Commonly Used Mortgage Terms

Last month we introduced some of the commonly used real estate terms and explained how these terms can make up a language of their own. This month we complete this series by introducing the commonly used Mortgage terms.

Amortization
This is a schedule that outlines your loan payments for the duration of the home buying loan. It details how much of each monthly payment goes toward the principal and how much goes toward the loan interest. Initially, the bulk of your payments will be applied toward the interest.

Appraised Value
An estimate of a property’s market value, used by lenders in determining the amount of the mortgage. Usually made by a qualified professional called an “appraiser”.

Assessment
The value of a property, set by the local municipality, for the purposes of calculating property tax.

Assumable Mortgage
A mortgage held on a property by the seller can be taken over by the buyer, who then accepts responsibility for making the mortgage payments.

Blended Mortgage
A combination of two mortgages, one with a higher interest rate than the other, to create a new mortgage with an interest rate somewhere between the two original rates.

Bridge Financing
Interim financing to bridge between the closing date on the purchase of the new home and the closing date on the sale of the current home.

Buy-down
When the seller reduces the interest rate on a mortgage by paying the difference between the reduced rate and market rate directly to the lender, or to the purchaser, in one lump sum or monthly installments.

Canada Mortgage and Housing Corporation (CMHC)
The National Housing Act (NHA) authorized Canada Mortgage and Housing Corporation (CMHC) to operate a Mortgage Insurance Fund which protects NHA Approved Lenders from losses resulting from borrower default.

Closed Mortgage
A mortgage that cannot be prepaid, renegotiated, or refinanced during its term.

Commitment
A notice from a mortgage lender to a prospective borrower that the lender will advance mortgage funds of a specified amount under certain conditions.

Conventional Mortgage
A mortgage loan of up to a maximum of 75% of the lending value of the property for which a lender does not require loan insurance.

Debt Service Ratio
The percentage of a borrower’s income that can be used for housing costs. Gross Debt Service (GDS) Ratio is the amount that a lender will permit a borrower to use from his/her gross income in order to qualify for a loan for housing costs, including mortgage payment and taxes (and condominium fees, when applicable). Total Debt Service (TDS) Ratio is the maximum percentage of a borrower’s income that a lender will consider for all debt repayment (other loans and credit cards, etc.) including a mortgage.

Default
Non-payment of installments due under the terms of the mortgage.

Discharge
The removal of all mortgages and financial encumbrances on the property.

Equity
The difference between the price for which a property can be sold and the mortgage(s) on the property. Equity is the owner’s “stake” in a property.

First Mortgage
The first security registered on a property. Additional mortgages secured against the property are “secondary” to the first mortgage.

Foreclosure
A legal process by which the lender takes possession and ownership of a property when the borrower doesn’t meet the mortgage obligations.

Gross Debt Service (GDS) Ratio
The percentage of gross income required to cover monthly payments associated with housing costs. Most lenders recommend that the GDS ratio be no more than 32% of your gross (before tax) monthly income.

Gross Household Income
Is the total salary, wages, commissions, and other assured income, before deductions, by all household members who are co-applicants for the mortgage.

Hazard Insurance
An insurance policy is required by lenders to protect a property against damage or loss caused by fire, weather, etc.

High Ratio Mortgage
A mortgage that exceeds 75% of the loan-to-value ratio; must be insured by either the Canada Mortgage and Housing Corporation (CMHC) or a private insurer to protect the lender against default by the borrower who has less equity invested in the property.

Hold-back
An amount of money is withheld by the lender during the progress of construction of a house to ensure that construction is satisfactory at every stage. The amount of hold-back is generally equivalent to the estimated cost to complete construction.

Interest Rate Differential Amount (IRD)
An IRD amount is a compensation charge that may apply if you pay off your mortgage principal prior to the maturity date or pay the mortgage principal down beyond the prepayment privilege amount. The IRD amount is calculated on the amount being prepaid using an interest rate equal to the difference between your existing mortgage interest rate and the interest rate that we can now charge when re-lending the funds for the remaining term of the mortgage. For more information, click on compensation amounts.

Interim Financing
Short-term financing to help a buyer bridge the gap between the closing date on the purchase of a new home and the closing date on the sale of the current home.

Maturity Date
Last day of the term of the mortgage agreement.

Mortgage
A contract between a borrower and a lender. The borrower pledges a property as security to guarantee repayment of the mortgage debt.

Mortgage Broker
A licensed individual who, for a fee, brings together a borrower in search of a mortgage and a lender willing to issue that mortgage.

Mortgage Insurance Premium
A premium which is added to the mortgage and paid by the borrower over the life of the mortgage. The mortgage insurance insures the lender against loss in case of default on the part of the borrower.

Mortgage Life Insurance
A form of reducing term insurance available for all mortgagors. In the event of the death of the owner or one of the owners, the insurance pays the balance owing on the mortgage. The intent is to protect survivors from losing their homes.

Mortgage Payment
The regular installments made towards paying back the principal and interest on a mortgage.

Mortgage Term
The length of time a lender will loan mortgage funds to a borrower. Most mortgage terms run from six months to five years, after which the borrower can either repay the balance (remaining principal) of the mortgage, or renegotiate the mortgage for another term.

Mortgage Prepayment Penalty
A fee paid by the borrower to the lender in exchange for being permitted to break a contract (a mortgage agreement); usually three months’ interest, but it can be higher or it can be the equivalent of the loss of interest to the lender.

Mortgagee
The entity that lends the money.

Mortgagor
The entity that borrows the money. The borrower pledges a property as security to guarantee repayment of the mortgage debt.

Open Mortgage
A mortgage that can be prepaid or renegotiated at any time and in any amount without penalty.

Payment Frequency
The choice of making regular mortgage payments every week, every other week, twice a month or monthly.

Principal
The mortgage amount initially borrowed or the portion still owing on the mortgage. Interest is calculated on the principal amount.

P, I & T
Principal, interest and taxes due on a mortgage.

P & I
Principal and interest due on a mortgage.

10 Beginner Tips for Staging Your Home for Sale

Home Staging is a proven system for preparing properties for sale. Your aim is to present your home in the best possible light to win the hearts of prospective buyers. With Staging, the focus is shifted from the furnishings to the home itself, the views, the space, and the unique features of the property.

In preparing your house for selling you need to take a step back and have the mindset that this is no longer your home but your investment. You want your home to stand out from the crowd and have a broad buyer appeal. Following these 10 tips will help you sell your house sooner and possibly for more money.

1. Curb Appeal – stand back and view your home as if you were seeing it for the first time. This is the ‘first impression’ stage. Depending on the season you may want to have pots of colourful and attractive flowers to greet buyers; a clean and inviting door mat; new and shiny door handles and/or knockers with a freshly painted door.

2. Declutter – Start your pre-pack as soon as possible. You need to decide what you are going to keep, give away, sell or throw away. You may rent storage lockers so you can start to clear out what is not going to make the house look good.

3. Clean – you would think this one is common sense but let me assure you, I wish it was so! A clean home translates into “They must have really cared for their home.” Use environmentally friendly cleaners where you can and for hard cleaning areas, tsp is a good product. Bathrooms and kitchens must be sparkling clean at the very least.

4. Depersonalize – we know you love your family photos and your personal treasures and for living they are perfect. However, when it comes to selling your home, you want buyers to focus on the best features of the house and not your personal collection. Pack personal items and photos carefully and store them away so you can showcase them in your new home.

5. A neutral colour scheme is the way to go for selling. Choose only three colours or less to paint your house for selling. If you have an open floor plan then paint the main floor all the same colour. Bedrooms look good in light sage greens or warm blues like the new aqua.

6. Highlight your home’s best architectural features – Place your furniture in each room so that you have very obvious focal points that show off the home’s best-selling features. For example, if you have a beautiful fireplace then place the furniture in a parallel grouping so that the eye is drawn to the fireplace.

7. Decide on the function in each room – if you were using your guest bedroom as your den for living, for selling turn it back into a bedroom with bedroom furniture in it. If you do not have the right furniture for each room consider renting it. There are more and more rental furnishing companies opening up every day. If you don’t want to rent then borrow.

8. Lighting your home to its best advantage – Spend money on new light fixtures in brushed nickel or stainless steel. Brass is out so don’t fight it. There are many low-cost lighting stores to select from so no excuses for having dated light fixtures.

9. Use window treatments that sell your home – the most popular on the market are the 2” faux woods in a white tone to go with your trim. Decorative side panels will do the trick if you need to add warmth and colour.

10. Flooring needs special attention and is a good investment for updating the look of your home – tile or linoleum is great for entranceways, bathrooms, kitchens, laundry rooms; a good quality laminate or hardwood is perfect for living rooms and family rooms; bedrooms are attractive in a neutral carpet.

By planning and budgeting, you can get yourself to the “OPEN HOUSE READY” stage. Remember that over 79% of prospective buyers have already checked you out through the MLS listings. Will they like what they see?

Happy Selling!

Tips for First-Time Home Buyers to Get Into the Housing Market

The pride of home ownership is the number one reason why Canadians desire their own home. There is no landlord looking over your shoulder. You are able to make home improvements knowing that any appreciation that results will be to your benefit. Home ownership gives you and your family a sense of stability and security. It's making an investment in your future.

Home ownership is the cornerstone of financial independence and security. It may seem a daunting prospect to younger people or first-time buyers, but it is achievable.

Like many would-be homeowners, you may be wondering how you can possibly afford to buy your first home. Even if you think you can’t afford a home, these saving tips and financing strategies can take you there sooner than you think and turn you from a renter into an owner.

Develop a culture of saving
The first priority for you should be to develop a culture of saving. This not only helps you in budgeting and planning for the future but also to satisfy banks and other lending institutions that you have a clear commitment to save.

Start an automatic saving plan
Saving for a down payment can be a financial challenge but it’s a step forward to owning your dream home. Make saving automatic by setting up an automatic savings plan at your bank to regularly move a specific amount of money directly from your chequing account to a savings account. You’ll be surprised at how much you can save and how quickly the “pay yourself first” approach adds up.

Borrow from yourself
The federal government’s Home Buyer’s Plan (HBP) lets you borrow from your Registered Retirement Savings Plan (RRSP) to help purchase your first home. You and your partner can each withdraw up to $20,000, provided it’s not locked in and the money has been in the RRSP for at least 90 days.  You have to repay the loan in installments over the next 15 years to avoid a tax hit. 
 
Take a holiday from tax
If you open a new Tax-Free Savings Account (TFSA), you won’t pay any tax on earnings, which will help you compound your savings. You can contribute up to $5,000 a year to a TFSA, and save for anything you like, tax-free.
 
Review your mortgage options
Once you make the decision to purchase a property, the next choice is the type of loan to suit your budget. The two most common types of loans are the variable interest rate loan and the fixed interest rate loan.  

You can now choose to pay back your mortgage over 25 or 30 years, instead of the traditional 20-year amortization period. This means you will pay more interest over the long term, but you can reduce monthly payments to get into your starter home. You can always change this later, once your income rises and you can pay your mortgage down faster.
 
Get into a starter house
Try to be as flexible as possible when choosing your first home. Unless you are status conscious, your first home doesn’t necessarily have to be your dream home. You could settle for a starter home, which you can afford with a small down payment and easy mortgage installments. There are plenty of lower-priced houses out there in need of repair, with some "Do-It-Yourself" projects where you can add more value to the house. Just be careful not to buy a property where the cost of repairs will eat up any profits you might make when you sell.

In just a few years you will build enough equity in your starter home to make it easier for you to sell and move into your dream home. Buying your first home is an exciting process. After all, your home could be the largest asset you’ll ever own. Being able to finance most of its cost will take a load off your back in the future.

Remember to look at the big picture. While buying a house is a great way to build wealth, maintaining your investment can be labour-intensive and expensive. When unexpected costs for new appliances, roof repairs, and plumbing problems crop up, there's no landlord to turn to, and these costs can drain your bank account. So consider whether you're ready for the expense and effort of homeownership before making the commitment.

Average Sale Price of Homes Continues to Climb in Kitchener - Waterloo

 KITCHENER-WATERLOO, ON (October 4, 2021) –– A total of 506 residential homes sold last month through the Multiple Listing Service® (MLS® System) of the Kitchener-Waterloo Association of REALTORS® (KWAR), a decrease of 32.1 per cent compared to last September and a decrease of 5.9 per cent compared to August.

“While the total number of homes sold last month was down considerably compared to last September, it can still be considered an above average month of activity when we remember that last September smashed any previous September for number of sales,” says KWAR’s president, Nicole Pohl. “In fact, I would say we are on track for setting a record number of annual sales in 2021.”  

Total residential sales in September included 267 detached (down 37.3 per cent from September 2020), and 83 condominium units (down 11.7 per cent). Sales also included 41 semi-detached homes (down 21.2) and 115 townhouses (down 33.5 per cent).  

In September, the average sale price for all residential properties in the Kitchener-Waterloo area was $792,599. This represents a 24.2 per cent increase over September 2020 and a 5.7 per cent increase compared to August 2021.

• The average price of a detached home was $963,646. This represents a 24.9 per cent increase from September 2020 and an increase of 7.9 per cent compared to August 2021.
• The average sale price for an apartment-style condominium was $497,949. This represents an increase of 28.6 per cent from September 2020 and an increase of 12.4 per cent compared to August 2021.
• The average sale price for a townhouse was $646,026. This represents a 35.7 per cent increase from September 2020 and an increase of 3.7 per cent compared to August 2021.
• The average sale price for a semi was $686,316. This represents an increase of 26.1 per cent compared to September 2020 and an increase of 0.5 per cent compared to August 2021.

KWAR cautions that average sale price information can be useful in establishing long-term trends but should not be used as an indicator that specific properties have increased or decreased in value. The MLS® Home Price Index (HPI) provides the best way to gauge price trends because averages are strongly distorted by changes in the mix of sales activity from one month to the next.

The MLS® HPI composite benchmark price for all residential properties in Kitchener-Waterloo was $784,200 in September. This represents a 33.0 per cent increase over September 2020 and a 3.5 per cent increase compared to August 2021.

• The benchmark price for a detached home was $869,220. This represents a 34.2 per cent increase from September 2020 and 3.8 per cent increase compared to August 2021.
• The benchmark price for an apartment-style condominium was $392,600. This represents a 21.5 per cent increase from September 2020 and a 3.1 per cent increase compared to August 2021.
• The benchmark price for a townhouse is $581,700. This represents a 40.0 per cent increase from September 2020 and a 2.4 per cent increase compared to August 2021.

There were 698 new listings added to the MLS® System in KW and area last month, a decrease of 23.4 per cent compared to September of last year, and a 13 per cent decrease compared to the previous ten-year average for September.

The total number of homes available for sale in active status at the end of September was 345, a decrease of 35.3 per cent compared to September of last year, and 73.2 per cent below the previous ten-year average of 1,285 listings for September.

“Home prices reached all new highs in September, “says Pohl. “And while there is a growing call to add more transparency to how real estate is traded in Ontario —the brutal reality of this market is that supply is simply not keeping up with demand and that is what is driving up prices.”

The President of KWAR says: “While there are many who have zeroed in on the blind bidding process, the greater concern is that homes are being purchased without all the normal conditions you would see in a balanced market. As a practicing REALTOR® I completely support and hope the government will add the ability for REALTORS® to provide greater transparency on offers,” says Pohl. “But as it is, we are legislatively restricted from disclosing anything more than simply the number of offers, which is not working for homebuyers.”

The number of months of inventory nudged up slightly from August’s 0.4 months to half a month in September. Inventory has settled at under 1 month for the past 11 consecutive months. The number of months of inventory represents how long it would take to sell off current inventories at the current rate of sales.