Mortgage types
Closed Mortgage
Closed Mortgages generally have lower interest rates compared to Open Mortgages. A closed mortgage must usually remain unchanged for whatever term you agree to.. This type of mortgage offers limited flexibility where penalties apply if you payout, renegotiate, or refinance before the end of term.
Convertible Mortgage
A type of adjustable-rate mortgage which can be converted to a longer, closed mortgage at any time without prepayment costs. Typically associated with fixed rate mortgages and offers the same security as a closed mortgage.
High-Ratio Mortgage
The mortgage you obtain when you have less than 20% of the total purchase price on a home to put towards your down payment. To qualify for a high-ratio Mortgage you must be insured (through insurers such as CMHC, CG or Genworth Financial Canada).
Open Mortgage
This type of mortgage gives homeowners the flexibility to pay off their mortgage at any time without penalty. The mortgage may be repaid, in part or in full, at any time during the term without any prepayment costs. Open Mortgage interest rates tend to be variable and are typically higher.
Rate types
Fixed Rate Mortgage
An interest rate that offers the security of being fixed for the entire mortgage term.
Variable Rate Mortgage
An interest rate that will fluctuate if the prevailing market prime rate goes up or down during the mortgage term.
Mortgage Rate
The percentage rate of interest that you pay to the lender on top of the loan principal. For example, you may take out a mortgage of $200,000 at a rate of 2.39%. Your monthly payments will consist of a portion of the original $200,000, plus 2.39% interest.
Closing Costs
Appraisal
The process of determining the lending value of a property based on such factors as location, amenities, structural condition and recent sales of similar local properties. Typically, there is a fee to have an appraisal done when deemed necessary by the lender.
Interest Adjustment
The amount of interest due between the date your mortgage starts and the date the first mortgage payment is calculated from. Sometimes there is a gap between the closing date of your home purchase and the first payment date of your mortgage. Let’s say that the closing date on your new house is August 10th – but your mortgage payments are on the 15th of each month (so your first payment is calculated from August 15th and paid on September 15th). That leaves five days (August 10th to 14th) that aren’t accounted for in your first mortgage payment. You have to make an extra payment to make up for these five days; the payment is generally due on your closing date. You can avoid all this by arranging to make your first mortgage payment exactly one payment period (e.g., one month) after your closing date.
Land Transfer Tax
Whenever a property or land changes hands, a tax is levied (in some provinces) when the transaction closes. Land Transfer Tax is normally based on the amount paid for the land (not applicable in Alberta).
Legal Fees and Disbursements
Refers to some of the legal costs associated with the sale or purchase of a property. These costs tend to vary by province and can be subject to GST or HST. It is recommended and in your best interest to engage the services of a real estate lawyer (or a notary in Quebec).
Prepaid Property Tax and Utility Adjustments
The amount you will be required to reimburse if the person selling you the home has prepaid any property taxes or utility bills. The amount to reimburse them will be calculated based on the closing date.
Property Survey
A legal written description of your property that includes its location, dimensions and size. An up-to-date survey is usually required by your mortgage lender. If not available from the vendor, your lawyer can obtain the property survey for a fee or utilize title insurance in lieu.
