Baffled by some of the phrases realtors and bankers throw at you? Here are some commonly used—but not always understood—words to describe mortgages:

Amortization Period

This is the number of years it will take to repay the entire mortgage in full and is determined when you are approved. A longer amortization period will result in lower payments but more interest overall as it will take longer to pay off. The typical amortization range is 15 to 30 years.

Closed Mortgage

This is any mortgage where you have agreed to pay the lender for a specified period of time. This means that you cannot pay it off, refinance or renegotiate before the mortgage term ends without incurring a penalty. Depending on the lender, there may be options for accelerated payments but it depends on your particular mortgage contract. While these mortgages tend to be a lot stricter, they can often provide lower interest rates.

Conventional Mortgage

In the case of a conventional mortgage, the loan covers no more than 80% of the purchase price on the property. This means, the buyer has put 20% (or more) down on the property. These mortgages do not require default insurance due to the amount down.

Default

Failure to pay your mortgage on time will result in defaulting on the loan.

Derogs

Short for ‘derogatory’, derogs refers to an overdue account or late payments on your credit report.

Down

Short for down payment. In Canada, the minimum down payment is 5% on any home purchase.

Fixed

A fixed-rate mortgage means you are locked in at the interest rate agreed for a longer length of time.

Flex Down

This refers to a borrowed down payment program, which allows homeowners to “borrow” money for the down payment from a credit card, line of credit or other loan. In this case, the repayment of the loan is included in the debt calculations.

Foreclosure

This refers to the possession of a mortgaged property by the bank or lender if a borrower fails to keep up their mortgage payments.

High-Ratio Mortgage

A high-ratio mortgage is where the buyer has provided a down payment of less than 20% of the purchase price and needs to pay Canada Mortgage and Housing Corp. (CMHC) to insure the mortgage against default.

MIC

Short for a Mortgage Investment Corporation, this is a group of investors who will lend you the money for a mortgage if a traditional lender will not due to unusual circumstances.

Open Mortgage

An open mortgage means you can pay out the balance at any time, without incurring a penalty.

PIT

Principal, interest and taxes— a calculation representing the amount you can afford to pay monthly on your home. Heating costs are often included in this calculation (PITH).

Pull

Also known as a ‘credit check’ or ‘credit inquiry’ a ‘credit pull’ refers to the act of checking a credit report to determine if the borrower is a viable investment prior to approval of the mortgage.

Term

Term is the length of time that a mortgage agreement exists between you and the lender. Rates and payments vary with the length of the term. The most common term is a 5-year, but they can be anywhere from 1 to 10 years. Generally a longer term will come at a higher rate due to the added security.

Trade Lines

This refers to any credit cards, loans, wireless phone accounts, or mortgages that appear on your credit report.

Underwriting

This refers to the process of determining any risks relating to a particular loan and establishing suitable terms and conditions for that loan.

Variable

A variable-rate refers to an interest rate that is adjusted periodically to reflect market conditions.

20/20

A condition that refers to repaying 20% of the mortgage balance OR increasing your payment by 20%, without incurring a penalty.

If you are looking into getting a mortgage don’t be afraid to ask questions! At the end of the day, the mortgage contract has your signature on it and it is important to understand any contract you are signing. Contact a DLC Mortgage Broker today and they would be happy to discuss your situation and answer any questions surrounding mortgage conditions or jargon to ensure the best result for YOU!

Written by our DLC Marketing Team

Affordable Housing Is A Key Theme In Federal Budget 2022

April 7, 2022

Today’s budget announced a $10 billion package of proposals intended to reduce the cost of housing in Canada (see box below). The fundamental problem is insufficient supply to meet the demands of a rapidly growing population base. Thanks to the federal government’s policy to rapidly increase immigration since 2015, new household formation has risen far faster than housing completions, both for rent and purchase. This excess demand has markedly pushed home prices to levels beyond average-income Canadians’ means.

The measures announced in today’s budget to increase housing construction, though welcome, are underwhelming. The Feds can control the construction of lower-cost housing through CMHC. Still, most home building is under the auspices of the municipal governments, where the red tape, zoning restrictions and delays abound. The federal government increased funds to help local governments address these issues, but NIMBY thinking still prevents increased housing density in many neighbourhoods.

The headline policy announcement for a two-year ban on foreign residential property purchases may sound reasonable. Still, according to Phil Soper, chief executive of Royal LePage, “It will have a negligible impact on home prices. We know from the pandemic period, when home prices escalated with virtually no foreign money, that our problem is made-in-Canada.”

According to the Financial Post, Soper added that measures like the tax-free savings account for young Canadians would be encouraged to help them achieve their dreams of homeownership in a typical real estate market. However, in a low-supply environment with pandemic-fuelled price gains, these measures would only add more demand without addressing the supply issue. Only a few first-time buyers would be able to take advantage of it.

The Home Buyers’ Bill of Rights that would end blind bidding and assures the right to a home inspection and transparent historical sales prices on title searches is also long overdue.

The First-Time Home Buyer Incentive has been extended to March 2025. This program has been a bust. Buyers do not want to share the equity in their homes with CMHC. The Feds are taking another kick at the can, “exploring options to make the program more flexible and responsive to the needs of first-time homebuyers, including single-led households.” To date, the limits on the program have made them useless in high-priced markets such as the GTA and the GVA.

Budget 2022 Measures To Improve Housing Affordability

Tax-Free Home Savings Account

• Introduce the Tax-Free First Home Savings Account that would give prospective first-time home buyers the ability to save up to $40,000. Like an RRSP, contributions would be tax-deductible, and withdrawals to purchase a first home—including investment income—would be non-taxable, like a TFSA.

New Housing Accelerator Fund

• With the target of creating 100,000 net new housing units over five years, proposes to provide $4 billion over five years, starting in 2022-23, to launch a new Housing Accelerator Fund that is flexible to the needs and realities of cities and communities, while providing them support such as an annual per-door incentive or up-front funding for investments in municipal housing planning and delivery processes that will speed up housing development.

 New Affordable Housing

• To ensure that more affordable housing can be built quickly, Budget 2022 proposes to provide $1.5 billion over two years, starting in 2022-23, to extend the Rapid Housing Initiative. This new funding is expected to create at least 6,000 new affordable housing units, with at least 25% of funding going towards women-focused housing projects.

An Extended and More Flexible First-Time Home Buyer Incentive

• Extension of the First-Time Home Buyer Incentive–which allows eligible first-time homebuyers to lower their borrowing costs by sharing the cost of buying a home with the government–to March 31, 2025. Explore options to make the program more flexible and responsive to the needs of first-time homebuyers, including single-led households.

A Ban on Foreign Investment in Canadian Housing

• Proposes restrictions that would prohibit foreign commercial enterprises and people who are not Canadian citizens or permanent residents from acquiring non-recreational, residential property in Canada for a two-year period.

Property Flippers Pay Their Fair Share

• Introduce new rules so that any person who sells a property they have held for less than 12 months would be subject to full taxation on their profits as business income, applying to residential properties sold on or after January 1, 2023. Exemptions would apply to Canadians who sell their home due to certain life circumstances, such as a death, disability, the birth of a child, a new job, or a divorce.

Rent-to-Own Projects

• Provide $200 million in dedicated support under the existing Affordable Housing Innovation Fund. This will include $100 million to support non-profits, co-ops, developers, and rent-to-own companies building new rent-to-own units.

Home Buyers’ Bill of Rights

• Bring forward a national plan to end blind bidding. Among other things, the Home Buyers’ Bill of Rights could also include ensuring a legal right to a home inspection and ensuring transparency on the history of sales prices on title searches.

Multigenerational Home Renovation Tax Credit

• Provide up to $7,500 in support for constructing a secondary suite for a senior or an adult with a disability, starting in 2023.

Doubling the First-Time Home Buyers’ Tax Credit 

• Double the First-Time Home Buyers’ Tax Credit amount to $10,000, providing up to $1,500 in direct support to home buyers, applying to homes purchased on or after January 1, 2022.

Co-Operative Housing Development

• Reallocate funding of $500 million to a new Co-Operative Housing Development Program to expand co-op housing in Canada. Provide an additional $1 billion in loans to be reallocated from the Rental Construction Financing Initiative to support co-op housing projects.

Written by :

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres