Section for Non-Residents


Construction Financing Step by Step Guide

THE COMPLETE Financing Step by Step Guide Construction

Home Buyers’ Mortgage Guide
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A. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 B. MORTGAGE QUALIFICATION PROCEDURES . . . . . . . . . . . . . . . . . . . . 4 B1. General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 B2. Job Stability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 B3. Sources Of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 B4. Employment Income Verification . . . . . . . . . . . . . . . . . . . . . . . . 4 B5. Other Sources Of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 B6. Credit History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 B7. Source Of Down Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 B8. Income And Expenses (GDS/ TDS Ratios) . . . . . . . . . . . . . . . . . . . 7 B9. Property Information And Documentation . . . . . . . . . . . . . . . . . . . 7 C. MORTGAGE AND PROPERTY DEFINITIONS . . . . . . . . . . . . . . . . . . . . 8 C1. Conventional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 C2. High Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 C3. Freehold Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 C4. Leasehold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 C5. Condominium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 C6. Co-operative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 C7. Joint Tenancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 C8. Tenants In Common Or Undivided Owner Ship . . . . . . . . . . . . . . . . 9 C9. Fractional Interest Properties . . . . . . . . . . . . . . . . . . . . . . . . . . 9 D. MORTGAGE OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 D1. Closed Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 D2. Open Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 D3. Convertible Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 D4. Fixed Rate Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 D5. Variable Rate Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 D6. Payment Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 D7. Amortization And Payment Frequency Comparisons . . . . . . . . . . . . . 11 D8. Portable & Assumable Mortgage . . . . . . . . . . . . . . . . . . . . . . . . 12


E. CMHC POLICIES & PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . 13 E1. What Is CMHC’s Role? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 E2. CMHC Fees & Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 E3. Extended Amortization Options . . . . . . . . . . . . . . . . . . . . . . . . . 14 E4. CMHC’s 1 - 4 Unit Rental Program . . . . . . . . . . . . . . . . . . . . . . . 14 - 15 E5. High Ratio Financing For Self Employed Applicants . . . . . . . . . . . . . . 15 - 16 E6. CMHC Second Home Lending Program . . . . . . . . . . . . . . . . . . . . 16 F . OTHER GOVERNMENT INCENTIVES . . . . . . . . . . . . . . . . . . . . . . . . 17 F1. Using Your RRSP For Down Payment . . . . . . . . . . . . . . . . . . . . . 17 F2. Property Transfer Tax Information . . . . . . . . . . . . . . . . . . . . . . . . 17 F3. First-time Home Buyers’ Tax Credit . . . . . . . . . . . . . . . . . . . . . . . 17 F4. HST Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 - 19 G. CLOSING THE DEAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 G1. Estimated Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 H. MORTGAGE PAYMENT CALCULATOR . . . . . . . . . . . . . . . . . . . . . . . 21 I. NON-RESIDENT LENDING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 I1. Non-resident Lending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 I2. Whistler Condo Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 I3. How Canadian Mortgages Work . . . . . . . . . . . . . . . . . . . . . . . . 23 J. CONSTRUCTION FINANCING . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 J1. Understanding the Construction Financing Process . . . . . . . . . . . . . . 24 - 26 J2. Construction Financing Example Sheets . . . . . . . . . . . . . . . . . . . . 28 - 30 K. GLOSSARY OF MORTGAGE & REAL ESTATE TERMS . . . . . . . . . . . . . . . . . 31 - 37


For most people, buying a home will be the largest purchase they will ever make . Besides being a necessary source of shelter for you and your family, it may also be an important investment for your future . As mortgage brokers it is our job to find you the best possible mortgage financing for your own unique situation . The following is a list of just a few of the lenders we work with on your behalf: • CIBC • Concentra • First National • FirstLine Mortgages • Home Trust • ICICI Bank Canada • ING • MCAP • Merix Financial • National Bank of Canada • North Shore Credit Union • President’s Choice Financial • Scotiabank • Squamish Savings (owned by Vancity) • TD/Canada Trust • VanCity We would be pleased to assist you with your home purchase . Application can be made by telephone, fax, or on-line . We even do house calls . This guide has been developed to assist and guide you through the home buying and financing processes. It will provide you with the information necessary to make an informed decision about purchasing and financing your new home. We are able to arrange 1st / 2nd mortgages for purchases and/or refinance for both residential and commercial property. Construction financing, transfers/switches, & lines of credit are also provided . In some cases broker / lender fees may be charged, but not without your consent .


There are many factors taken into consideration when a lender is qualifying you for a mortgage . Among the deciding factors are: family income and job stability, past credit history, net worth (assets minus liabilities), source of down payment, the amount of the mortgage and its percentage of the value, and finally your debt service ratios. You will be asked to fill out a mortgage application and authorize the institution to perform a credit investigation (also called a Credit Bureau or “Bureau” for short) . There are many sources of funds for financing: banks, trust companies, life insurance companies, other finance companies and private lenders.

Lenders like to see the progression of your employment over a two to five year period. Generally speaking, the minimum length of time on your current job that is considered acceptable is 1 year . If you have been employed less than 1 year in your current job, the lender may make an exception provided your current job is related to your previous one (i .e . in the same industry) or you were previously in school .

Whether you are a salaried, hourly or commission-based employee, the lender will require proof of your income. In order to “use” your income for qualification purposes, the lender must be confident that it is: a) Stable and likely to continue over a reasonable period of time, and b) Declared to the government on your income tax return . Any income that is earned as “cash” or “under the table” cannot be used to qualify you for a mortgage . It is up to the lender to decide what is appropriate in each case . If you are self-employed, the income verification process is a bit more complicated in that you will have to provide a minimum of 2 years’ worth of business financial statements and tax returns.



As with employment income, you will also have to provide proof of any other sources of income you may have . Below are some of the most common sources of income and the documentation required:

In all of the above cases, the lender may request 2-3 years’ copies of your Canada Revenue Agency Notice of Assessment to confirm the amount of these incomes.

Since your past credit activity is considered to be the best indicator of your future ability and/or willingness to repay debt, the lender will rely heavily on your credit rating to make a lending decision . They will request a credit report from your local credit bureau . This report is referred to in the industry simply as a “bureau” . The bureau will show all your past credit activity including loans, credit cards, lines of credit, collections, judgments, and bankruptcies for the past 7 years . Each item on the bureau is given a rating from 0 to 9 . Zero represents an inactive account and 9 represents a “written off” or bad debt . The best rating is a 1 . You will hear terms such as “I2” or “R9” which are the codes given to evaluate each debt reported on the bureau . The rating will start with either an R, I, or O depending on the type of debt, but the number of ratings all mean the same thing . To avoid surprises or misunderstanding, it is best to be up front about any past credit problems you may have had . As long as your past credit problems are supported by a valid explanation, they will be considered to be part of your past and you may still be approved for a mortgage . There are two credit bureau reporting agencies, Equifax and Trans Union . Their web sites are as follows: • •


The lender will also want to know where your down payment is coming from . That is, have you saved the funds yourself over a period of time? Do you have stocks, bonds, RRSPs, mutual funds or other investments that you are cashing? Are you receiving a gift from a relative? Are you selling an asset you already own? Are you refinancing an existing property? The amount of down payment relative to the purchase price will also be evaluated . A lender’s decision to approve the mortgage application will also take into account what percentage of equity you will have in the property . For example, are you putting down 25% of the purchase price from your own savings or will you be receiving a gift for 5% of the purchase price? The more equity you have from your own funds, the stronger your application is considered to be . Wherever your down payment is coming from, the lender will require documented proof of its source:


Historically, lenders and high ratio insurance providers (CMHC, Genworth) maintained the qualifying formula shown below as a guide for income to debt ratios . Recently, in the last couple of years, this formula has been relaxed . Depending on your credit history (a minimum beacon score of 680 is required) and your level of downpayment, you may be eligible for no GDS and a TDS of up to 44% . What does this mean for you? It means that your income is recognized to carry more for a mortgage which may help you purchase the property that you really wish for . GDS (Gross Debt Service) and TDS (Total Debt Service) ratios are the two factors that lenders and CMHC take into consideration when they are determining how much of a mortgage you qualify for . These ratios take into account your gross family income (before taxes) and divide that into your expenses . The maximum GDS ratio is 32% and the maximum TDS is 40% . These are the accepted industry guidelines . GDS and TDS are calculated as follows: GDS = (Max 32%) Mortgage Payment + Property Taxes + Basic Heat + 1⁄2 Condo Maint Fee Gross Family Income

TDS = Mortgage Payment + Property Taxes + Basic Heat + 1⁄2 Condo Maint Fee + Other Exp* (Max 40%) Gross Family Income

*includes loan, credit card, and other monthly obligation

After evaluating you as a mortgage applicant, the second part of the mortgage approval process looks at the property you are purchasing . As mortgagee, the lender will be concerned with the property they will be using as security for their mortgage . They will want to know the specifics of the property, namely, the purchase price, location, and size. Your lender may require some or all of the following documents: 1 . A fully executed copy of the Agreement of Purchase and Sale along with all the attached schedules, amendments and waivers . Fully executed means that all the pages, additions, and changes have been signed and/or initialed by all parties . 2 . An MLS listing or feature sheet and picture of the property . Among other things, this contains details of the location, condition, asking price and features of the home . 3 . A recent appraisal of the property to determine the lending/market value .


Below are the definitions of some of the more common terms you will hear with respect to your home purchase and financing.

The conventional mortgage is one that is offered on new and existing homes for up to 80% of the purchase price . This means that the home buyer must have at least 20% of the purchase price available for a down payment . Conventional mortgages do not normally have to be insured through CMHC or Genworth .

The term high ratio refers to mortgages that represent more than 80% of the value of the purchased property . High ratio mortgages must be insured through CMHC (Canada Mortgage & Housing Corporation), or Genworth . The insurance premium that is paid to CMHC is to protect the lender in the event that the mortgage is not paid and the bank has to take back the property . This is not the same as mortgage life insurance. The benefit to the borrowers is that it allows them to purchase a home with as little as 5% down .

Owner has title to and full use of the land and buildings on it over an indefinite period.

A person has use of the property for a limited time . Usually, the land is owned by the federal, provincial or municipal government and land lease payments are made to them . In the case of a residential home purchase, the purchaser owns the building but not the land on which it sits . The term “leasehold” can also refer to situations where both the building and the land are being leased .

Owner has full and sole use of a housing unit . The owner shares ownership of common space such as parking garage, and recreation areas with others who all belong to the same condominium group . Since ownership of common space is shared, so are repair, maintenance and replacement costs . Usually these expenses are covered through the strata maintenance fees .

Persons have a share in a residential project . They do not have ownership of a particular unit, but as shareholders they each have use of a unit .


If you buy a home with another person or with several other people, many types of ownership agreements can be in place . As joint tenants, each owner holds an equal share in the property regardless of his or her individual financial contribution. If an owner dies without any specific arrangements having been made, his or her share is automatically transferred to the other owner(s) .

Each owner holds a specific portion of the property but the portions do not have to be equal. Each individual owner can sell or assign his or her share to any other person, subject to any restrictions that were originally stated in the deed . Rights of survivorship do not exist in this case, so upon the death of one of the owners, their share becomes part of their estate and is dealt with according to the provisions set out in their will . Or, if no will, according to the relevant provincial law .

Fractional Interest properties come in many varieties . The most common are quarter share, tenth share, and time share (1/51st) . The title structure for most Fractional Interests includes a proportionate share of the fee simple title, which is charged with a headlease to a management company or owner’s association, and a sublease of the headlease, which defines when occupation associated with the fraction actually takes place. In some instances (Montebello, Whistler, BC) the owner also receives a share of the company that holds the headlease . The choice of Lenders may be limited for these Fractional Interest properties . If the title structure is unconventional, then finding a lender may be much more difficult as there may be no formal structure to allow the lender to foreclose if they have to . One lawyer cannot act for both borrower and lender in financing Fractional Interests. The borrower will have to pay for both their lawyer and the lender’s lawyer, so the costs of closing a Fractional Interest property are greater .


The term ‘closed’ mortgage refers to the fact that there are penalties incurred in the event the mortgage is fully paid, either from sale of the property, a refinance to a different lender, or from your own resources . Some ‘closed’ mortgages can only be paid off from the sale of the property . The penalties can vary depending on if you are in a closed fixed rate mortgage, or a closed variable rate mortgage. It is best to obtain the specific penalty policy from your lender regarding the specific type of mortgage you are taking. Most lenders allow prepayments based on a certain percentage that can be paid each year, the percentage varying depending on the lender . The usual range is 10 to 20% per annum, and based on the original amount borrowed. Closed fixed rate mortgages usually have a lower rate than open mortgages, and are a good choice for those who want the security of knowing their mortgage rate and payments will not change until the end of the mortgage term .

Allows borrowers to repay all or part of the total amount of their mortgage at any time without penalty. Because of this flexibility, this mortgage is ideal for borrowers who plan to sell their homes or otherwise pay out their mortgage in the near future . An open mortgage also provides flexibility for mortgagors who may wish to take advantage of lower rates and lock in (convert) to a longer term mortgage at a moment’s notice . However, if the sole reason for wanting an open mortgage is to allow conversion to a longer term, the mortgagors may be better served by obtaining a convertible mortgage .

A closed, short term mortgage, usually 6 or 12 months, which allows the borrower to switch into a longer term at any time without penalty . The rate is usually lower than the open mortgage because the only option available is to convert . These mortgages are best suited for people who want to watch the market over the short term before deciding if and when to lock in .

Both closed and open mortgages can have the feature of a fixed rate. This means that the rate of interest is set for the term of the mortgage, which may be as long as 25 years or as short as 6 months . Because of this, the regular payment amount of the principal and interest remains the same throughout the term .


The rate of interest changes from time to time as money market conditions change, but usually no more often than once a month . This type of mortgage was developed in order to provide maximum flexibility to borrowers in times of volatile or fluctuating interest rates. Although the interest rate charged on the mortgage fluctuates, the amount of the regular payment usually does not change throughout the term of the mortgage . Because of this, the rate fluctuation will affect the way each payment is applied. Since payments are made up of both principal and interest, when rates go down, more of the payment will be applied towards the principal . If interest rates rise, more of the payment goes towards interest . If interest rates rise dramatically, the borrower may be required to make a lump sum payment against the mortgage, or increase the payments to ensure pay down as per the original amortization . Most variable rate mortgages offer conversion options to allow you to “lock-in” to a fixed rate mortgage term.

Payments are usually made either monthly, bi-weekly, weekly, or semi-monthly . Bi-weekly means every 2 weeks, weekly means every week, and semi-monthly means twice a month . By paying bi-weekly or weekly you pay the equivalent of approximately 1 extra monthly payment against the principal per year and this helps to pay your mortgage off sooner .

Example: Mortgage Amount: $100,000 Interest Paid*: $74,482.96
*Assumes a constant rate of interest

Interest Rate: 5%

Amortization: 25 years

Amortization 15 years 15 years 15 years 20 years 20 years 20 years 25 years 25 years 25 years

Payment $197.03 $394.06 $788.12 $164.28 $328.56 $657.13 $145.40 $290.80 $581.60

Frequency Weekly Bi-weekly Monthly Weekly

Interest Paid Effective Am. $36,562.35 $36,654.62 $41,862.68 $49,393.99 $49,506.58 $57,709.10 $62,258.32 $62,395.46 $74,482.96 13 years 13 years 15 years 16.5 years 16.5 years 20 years 20 years 20 years 25 years

Savings $37,920.61 $37,828.39 $32,620.28 $25,088.97 $24,976.38 $16,773.86 $12,224.64 $12,087.47 $0.00

Bi-weekly Monthly Weekly

Bi-weekly Monthly


Portability and assumability features offer additional flexibility. Portable means that the borrower can take their current mortgage to a new home at the same rate, etc . If the current mortgage is not enough to cover the purchase of the new home, the lender will often let you increase the mortgage and charge you current rates only on the portion being increased (called “blending” the rate) . Assumable means that, with the approval of the lender, the purchasers of a home may “take-over” the vendor’s mortgage . Allowing a prospective buyer to assume your mortgage when the rate is lower than the current market rates may increase the marketability of the property being sold .


Canada Mortgage and Housing Corporation is a crown corporation whose broad mandate includes programs to assist Canadians with housing matters . The most frequent contact most people will have with CMHC will be as a provider of mortgage insurance on high ratio mortgages . GENWORTH provides the same service and high ratio insurance as CMHC, however they are privately owned and operated . By law, financial institutions require that all mortgages with a loan to value ratio greater than 80% be insured against default . CMHC provides mortgage loan insurance to approved lenders in the event that the home owner defaults on their mortgage . Depending on the situation, a lender may also request that a conventional mortgage be insured through CMHC .

The following is a summary of the insurance premiums for different loan to value ratios:
LTV Ratio Purchase Premium Cash-Out Refinance The Lesser of Premium as % of Total Loan Amount Up to 65 .% 65 .01 to 75% 75 .01 to 80% 80 .01 to 85% 85 .01 to 90% 90 .01 to 95% 90 .01 to 95%
CMHC Flex Down

Top Up Portion 0 .50% 2 .25% 2 .75% 3 .50% 4 .25%

0 .50% of the mortgage 0 .65% of the mortgage 1 .00% of the mortgage 1 .75% of the mortgage 2 .00% of the mortgage 2 .75% of the mortgage 2 .90% of the mortgage

0 .50% 0 .65% 1 .00% 1 .75% 2 .00%

* Please note that for extended amortizations, CMHC will add .20 for every 5 years beyond a
25 year amortization. So, for a 35 year amortization, there is a .40 premium surcharge added. This premium surcharge applies no matter which high ratio insurance program you are applying under. In a refinance transaction, the premium payable is the lesser of a) the new loan amount multiplied by the full premium rate below, or b) the increase in loan amount (top-up amount) multiplied by the top-up premium rate in the table above . The insurance premium may be paid in full on closing or added to the mortgage amount . If added to the mortgage, interest is then paid on the insurance premium over the amortization of the mortgage . Since most buyers do not have the extra cash on closing, it is most common to add the premium to the mortgage .


QUALIFYING INTEREST RATE DEFINED EFFECTIVE APRIL 19TH, 2010, the qualifying interest rate used to assess borrower eligibility will change for loans with a loan to value ratio greater than 80% as follows: FIXED & VARIABLE RATE MORTGAGES:For loans with a fixed rate term of LESS than 5 years, and for ALL variable rate mortgages, the qualifying interest rate is the greater of the Benchmark Rate and the Contract Interest Rate. For loans with a fixed term of 5 years OR MORE, the qualifying interest rate is the Contract Interest Rate. The benchmark rate can be found at the Bank of Canada link: en/rates/interest-look.html. This rate is set every Wednesday, and is item V121764.

A premium surcharge of .20 is added for every 5 years beyond 25 years, up to a maximum of 35 years . So, to amortize your mortgage up to 35 years you would add .40 to the insurance premium .


• Up to 80% Financing for purchase or refinancing.
• • • • • Maximum amortization is 35 years. Not allowed for Self-Employed program. Applicants must be fully qualifying. Minimum beacon score requirement for a purchase of up to 80% financing, and with down payment from own resources is 580 . Minimum beacon score requirement for a refinance up to 80% is 580. 50% of the gross rental income is added to the income of the applicants for qualifying purposes .

If the subject property generates rental income, then taxes and heat for the property generating rental income can be excluded . It is assumed that property taxes and heat are covered by the remaining 50% of the gross rents . If there is income generated from other properties a client owns, the net rental income or loss is included in the borrower’s income . The principal, interest, taxes & heat for these other properties can be excluded from the debt service costs .


Insurance Premiums Up to and including 65% 65 .01% to 75% 75 .01% to 80% Purchase 1 .25% 1 .75% 2 .50% Refinance/ Premium on Increase to Loan Amount 2 .75% 3 .00% 3 .75%

GENWORTH RENTAL PROGRAM They will allow up to 80% financing, and use an 80% rental offset for qualifying purposes. Their minimum credit score guidelines are 660 for both purchase and refinance, and selfemployed applicants under the “Alt-A” program are not eligible .

* Please note that for extended amortizations, CMHC will add .20 for every 5 years
beyond a 25 year amortization. So, for a 35 year amortization, there is a .40 premium surcharge added. This premium surcharge applies no matter which high ratio insurance program you are applying under. If the subject property generates rental income, then taxes and heat for the property generating rental income can be excluded . It is assumed that property taxes and heat are covered by the remaining 50% of the gross rents . If there is income generated from other properties a client owns, the net rental income or loss is included in the borrower’s income . The principal, interest, taxes & heat for these other properties can be excluded from the debt service costs .

There are lending programs available to assist applicants that are self-employed . CMHC and GENWORTH each have their own program . Financing is available up to 90% . Applicants must be up to date with tax filings, and showing no tax arrears. While there is some flexibility with use of stated income for qualifying purposes, there is now an element of “reasonableness” and a large discrepancy between what is stated and what is reported will be reviewed carefully . Genworth Financial requires a 2 year minimum in the self employed capacity . Applicants need good credit with a minimum credit bureau beacon score of 650 for 90% financing. In a refinance transaction, the premium payable is the lesser of a) the new loan amount multiplied by the full premium rate below, or b) the increase in loan amount (top-up amount) multiplied by the top-up premium rate in the table below .The premiums are higher, as follows:


Purchase LTV Ratio 65 .01% - 75% 75 .01% - 80% 80 .01% - 85% 85 .01% - 90% Bureau Scores 600 620 620 650 Premium 1 .00% 1 .64% 2 .90% 4 .75% Cash-Out Refinance The Lesser of Premium as % of Total Loan Amount 1 .00% 1 .64% 2 .90% Top Up Portion 2 .60% 3 .85% 5 .50%

* Please note that for extended amortizations, CMHC will add .20 for every 5 years beyond a 25 year amortization. So, for a 35 year amortization, there is a .40 premium surcharge added. This premium surcharge applies no matter which high ratio insurance program you are applying under.

Through Genworth, a minimum of 5% down must come from the client’s own resources . Additional down payment funds can be gifted from an immediate family member . CMHC Guidelines for Self Employed · · · · Maximum financing is being reduced from 95% to 90%, and From 90% to 85% for refinance transactions. Commissioned individuals are no longer eligible, and will now have to income qualify . Self employed applicants that have been in business longer than 3 years will have to income qualify . A copy of the borrower’s business or GST license or Articles of Incorporation will have to be provided to confirm the length of time the business has been operated . · The typical borrower who is eligible will have 2 years of self employment, but less than 3, OR · Will have less than 2 years of self employment, but will have been in the same field working as a non self-employed worker for a minimum of 2 years prior .

CMHC will allow home owners to have 2 CMHC insured mortgage loans with them, one for their principal residence, and one for a 2nd home, or home occupied by a family member . Financing is available to 95% at the standard insurance premiums, as outlined on page 12 . The property can be anywhere in Canada and must be suitable for and available for, year round occupancy . Properties located on an island must have year-round bridge or ferry access . Time-share interests, life leases, and properties in rental pools are not eligible . Applicants must qualify without the use of rental income . Applicants under the Self-Employed program are also eligible to a maximum loan to value of 90% .


The guidelines are as follows: • You cannot have owned your principal residence in the last 5 years. • Commencing January 28, 2009, first-time home buyers can withdraw $25,000 from a Registered Retirement Savings Plan (RRSP) to purchase or build a home, without incurring tax . Previously, the limit was $20,000 . • You must make repayments to your RRSP of equal amounts over the next 15 years. • If the amount is not repaid in a year, that year’s amount will be taken into income and taxed. • It is acceptable to repay more than 1/15th of the funds per year. • If less than 1/15th is repaid in one year, the difference is taken into income for that year and taxed. • The home must be intended to be your principal residence. • The funds must be in your RRSP for at least 90 days prior to withdrawal. The government website for more information is: http://www .cra-arc .gc .ca/tax/individuals/topics/rrsp/hbp/menu-e .html .

When buying a home in BC, there is usually a government charged property transfer tax. As a first time home buyer however, this can be waived if certain conditions are met . Here are a few of the basic conditions: • Must be a Canadian citizen, or a permanent resident as determined by Immigration Canada. • Purchase price cannot exceed $425,000. • You must not have previously owned your principal residence, anywhere in the world. • You must have resided in BC for the period 12 months before the date of purchase, or you have filed 2 income tax returns as a BC resident during the 6 years before the date of property registration . For complete details, please go to: www .rev .gov .bc .ca/individuals/Property_Taxes/Property_Transfer_Tax/brochures .htm .

First-time home buyers that acquire a qualifying home after January 27, 2009, can claim a 15% non-refundable tax credit on up to $5,000, for a maximum credit of $750 . If a home is purchased jointly, the total credit that may be claimed by all purchasers is $750 . The unused portion of the credit can be transferred to a spouse or common-law partner .





The above information is a brief summary provided courtesy of Spagnuolo & Company Real Estate Lawyers . For more detailed information, please visit: www .sbr .gov .bc .ca/documents_library/notices/HST_Notice_003 .pdf



A few days before closing, your lawyer will have you come into his or her office to sign all the mortgage documents. When they set up this appointment, they will give you the final figure of how much you should write your cheque for and to whom it should be payable (usually the lawyer or legal firm “in trust”). You will receive a Statement of Adjustments which will show you exactly how your funds are being disbursed . *Costs are estimated and will vary depending on each individual transaction and property.


Mortgage Payment Calculation Chart Per $1,000 Of Mortgage Example: $100,000 mortgage @ 5% amortized over 25 years = $5 .82 per $1,000, so, 100 x 5 .82 = $582 per month . Interest Rate (Compounded Semi-Annually) Amortization Period (In Years)

You can also visit our internet web site at: garibaldimortgage .com At this site you can calculate your mortgage amortization schedule and then print out the details of all your payments . You can also view the latest best rates that we have access to .


We frequently receive requests from non-residents of Canada looking for financing for the purchase of revenue or vacation property . While the general guidelines from most banks observe a maximum 65% loan to value policy, we do have lenders that will make exceptions to 75% depending on each application, and the type of real estate you are buying . Depending on your purchase price, the lender may reduce the loan to value ratio, as every bank has different formulas they follow on larger loan amounts . For example, a high value purchase in excess of $2,000,000 may have a maximum loan availability of 55% . As every client situation and property is different, we are able to obtain exceptions and provide financing over and above guidelines, on a case by case basis. You may hear terms like ‘payment hypothecation’ and ‘assignment of rents’ . Payment Hypothecation refers to a deposit equal to 3 -6 months’ worth of payments held for at least 1 year in a separate, interest-bearing vehicle . It provides additional security for the loan, and is more common when financing up to 75%. These funds are usually released after one year at the lender’s discretion, as long as the mortgage has been repaid as agreed . Assignment of Rents refers to a lender issued document registered on the title of your purchase at the time of mortgage registration . It entitles the lender to use rental income to make up any funds in arrears if the mortgage were ever to go into default . As long as the mortgage is in regular repayment, the lender has no cause to use the ‘assignment of rents’ .

In the Whistler area, condominiums are generally divided into 2 types: Phase I and Phase II . Phase I properties allow full year round use at the owner’s discretion, and when not in use, there is an expectation that the property be placed in a rental pool . Participation is not mandatory . Phase II properties allow the owners to use the condo 28 days in the summer and 28 days in the winter, and when not in use it must be placed in the rental pool . Rental pool participation is mandatory . Financing is generally available to 65% . Rates and possible fees should be discussed wtih your mortgage broker, as the available financing and terms for these properties vary depending on where you are filing tax returns, and your overall qualifications as an applicant.


The way fixed rate Canadian mortgages work is like this: They are closed interest rate contracts – closed for the term you select, ie one to 10 years . The maximum amortization available is 25 years . The penalty to break the interest rate contract prior to the maturity date is the GREATER of 3 months interest, or the IRD (interest rate differential) . The IRD is the bank’s loss of interest for the time remaining in the term . So if you take a 5 year fixed and pay it off after 3 years, either from your own resources, or by sale, the bank will calculate the IRD by comparing your rate, with the current rate for 2 years, and charge that on the balance to the end of the term . The estimate for 3 months interest is approximately 2 months worth of payments . Additionally worth noting is that in the Bank Act, the maximum penalty that can be charged after the 5th anniversary is 3 months’ interest – so this is applicable for terms longer than 5 years . All of our lenders allow a prepayment percentage from 10 to 20%, based on the original amount borrowed . Some allow it only on the anniversary date, and some allow it cumulatively throughout the year . When any mortgage is up for renewal, you may pay off as much as you wish without penalty . The renewal process is very easy . As long as you are just renewing the balance, and not changing anything, you just choose a new term at whatever the prevailing interest rates are . There are no lawyers involved or re-qualifying procedures to go through . Please note, at the end of the term you are able to switch lenders if you are not getting a competitive offer - however by switching lenders, you will have to go through the re-qualifying process . Many of our clients contact us at renewal, and we assist you with either switching lenders, or negotiating a better rate from your existing . There is also variable, prime based financing available. The Canadian prime rate is reviewed every 6 weeks . Generally, with a closed variable rate mortgage, the penalty to pay off early is 3 months’ interest . With an open variable rate mortgage, there are no penalties for early pay off .


Building your own home is an exciting and rewarding project . We are here to help you understand the process of financing the construction of your new home so that you can get started with confidence and proceed with peace of mind . You may have some experience in obtaining mortgage financing but as you’ll see, construction financing is a more detailed process, with several important milestones that don’t take place when you buy an existing home . A substantial amount of your own funds are required up front . You are not “reimbursed” until the end, when the dwelling is 100% complete . Now is the time to plan It is never too early to plan . Read through the example sheets to ensure you have a clear understanding of how your advances work so that you request the right mortgage amount . What to Expect When you build your home, there are more steps and expenses than if you buy an existing home . In the simplest terms, a typical mortgage is advanced in one lump sum. Construction financing is different. At the bank, the total amount borrowed to complete a project is usually advanced in three stages within one year .

During the application process, you will need to understand the initial costs that you will be responsible for . Land To secure construction financing you are required to own the land, as the bank will need to register a first mortgage on it . Servicing The land you intend to build on needs to be fully serviced . This includes site preparation and municipal services such as septic service, water connection, sewer connection, hydro and gas service . Soft costs These are out-of-pocket expenses for services and charges you are likely to incur at the outset of, and throughout, the construction phases . Depending on your plans and the location of your home, these will likely include: • Property taxes • Municipal permits • Fees for architects and engineers • Fees for realtors and solicitors • Fees for appraisals and inspections Initial building costs You are expected to finance the initial stage of construction (approximately 15 to 20% of construction) with your own money . As every construction project is different, this percentage is an estimate only for example purposes . Cost overruns We recommend that you set aside an additional 15% of the estimated construction costs to cover unexpected overruns . Interest costs You are required to make interest -only payments on all amounts advanced until your regular principal and interest payments begin . In addition to the costs already outlined, you will also need to budget for lien holdbacks .

Typical Mortgage

You receive all of the money you borrowed at the time you obtain the property.
Construction Financing

At the Bank, you pay the up-front costs, then generally receive up to three advances. First advance at the Foundation stage. Second advance at the Lock-up stage. Third advance at the Completion stage.


Lien holdbacks
Different banks observe lien holdbacks in different ways . They may also be subject to change . It is best to clarify your lender’s policy with your mortgage broker . Your solicitor may be required to hold back some of the money advanced at each of the Foundation, Lock-up and Completion stages of your construction project . This money is held in reserve in the event that a contractor or supplier claims a lien on your property . A lien is a claim by a contractor against the property to secure repayment of unpaid construction costs . The amount of your lien holdback and the number of days that your funds will be held in trust varies by province . The bank will instruct your solicitor to hold back a percentage based on the chart below . Ask your solicitor for details .

Here’s what you should plan to bring to your first meeting with a mortgage representative .

All information associated with the construction
• Construction contract, including costs • Construction plans or blueprints • Quotes for labour and material if you are acting as the general contractor • Site preparations, including municipal services for the lot (e .g . excavation, septic service, water, sewer, hydro, gas, etc .) • Evidence of ownership of the land and/or a copy of the purchase agreement with evidence of available funds

Other requirements to help fulfill the application or construction financing
Province Alberta British Columbia Manitoba New Brunswick Newfoundland Nova Scotia Ontario Prince Edward Island Quebec Saskatchewan Percentage of Holdback 10 10 7 .5 20 10 10 10 20 15 10 • Confirmation of required funds to complete the Foundation Stage • Confirmation of income/employment • Name, address and telephone number of your solicitor As we familiarize ourselves with the details of your project, we can tell you what, if any, other documents specific to your application may be required.

The appraisal

Determining the estimated value of your completed home . The Lender will obtain an appraisal to estimate the value of your completed home, including the land .1 To arrive at an estimate, your appraiser will review your construction plans and blueprints to understand the type of home you are building .

For the purpose of the mortgage application, the value of the completed project is the lesser of a) the cost to construct including land value or b) the appraised value .


When you have completed the Foundation stage, we will send an appraiser to your home to inspect the property and confirm that the Foundation stage is complete . Up to this point, you will have paid all expenses from your own resources . At each stage, when you are ready for an advance, the bank will send out their appraiser to confirm that the work is completed and what percentage of work is left to complete . The lender will release your first advance of funds to your solicitor, who may keep a percentage of it as a lien holdback . The percentage varies by province . At this point monthly interest-only payments will commence . The amount of your first advance is determined by a formula based on the total requested mortgage amount and the remaining cost to construct your home .

The Lender will release your second advance to your solicitor . Once again, a lien holdback may be applied . The amount of your second advance is dependent on the requested mortgage amount, the amount of the first advance and the remaining cost to construct your home .

When you have completed your home, we will send an appraiser to your home to inspect the property . When the appraiser has determined that your building is complete, the Lender will release the final advance of finds to your solicitor . A lien holdback may be applied . Prior to releasing the final advance, your solicitor may request further documentation, which may include: • Well Water Potability Certificate (if applicable) • Flow Certificates and Septic Certificates (if applicable) • Occupancy Permit • New Home Warranty Certificates (if applicable)

Prior to releasing the first advance, your solicitor will need • Builder’s all-risk insurance assigned to the Lender • A survey showing the location of all buildings to be constructed • Confirmation that all necessary building permits are in place

Release of lien holdbacks
All lien holdback will be release to you approximately 30-60 days (depending on your province) after your project has been completed, assuming there have been no lien claims made against your property .

Anticipating mortgage interest and principal payments
By the time your reach the Completed stage, most of your mortgage amount will have been advanced to you through your solicitor . You will be required to start making regular mortgage interest and principal payments shortly after receiving your third advance .


It is important that you request the right mortgage amount . Review the examples found in the guide on pages 25 - 28 prior to applying for a mortgage so that you understand how the advance schedule works .


This example illustrates why it is so important to to apply for the maximum amount of financing you can obtain, rather than just the minimum budgeted amount. The higher financing allows for maximum flexibility during your advances which is important as unforeseen costs, due to materials, scheduling etc ., can arise as construction progresses . Keep in mind that your final advance is not released until the project is completed.


The land is owned free and clear of any financing, and the borrower is applying only for the minimum budgeted amount.
Funds Needed Land Value: Build Cost: Total Value: $500,000 300,000 $800,000 $300,000 45,000 15,000 5,000 20,000 $385,000 Build Cost Overruns GST on Build Cost Estimated Legal Costs Soft Cost Financing Applied For

1 . You spend approximately $50,000 to establish the Foundation . 2 . The bank sends out their appraiser . 3 . The appraiser determines there is $250,000 required to complete the construction . 4. The first draw is calculated as follows: Approved Financing less amount required to complete 1ST ADVANCE released through Lawyer to use through to next stage - Lock-up

$385,000 - $250,000 = $135,000

5. $135,000 spent and the bank’s appraiser is called out. The appraiser confirms there is $115,000 worth of work required to complete, calculated as follows: Build Cost less Foundation less 1st Advance Amount required to complete


$300,000 - $50,000 - $135,000 $115,000


6. The 2nd Advance is calculated as follows: Approved Financing less First Advance less Work required to complete 2nd ADVANCE Available 7. The $135,000 is used towards the completion of the structure . 8. At this point, you will have spent $270,000 in advances, leaving approximately $30,000 needed in available credit to complete. This figure could be higher depending on how much in overruns you have incurred, and GST . At this stage, the funding to complete construction will have to come from outside resources and credit, as the final advance from the bank is not paid until completion. It is very important to plan for this. Will you be able to get funding from other resources at this stage?

= =

$385,000 - $135,000 $250,000 - $115,000 $135,000

9. The dwelling is 100% finished and the bank’s appraiser is sent out once again to confirm if there is any work required to complete. If the appraiser confirms completion of the work, the bank releases the balance of the construction mortgage funds - $115,000 ($385,000 financing - $270,000 advances paid = $115,000) which at that point reimburses you to pay down any credit lines used . 10. IMPORTANT POINT: This alternative scenario shows why it is important to try to obtain a higher than needed construction mortgage loan at the very beginning to provide flexibility in the mortgage draws. If $485,000 had been approved at the beginning, then outside credit lines would not have been needed to complete the structure: First Advance $485,000 Approved 250,000 $235,000 Available for Advance

$50,000 Spent on Foundation $250,000 Required to Complete

Second Advance $235,000 Spent and Appraiser confirms $15,000 required to complete $485,000 - 250,000 - 15,000 $235,000 Approved less First Advance less Amount to complete Available for Advance

$470,000 has been made available in advances to complete structure completely, cover overruns, GST and legal costs . In this scenario, there is no need to go to outside resources for funding to reach the completion stage .


This example shows the construction mortgage process when there is also a lot loan involved .


There is a lot loan registered against the land.
Funds Needed Lot Loan Land Value Build Cost Total Value: $250,000 500,000 $300,00 $800,000 $250,000 300,000 45,000 15,000 5,000 20,000 $635,000 to Pay off Lot Build Cost Overruns Estimate GST Legals Soft Costs Financing Applied For

1. You spend approximately $50,000 to establish the Foundation . 2. The bank sends out their appraiser . 3. The appraiser determines there is $250,000 required to complete the construction . 4. The 1st Advance is calculated as follows: Approved Financing Required to Complete 1st Advance released through Lawyer to use through to next stage - Lock-up AND to pay off lot financing Lot Loan mus be paid off Amount remaining to spend on construction


$635,000 - $250,000 $385,000 - 250,000


5. $135,000 has been spent and the bank’s appraiser is called out. The appraiser confirms there is $115,000 worth of work required to complete, calculated as follows: Build Cost Foundation Cost First Advance Work required to complete


$300,000 - $50,000 - $135,000 $115,000


6. The 2nd Advance is calculated as follows: Approved First Draw Work required to complete 2nd Advance Available

$635,000 - $385,000 - $115,000 $135,000

7. The $135,000 is used towards the completion of the structure . Once again, there will have been $270,000 used towards the build, with approximately $30,000 plus GST plus overruns to be covered from an outside source at this point in time . 8. IMPORTANT POINT: In this example, the $635,000 applied for is 79.3% financing based on the end value cost (ie . $635,000/ $800,000 = 79 .3% loan to value ratio) . In this case, to apply for higher financing at the beginning would provide you with flexibility during the advances, BUT would also incur CMHC mortgage insurance costs . Remember that any mortgage with a loan-to-value ratio of 80% or higher will incur CMHC mortgage insurance costs. Your decision in this case as to how much financing to apply for at the beginning would be determined by th availability of outside lines of credit and/or family assistance and the cost of the CMHC premium . (See Section E for insurance premium tables) . 9. The dwelling is 100% finished and the bank’s appraiser is sent out once again to confirm if there is any work required to complete. If the appraiser confirms completion of the work, the bank releases the balance of the construction mortgage funds, which at that point reimburses you to pay down any credit lines used .


ACCRUED INTEREST Interest which has accumulated unpaid since last payment date . AMORTIZATION The gradual retirement of a debt by means of partial payments of the principal at regular intervals . AMORTIZATION PERIOD A time of arrangement for paying off a mortgage by equal installments or periodic constant payments . Repayments of principal and interest in “blended” amounts . Fully amortized means complete repayment without a “balloon” payment at the end of the term . Can be as short as 5 years or as long as 40 years . AMORTIZATION SCHEDULE The amortization schedule shows monthly installments of principal and interest and how much of the payment is allocated to each . It also shows the unpaid principal balance . APPRAISED VALUE A dollar amount assigned to taxable property, by the assessor, for the purpose of equalizing the burden of taxation . ASSETS What the borrower owns . Liquid assets are those that can be quickly converted to cash . ASSIGNMENT OF MORTGAGE The assigning of a mortgagee’s interest in the mortgage to a new mortgagee . The legal sale of the mortgage with or without an agreement to repurchase . ASSIGNMENT OF RENTS Refers to a lender issued document registered on the title of your purchase at the time of mortgage registration . It entitles the lender to use rental income to make up any funds in arrears if the mortgage were ever to go into default . As long as the mortgage is in regular repayment, the lender has no cause to use the ‘assignment of rents’ . ASSUMPTION OF MORTGAGE The purchaser of property assumes the liability for an existing mortgage against a property and becomes liable for timely payment of the mortgage . This action might occur with or without approval of the existing mortgagee depending on the terms of the existing mortgage . BLANKET MORTGAGE A single document which is registered covering more than one title to property . BLENDED MORTGAGE Combining the amount owing on an existing mortgage with additional mortgage money for the purpose of buying another property . The interest rate changes to one that combines the rate on the old loan with the rate in effect at the time you add additional financing. BLENDED PAYMENTS The method of repayment where periodic payments of principal and interest are made in such a way that the payments remain constant in amount, although the portions attributed to principal and interest vary with each payment . BRIDGE FINANCING A special short-term loan needed to cover (bridge) the gap in time between completing the purchase of one property and finalizing arrangements to pay for it . This is often the result of mismatched closing dates . CARRYING COSTS The actual cost of living in and maintaining property, including mortgage payments, property tax, heating and repairs . CLOSED MORTGAGE The restriction or denial of repayment rights until the maturity of the mortgage . CLOSING DATE The date on which the sale of a property becomes final and the new owner takes possession .


CMHC Canada Mortgage and Housing Corporation, a Crown Corporation which administers the National Housing Act . CO-OPERATIVE The ownership of a separate amount of space in a multiple dwelling or other multiple-occupancy building with proportioned tenancy in common ownership of common elements . Used jointly with other owners however, the owner does not own his/her specific unit but he/she becomes a shareholder of the corporation which owns all the real property and occupies by way of a tenancy agreement subject to a shareholders agreement administered by an elected board of directors . CO-OWNERSHIP Co-ownership occurs when the ownership of the whole property is divided (not necessarily on a pro-rated basis) between two or more persons . Usually there is a written agreement between the co-owners in which the rights of each co-owner is described . Each co-owner may sell his/her right of ownership or dispose of it as he/she wishes . COLLATERAL MORTGAGE A loan backed by a promissory note and the security of a mortgage on a property . The money borrowed may be used for another purpose, such as home renovations or a vacation . COMMITMENT A notice from a mortgage lender to a prospective borrower that the lender will advance mortgage funds in a specified amount under certain conditions . COMMITMENT FEE This fee is charged by a lender for keeping an agreed amount of funds available to the borrower for a specified period of time. COMPOUND INTEREST Interest charged not only to the principal sum but also on interest amounts charged in a preceding period . CONDOMINIUM The ownership of a separate amount of space in a multiple dwelling or other multiple-occupancy building with proportioned tenancy in common ownership of common elements used jointly with other owners . CONTRACT An agreement between two or more parties given receipt of lawful consideration to do or refrain from doing some act . CONVENTIONAL MORTGAGE A first mortgage, outside the conditions of NHA (the National Housing Act), granted by an institutional lender such as a bank, mortgage, loan or trust company wherein the amount of the loan does not exceed 80% of the appraised value of the property . CONVERTIBLE MORTGAGE A short term mortgage, usually 6 or 12 months, allowing the borrower to switch into a longer term at anytime without penalty . There are several different variations to the convertible mortgage . DEBT SERVICE The amount of principal and interest repayments made under a mortgage on a periodic basis . If payments are equal they are “constant payments”, if amounts vary they are known as “variable payments” . DEED An instrument in writing, duly executed and delivered, that conveys title or an interest in real property . DEFAULT Failure to fulfil an obligation.


DEFAULT NOTE Payment is made on demand, usually within a few days notice to the borrower . DEPOSIT A sum of money (in the form of cash) required to be paid with an offer to purchase as a symbol of the purchaser’s commitment . If the offer is accepted, the deposit is applied to the down payment . If the offer is later turned down by the buyer, the deposit may or may not be returned . DISCHARGE OF MORTGAGE A document executed by the mortgagee, and given to the mortgagor when a mortgage loan has been repaid in full before, at, or after the maturity date . DOWN PAYMENT The amount of money (in the form of cash) put forward by the buyer toward the purchase price of a home . EFFECTIVE INTEREST RATE The actual interest rate on investment where a debt or loan was bought at a discount or at a premium . EQUITY The remaining interest an owner of real property has in its total value allowing for encumbrances and creditors’ claims . FIRST MORTGAGE A mortgage on property creating a prior claim over any subsequent mortgages or charges and usually conveying the legal estate to the mortgagee . Upon foreclosure of the mortgage, the first mortgagee must be fully satisfied out of the proceeds before any subsequent claims . FIXED-RATE MORTGAGE This is the usual form of mortgage where interest rate remains the same during the entire life of the loan . FLOATING RATE OF INTEREST Rate of interest which fluctuates a certain number of percentage points above or below prime lending rates . FORECLOSURE Remedial court action taken by a mortgagee when default occurs on a mortgage, to cause forfeiture of the equity of redemption of the mortgagor . FREEHOLD The ownership of a tract of land on which the building(s) are located . The most common type of ownership of real estate . GROSS DEBT SERVICE RATIO (GDS) The annual charges for principal, interest and taxes as a function of gross income of the mortgagor . GROSS INCOME The scheduled income from the operation of the business of the management of the property, customarily stated on an annual basis . Also refers to the total personal income (from all sources) of an individual, before taxes and other deductions . GUARANTOR A third party person without interest in the property who agrees to assume responsibility for a debt in the event of default by the mortgagor . HIGH RATIO MORTGAGE A mortgage loan that exceeds the normal limit of a conventional first mortgage, in regard to the ratio of the loan amount to the property’s lending value; the higher loan amount is made possible by a mortgage insurance plan . e .g . CMHC . HOLDBACK An amount of money retained by a construction lender or owner until satisfactory completion of the work performed by a contractor .


INCOME/EXPENSE RATIO Ratio of operation expenses to gross income and expressed as a percentage (also known as operating ratio) . INTEREST “Annual” profit on a loan of money. The price paid to rent money . A function of the rate of interest over a period of time on a specific sum of money. INTEREST ADJUSTMENT DATE (IAD) The date on which the mortgage really begins, usually the first of the month. The borrower is required to pay interest on the loan between the date of receiving the funds and the IAD before regular mortgage payments start . INTEREST ONLY LOAN Borrower pays back interest only on the loan and there is no amortization until later or until the end of the term . This may occur when a purchaser wishes to resell property after a short period or if he wishes to build up enough income from the property before amortization . JOINT TENANCY Ownership of land by two or more persons whereby, on the death of one, the survivor or survivors take the whole estate . LEASEHOLD A person has use of the property for a limited time . This person can rent the building or own the building and rent the land on which the building sits . LEASEHOLD MORTGAGE A mortgage for the purchase of a home or improvements to a home where the building is on land that is leased or rented . LENDING VALUE An independent appraiser’s value interpreted by the lender as to the worth of a property in the current market given a reasonable time period to sell the property . LETTER OF INTENT Similar to a commitment letter where a lender issues a letter to a borrower outlining their intent to lend them money for a specific purpose and under what conditions that money will be loaned . LIABILITIES What the borrower owes . LIEN The lender’s legal claim to the borrower’s property . LINE OF CREDIT A maximum credit limit allowed by a lender to a borrower, as long as the borrower maintains an acceptable balance on account or has a good credit rating . The credit line will vary from time to time according to the changing circumstances of the borrower or the lender . LOAN COVERAGE The ratio of net operating income to mortgage debt service; in general, loan coverage of 1 .2 is considered adequate . LOAN FEE A charge for making a loan in addition to the interest charged to the borrower . LOAN TO VALUE RATIO The advance ratio of the principal amount of the mortgage as a function of the lending value of the property . MATURITY DATE The last day of the term of the mortgage agreement . The mortgage must be paid in full or the agreement renewed by the maturity date . MORTGAGE A conveyance of property to a creditor, as security for payment of a debt . Such security is redeemable or recoverable on the payment or discharge of the debt at a specified date. More recently referred to as a Charge in the new Polaris registry system . An encumbrance registered on the title of the lands .


MORTGAGE INSURANCE PREMIUM A premium which is charged as a percentage of the mortgage . The mortgage insurance insures the lender against loss in case of default by the borrower . MORTGAGE LIFE INSURANCE A form of reducing term insurance recommended for the borrower . In the event of the death of the borrower or one of the coborrowers, the insurance pays the balance owing on the mortgage . The intent is to protect survivors from losing their home . MORTGAGEE The one to whom property is conveyed . (The lender) . The holder of the mortgage . MORTGAGOR The one who makes the payments . The owner of the property . (The borrower) . NATIONAL HOUSING ACT (NHA) LOAN A mortgage backed (insured) to a certain maximum by CMHC or an approved private insurer . NET RATE OF INTEREST The interest rate received by a mortgage lender net of the servicing fee deducted by a loan correspondent, etc . NOMINAL RATE The quoted interest rate for a mortgage . OFFER TO PURCHASE A formal, legal agreement that offers a certain price for a specified property. The offer may be a firm (no conditions attached) or conditional (certain conditions must be fulfilled). OPEN MORTGAGE A way of registering a mortgage which allows the mortgagor to make extra payments, make principal repayments, or pay the loan off in full at anytime without penalty . PAYMENT HYPOTHECATION Refers to a deposit equal to 3 -6 months’ worth of payments held for at least 1 year in a separate, interest-bearing vehicle . They provide additional security for the loan, and are more common when financing up to 75%. These funds are usually released after one year at the lender’s discretion, as long as the mortgage has been repaid as agreed . P.I. Principal and interest due on a mortgage . P.I.T. Principal, interest and property taxes due on a mortgage . P.I.T.H. Principal, interest, taxes, and heating costs due on a mortgage . These payments are used to calculate the GDS and TDS of a borrower . PENALTY A sum of money paid to a lender for the privilege of prepaying a mortgage in part or in full, outside the privileges set out in the terms of the mortgage . PORTABLE MORTGAGE Upon the consent of the lender, the mortgagor may transfer the balance of their existing mortgage to a new property being mortgaged . POWER OF SALE The right of a mortgagee to force sale of the property without judicial proceedings should default occur . PRE-APPROVED MORTGAGE Preliminary approval by the lender of the borrower’s application for a mortgage to certain maximum amount and rate . Usually conditional upon the property being purchased meeting the lender’s criteria . PRE-AUTHORIZED CHEQUE (PAC) see Pre-Authorized Payment .


PRE-AUTHORIZED PAYMENT (PAP) This method of making mortgage payments allows the lender to deduct the agreed upon mortgage (tax & insurance, if applicable) payment directly from the borrower’s chequing account . PREPAYMENT CHARGE A fee charged by the lender when the borrower prepays all or part of a mortgage more quickly than stated in the mortgage agreement . The fee is charged to compensate the lender for loss of revenue . PREPAYMENT OPTIONS The clause in the mortgage agreement that specifies when, how much and how prepayments of the mortgage principal (above and beyond the regular mortgage payments) can be made by the borrower . PRIME RATE The rate charged by banks to their most creditworthy borrowers . PRINCIPAL The amount of money borrowed . Could be part of the repayment plan that lowers this original amount . PRIORITY OF MORTGAGES (I.E. FIRST, SECOND, THIRD) Dates of registration by number and date in the local Registry Office and/or Land Titles, then given to the mortgagee . First mortgages have priority over second mortgages; and so on . Priority refers to the mortgagee’s claim to the property should payments go into default . PROMISSORY NOTE An unconditioned note or written promise by the promisor to pay a sum of money to the payee on demand or at a fixed or determinable future date . RATE (INTEREST) The return the lender receives for loaning the borrower the money for the mortgage . REDEMPTION The buying back of a mortgage estate by payment of the sum due on the mortgage . REFINANCE To pay in full and discharge a mortgage and any other registered encumbrances and arrange for a new mortgage with the same or a different lender . RENEGOTIATE To change the terms and conditions of a mortgage agreement prior to maturity . Renegotiation occurs with the lender who currently holds the mortgage . RENEWAL AGREEMENT An agreement whereby the lender may agree to extend the term of the loan, but possibly on revised terms as to principal repayments and interest rate . RESERVE FUND A fund set up by a condominium corporation for major repairs and replacement of such items as the roof, elevators, plumbing, heating systems, etc . All condo corporations, by law, require a reserve fund . ROLL-OVER MORTGAGE A mortgage loan where the interest rate is established for a specific term. At the end of this term the mortgage is said to “roll over” and the borrower and lender may agree to extend the loan . If satisfactory terms cannot be agreed upon, the lender is entitled to be repaid in full . In this case, the borrower may seek alternative financing. SECOND MORTGAGE A mortgage placed on real property which is already encumbered with one mortgage . Determination of first, second, third, etc. mortgage is by priority of registration (time and date) .


SECURITY Property offered as backing for a loan . In the case of mortgages, the property being purchased with the loan usually forms the security for the loan . SHELTER PAYMENT RATIO Gross debt service plus annual heat costs as a function of the gross income of the mortgagor . SURVEY The accurate mathematical measurements of land and buildings thereon made with the aid of instruments . TENANCY IN COMMON Ownership of land by two or more persons: unlike joint tenancy in that the interest of the deceased does not pass to the survivor, but is treated as an asset of the deceased’s estate . TERM OF LOAN The actual length of time for which the money is borrowed . Anywhere from one month to 25 years . The period for which the mortgage is registered, in months . TOTAL DEBT SERVICE RATIO (TDS) Gross debt service plus payments on other debts such as bank loans, finance company loans, credit card payments, alimony, etc . as a function of the gross income of the borrower . TRANSFER To convey from one person or institution to another . TRANSFER OF CHARGE Assignment of a mortgage under the Land Titles System . UNDERWRITER (MORTGAGE) A person employed by a mortgage lender or mortgage broker who assesses loan applications based upon the following: quality of the real property, credit worthiness and ability to pay of the applicant and guidelines of the lender with regard to ratio of mortgage loan to value of property . VARIABLE INTEREST MORTGAGE A loan where the interest rate may vary during the term of the mortgage . The variance is usually tied to some specific factor such as prime bank rate or the guaranteed investment certificate rate for a designated lender. VENDOR TAKE BACK MORTGAGE A mortgage which a vendor of real property takes from the purchaser usually as part payment of the purchase price for that property . A private first or second mortgage that the vendor lends to the purchaser/borrower . ZONING The public regulation of the character and intensity of the use of real estate . This is accomplished by the establishment of districts in each of which uniform holding restrictions related to use, height, area, bulk and density of population are imposed upon the private property .








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