Denova Group Tools Banner

Mortgage Calculator

Calculate your mortgage payment. Discover how many years you will shorten your amortization and how much interest savings you will realize by making a prepayment (lump sum) on your mortgage.

Mortgage Glossary

Agreement of Purchase and Sales
The legal contract a purchaser and a seller go into. We recommend that you have your offer prepared by a professional realtor that has the knowledge and experience to satisfactorily protect you with the most suitable clauses and conditions.

Amortization Period
The number of years it takes to repay the entire amount of the financing based on a set of fixed payments.

Appraisal
The process of determining the market value of a property.

Assets
What you own or can call upon. Often used in determining net worth or in securing financing.

Assumption Agreement
A legal document signed by a buyer that requires the buyer assume responsibility for the obligations of an existing mortgage. If someone assumes your mortgage, make sure that you get a release from the mortgage company to ensure that you are no longer liable for the debt.

Blended Payments
Equal payments consisting of both an interest and a principal component. Typically, while the payment amount does not change, the principal portion increases, while the interest portion decreases.

Canada Mortgage and Housing Corporation (CMHC)
CMHC is a federal Crown corporation that administers the National Housing Act (NHA). Among other services, they also insure mortgages for lenders that are greater than 80% of the purchase price or value of the home. The cost of that insurance is paid for by the borrower and is generally added to the mortgage amount. These mortgages are often referred to as “Hi-Ratio” mortgages.

Closed Mortgage
A mortgage that cannot be prepaid or renegotiated for a set period of time without penalties.

Closing Date
The date on which the new owner takes possession of the property and the sale becomes final.

Collateral
An asset, such as term deposit, Canada Savings Bond, or automobile, that you offer as security for a loan.

Conventional Mortgage
A mortgage up to 80% of the purchase price or the value of the property. A mortgage exceeding 80% is referred to as a “Hi-Ratio” mortgage and the lender will require insurance for that mortgage.

Credit Scoring
A system that assesses a borrower on a number of items, assigning points that are used to determine the borrower’s credit worthiness.

Demand Loan
A loan where the balance must be repaid upon request.

Deposit
A sum of money deposited in trust by the purchaser on making an offer to purchase. When the offer is accepted by the vendor (seller), the deposit is held in trust by the listing real estate broker, lawyer, or notary until the closing of the sale, at which point it is given to the vendor. If a house does not close because of the purchaser’s failure to comply with the terms set out in the offer, the purchaser forgoes the deposit, and it is given to the vendor as compensation for the breaking of the contract (the offer).

Equity
The difference between the market value of the property and any outstanding mortgages registered against the property. This difference belongs to the owner of that property.

First Mortgage
A debt registered against a property that has first call on that property.

Fixed-Rate Mortgage
A mortgage for which the interest is set for the term of the mortgage.

Gross Debt Service Ratio (GDS)
It is one of the mathematical calculations used by lenders to determine a borrower’s capacity to repay a mortgage. It takes into account the mortgage payments, property taxes, approximate heating costs, and 50% of any maintenance fees, and this sum is then divided by the gross income of the applicants.

Guarantor
A person with an established credit rating and sufficient earnings who guarantees to repay the loan for the borrower if the borrower does not.

High-Ratio Mortgage
A mortgage that exceeds 80% of the purchase price or appraised value of the property. This type of mortgage must be insured.

Home Equity Line of Credit
A personal line of credit secured against the borrower’s property.

Interest Adjustment Date (IAD)
The date on which the mortgage term will begin. This date is usually the first day of the month following the closing. The interest cost for those days from the closing date to the first of the month are usually paid at closing. That is why it is always better to close your deal towards the end of the month.

Interest-Only Mortgage
A mortgage on which only the monthly interest cost is paid each month. The full principal remains outstanding. The payment is lower than an amortized mortgage since once is not paying any principal

Mortgage
A mortgage is a loan that uses a piece of real estate as a security. Once that loan is paid-off, the lender provides a discharge for that mortgage.

Mortgagee
The financial institution or person (lender) who is lending the money using a mortgage.

Mortgagor
The person who borrows the money using a mortgage

Open Mortgage
A mortgage that can be repaid at any time during the term without any penalty. For this convenience, the interest rate is usually slightly higher than a closed mortgage. A good option if you are planning to sell your property or pay-off the mortgage entirely. *some conditions may apply

P.I.T.
Principal, interest, and property tax due on a mortgage. If your down payment is greater than 25% of the purchase price or appraised value, the lender will usually allow you to make your own property tax payments.

Portable Mortgage
An existing mortgage that can be transferred to a new property. One would want to port their mortgage in order to avoid any penalties, or if the interest rate is much lower than the current rates.

Prepayment Penalty
A fee charged a borrower by the lender when the borrower prepays all or part of a mortgage over and above the amount agreed upon. The Prepayment Penalty can vary from lender to lender, a usual charge is the greater of the Interest Rate Differential (IRD) or 3 months interest.

Prime
The lowest rate a financial institution charges its best customers.

Principal
The original amount of a loan, before interest.

Rate Commitment
The number of days the lender will guarantee the mortgage rate on a mortgage approval. This can vary from lender to lender.

Refinance
Refers to the replacement of an existing debt obligation with a debt obligation under different terms. The most common consumer refinancing is for a home mortgage.

If the replacement of debt occurs under financial distress, it is also referred to as debt restructuring.

A loan (debt) can be refinanced for various reasons:

1.) to take advantage of a better interest rate (which will result in either a reduced monthly payment or a reduced term);
2.) to consolidate other debt(s) into one loan(this will result in a longer term);
3.) to reduce the monthly repayment amount (this will result in a longer term)
4.) to reduce or alter risk (e.g. changing from a variable-rate to a fixed-rate loan)
5.) to free up cash (this will result in a longer term).

Breaking your mortgage contract to renew at a new rate and a new term, may include a prepayment charge to reimburse your financial institution for the lost interest income. As a rule, the prepayment charge is based on three months interest or the interest rate differential (the difference between your current mortgage rate for the balance of your term and the new rate you want to refinance at), whichever is greater.

This amount will tell you if you should refinance the mortgage. In most cases the shorter the remaining term – less than a year is best – the smaller the penalty. The longer the term left on your mortgage, the greater the prepayment penalties.

Renewal
When the mortgage term has concluded, your mortgage is up for renewal. It is open at this time for prepayment in part or in full, then renew with same lender or transfer to another lender at no cost (we can arrange).

When renewing your mortgage, the banks often only offer the posted rates. You have to push a little harder for them to give you a break. They know that most homeowners don’t want to have to shop around, so, they offer you a higher rate and hope that you will take it.

Second Mortgage
A debt registered against a property that is secured by a second charge on the property.

Switch
To transfer an existing mortgage from one financial institution to another. We can have this arranged for you at no cost to you.

Term
The period of time the financing agreement covers. The terms available are: 6 month, 1,2,3,4,5,6,7,10 year terms, and the interest rates will be fixed for whatever term once chooses.

Total Debt Service (TDS) Ratio
It is the other mathematical calculations used by lenders to determine a borrower’s capacity to repay a mortgage. It takes into account the mortgage payments, property taxes, approximate heating costs, and 50% of any maintenance fees, and any other monthly obligations (i.e. personal loans, car payments, lines of credit, credit card debts, other mortgages, etc.), and this sum is then divided by the gross income of the applicants.

Variable Rate Mortgage
A mortgage for which the interest rate fluctuates based on changes in prime.

Vendor Take Back (VTB) Mortgage
A mortgage provided by the vendor (seller) to the buyer.

Frequently Asked Questions

What is mortgage loan insurance?

Mortgage loan insurance is insurance provided by Canada Mortgage and Housing Corporation (CMHC), a crown corporation, and GE Capital Mortgage Insurance Company, an approved private corporation. This insurance is required by law to insure lenders against default on mortgages with a High Ratio. The insurance premiums are paid by the borrower and can be added directly onto the mortgage amount. This is not the same as mortgage life insurance.

What is a conventional mortgage?

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

How does bankruptcy affect qualification for a mortgage?

Depending on the circumstances surrounding your bankruptcy, generally some lenders would consider providing mortgage financing.

How will child support affect mortgage qualification?

Where child support and alimony are paid by you to another person, generally the amount paid out is deducted from your total income before determining the size of mortgage you will qualify for. Where child support and alimony are received by you from another person, generally the amount paid may be added to your total income before determining the size of mortgage you will qualify for, provided proof of regular receipt is available for a period of time determined by the lender.

Can I get a mortgage to purchase and renovate a home?

Subject to qualification, yes. In fact, even purchasers with small down payments may qualify to buy a home and make improvements to it. For high-ratio financing, both Canada Mortgage and Housing Corporation and GE Capital, insured mortgages are available to cover the purchase price of a home as well as an amount to pay for immediate major renovations or improvements that the purchaser may wish to make to the property. This option eliminates the need to finance the renovations or improvements separately. Some conditions apply. For information on mortgage loan insurance premiums see high-ratio home mortgage financing.

Can I use gift funds as a down payment?

Most lenders will accept down payment funds that are a gift from family as an acceptable down payment. A gift letter signed by the donor is usually required to confirm that the funds are a true gift and not a loan. where the mortgage requires mortgage loan insurance, Canada mortgage and housing corporation requires the gift money to be in the purchaser’s possession before the application is sent in to them for approval. where mortgage loan insurance is provided by GE Capital this is not a requirement. See ‘what is mortgage loan insurance?’ for further information.

What is a pre-approved mortgage?

A pre-approved mortgage provides an interest rate guarantee from a lender for a specified period of time and for a set amount of money. The pre-approval is calculated based on information provided by you and is generally subject to certain conditions being met before the mortgage is finalized. Conditions would usually be things like ‘written employment and income confirmation’ and ‘down payment from your own resources’, for example. Most successful real estate professionals will want to ensure you have a pre-approved mortgage in place before they take you out looking for a home. This is to ensure that they are showing you property within your affordable price range. In summary, a pre-approved mortgage is one of the first steps a home buyer should take before beginning the buying process.

What is the target overnight rate?

The target overnight rate is a key Bank of Canada-controlled interest rate used as a basis for one-day (or ‘overnight’) borrowing between the major lenders and financial institutions. This rate plays a pivotal role in influencing the economy.

What is a down payment?

Very few home buyers have the cash available to buy a home outright. Most of us will turn to a financial institution for a mortgage the first step in a potentially long-standing relationship. But even with a mortgage, you will need to raise the money for a down payment. The down payment is that portion of the purchase price you furnish yourself. The amount of the down payment (which represents your financial stake, or the equity in your new home) should be determined well before you start house hunting. The larger the down payment, the less your home costs in the long run. With a smaller mortgage, interest costs will be lower and over time this will add up to significant savings.

How can you pay off your mortgage sooner?

There are ways to reduce the number of years to pay down your mortgage. You’ll enjoy significant savings by: Selecting a non-monthly or accelerated payment schedule Increasing your payment frequency schedule Making principal prepayments Making Double-Up Payments Selecting a shorter amortization at renewal

How can you use your RRSP to help you buy your first home?

Today, about 50% of first-time home buyers use their RRSP savings to help finance a down payment. If you are a first-time home buyer, the Home Buyers’ Plan (HBP) allows you to withdraw money from your Registered Retirement Savings Plan (RRSP) tax-free to make your down payment. The HBP is administered by the Canada Revenue Agency (CRA). There are certain conditions you must meet to be eligible for the HBP. For more information, contact CRA at www.cra.gc.ca.

What are the costs associated with buying a home?

First and foremost, you have to make sure you have enough money for a down payment – the portion of the purchase price that you furnish yourself. Secondly, you will require money for closing costs. If you want to have the home inspected by a professional building inspector – which we highly recommend – you will need to pay an inspection fee. The inspection may bring to light areas where repairs or maintenance are required and will assure you that the house is structurally sound. Usually the inspector will provide you with a written report. If they don’t, then ask for one. You will be responsible for paying the fees and disbursements for the lawyer or notary acting for you in the purchase of your home. We suggest you shop around before making your decision on who you are going to use, because fees for these services may vary significantly. There are closing and adjustment costs, interest adjustment costs between buyer and seller and (depending on where you live) land transfer tax – a one-time tax based on a percentage of the purchase price of the property and/or mortgage amount. Finally, you will be required to have property insurance in place by the closing date. And you will be responsible for the cost of moving. Remember, there will be all kinds of things you’ll have to purchase early on – appliances, garden tools, cleaning materials etc. So factor these expenses into your initial costs.

What should the length of my mortgage term be?

The length of mortgage terms varies widely. As a rule of thumb, the shorter the term, the lower the interest rate the longer the term, the higher the rate. While four or five year mortgages are what most home buyers typically choose, you may consider a short-term mortgage if you have a higher tolerance for risk, if you have time to watch rates or are not prepared to make a long-term commitment right now. Before selecting your mortgage term, we suggest you answer the following questions: 1. Do you plan to sell your house in the short-term without buying another? If so, a short mortgage term may be the best option. 2. Do you believe that interest rates have bottomed out and are not likely to drop more? If that’s the case, a long mortgage term may be the right choice for you. Similarly, if you think rates are currently high, you may want to opt for a short to medium length mortgage term hoping that rates drop by the time your term expires. 3. Are you looking for security as a first-time home buyer? Then you may prefer a longer mortgage term, so that you can budget for and manage your monthly expenses. 4. Are you willing to follow interest rates closely and risk their being increased mortgage payments following a renewal? If that’s the case, a short mortgage term may best suit your needs.

What are the monthly costs of owning a home?

Needless to say, you’ll have financial responsibilities as a home owner. Some of them, like taxes, may not be billed monthly, so do the calculations to break them down into monthly costs. Below you will find a list of these expenses. The Mortgage Payment For most home buyers, this is the largest monthly expense. The actual amount of the mortgage payment can vary widely since it is based on a number of variables, such as mortgage term or amortization. Property Taxes Property tax can be paid in two ways – remitted directly to the municipality by you, in which case you may be required to periodically show proof of payment to your financial institution; or paid as part of your monthly mortgage payment. School Taxes In some municipalities, these taxes are integrated into the property taxes. In others, they are collected separately and are payable in a single lump sum, usually due at the end of the current school year. Utilities As a home owner, you’ll be responsible for all utility bills including heating, gas, electricity, water, telephone and cable. Maintenance and Upkeep You will also have to cover the cost of painting, roof repairs, electrical and plumbing, walks and driveway, lawn care and snow removal. A well-maintained property helps to preserve your home’s market value, enhances the neighbourhood and, depending on the kind of renovations you make could add to the worth of your property.

Should you go with a short or long-term mortgage?

A longer-term mortgage is worth considering if you have a busy life and don’t have time to watch mortgage rates. Our 4, 5 and 7-year mortgages let you take advantage of today’s rates, while enjoying long-term security knowing the rate you sign up for is a sure thing. If you want to keep your mortgage flexible right now, you can explore a shorter-term mortgage that usually allows you to take advantage of lower rates and save.

What is a fixed rate mortgage?

The interest rate on a fixed-rate mortgage is set for a pre-determined term – usually between 6 months to 25 years. This offers the security of knowing what you will be paying for the term selected.

What is a variable rate mortgage?

A mortgage in which payments are fixed for a period of one to two years although interest rates may fluctuate from month to month depending on market conditions. If interest rates go down, more of the payment goes towards reducing the principal; if rates go up, a larger portion of the monthly payment goes towards covering the interest. Open variable rate mortgages allow prepayment of any amount (with certain minimums) on any payment date.

What is a home inspection and should I have one done?

A home inspection is a visual examination of the property to determine the overall condition of the home. In the process, the inspector should be checking all major components (roofs, ceilings, walls, floors, foundations, crawl spaces, attics, retaining walls, etc.) and systems (electrical, heating, plumbing, drainage, exterior weather proofing, etc.). The results of the inspection should be provided to the purchaser in written form, in detail, generally within 24 hours of the inspection. A pre-purchase home inspection can add peace of mind and make a difficult decision much easier. It may indicate that the home needs major structural repairs which can be factored into your buying decision. A home inspection helps remove a number of unknowns and increases the likelihood of a successful purchase.

Links of Interest

Equifax compiles credit reporting data from many sources and creates a credit file that reflects your personal credit history including your FICO score. Now you can view your credit report online enabling you to monitor your credit and monitor your score while protecting yourself from identity theft.  Before making major purchases, such as buying a home or car, you can see exactly what information is available to potential lenders.

www.equifax.ca

Genworth Financial assists families with mortgages, protects families through insurance and helps customers secure their financial future.

www.genworth.ca

Backed by 60 years of experience, we work with community organizations, the private sector, non-profit agencies and all levels of government to help create innovative solutions to today’s housing challenges, anticipate tomorrow’s needs, and improve the quality of life for all Canadians.

www.cmhc.ca

Each year, the Municipal Property Assessment Corporation (MPAC) prepares an assessment roll for every Ontario municipality. The roll provides the assessed value of all the properties in a municipality or in the jurisdiction of a school board with taxing authority.

MPAC also prepares supplementary assessment lists, which municipalities use to add in-year tax revenue from new construction or major alterations to properties.

https://www.mpac.ca/

The Canada Revenue Agency (CRA) administers tax laws for the Government of Canada and for most provinces and territories; and various social and economic benefit and incentive programs delivered through the tax system.

www.cra-arc.gc.ca/menu-e.html

Trans Union Canada is another consumer credit reporting agency providing credit reporting services to Canadian consumers. Trans Union Canada is also a great source of credit-related information.

www.tuc.ca

The Bank of Canada is the nation’s central bank. It is responsible for Canada’s monetary policy, bank notes, financial system and funds management.

www.bankofcanada.ca

Appraisal Institute of Canada is the premier real estate appraisal association in Canada. The institute is a self-regulating body whose mission is to protect the public interest by ensuring highest standards, practices and professional conduct in real estate appraisals.

www.aicanada.ca