpayment & Closing Costs:

From Own Resources

• 90 days Bank Transaction History and current balance (must show name & account number)
• Confirmation of source of any large deposits (ie. Paystubs)
• RRSP statements if using RRSP funds

Gifted Funds

• Gift letter signed by Giftor & Giftee stating funds are a gift and non-repayable

From Sale of existing home (or other asset)

• Contract of Sale
• Current mortgage statement showing balance to be paid out

If purchasing:

• Copy of Contract to purchase & listing sheet

For refinance/equity take out transactions:

• Copy of Current mortgage statement showing balance & payment information

*PLEASE NOTE THESE ARE GENERAL GUIDELINES. CERTAIN LENDERS MAY REQUIRE ADDITIONAL DOCUMENTATIONS.

*PLEASE NOTE THIS IS FOR INFORMATION ONLY, NOT A LEGAL ADVICE. YOU SHOULD SEEK INDEPENDENT LEGAL ADVICE REGARDING YOUR OWN SITUATION.