What Credit Score Should You Have?

by Jean Folger

A credit score is a number that helps lenders evaluate a person's credit report and estimate his or her credit risk. The most common credit score is the FICO score, named after software developer Fair Isaac and Corporation. A person's FICO scores are provided to lenders by the three major credit reporting agencies — Experian, TransUnion and Equifax — to help lenders evaluate the risks of extending credit or loaning money to people.

A person's credit score affects his or her ability to qualify for different types of credit and varying interest rates. A person with a high credit score may qualify for a 30 year fixed-rate mortgage with 3.8% annual percentage rate (APR). On a $300,000 loan, the monthly payment would be $1,398. Conversely, a person with a low credit score, assuming he or she qualifies for the same $300,000 mortgage, may pay 5.39% on the loan, with a corresponding monthly payment of $1,683. That's an additional $285 per month, or $102,600 over the life of the mortgage, for the person with a lower credit score.
Unfortunately, we don't start with a clean slate as far as credit scores are concerned. Individuals have to earn their good numbers, and it takes time. Even when all other factors remain the same, a person who is younger will likely have a lower credit score than an older person. That's because the length of a credit history accounts for 15% of the credit score. Young people can be at a disadvantage simply because they do not have the depth or length of credit history as older consumers.
Factors That Affect Credit Scores
Five factors are included and weighted to calculate a person's FICO credit score:

• 35%: payment history
• 30%: amounts owed
• 15%: length of credit history
• 10%: new credit and recently opened accounts
• 10%: types of credit in use
It is important to note that FICO scores do not take age into consideration, but they do weight the length of credit history. Even though younger people may be at a disadvantage, it is possible for people with short histories to get favorable scores depending on the rest of the credit report. Newer accounts, for example, will lower the average account age, which in turn could lower the credit score. FICO likes to see established accounts. Young people with several years worth of credit accounts and no new accounts that would lower the average account age can score higher than young people with too many accounts, or those who have recently opened an account.
Average Credit Scores by Age
FICO scores range from a low of 300 to a high of 850 — a perfect credit score which is achieved by only 1% of consumers. Generally, a very good credit score is one that is 720 or higher.

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This score will qualify a person for the best interest rates possible on a mortgage and most favorable terms on other lines of credit. If scores fall between 580 and 720, financing for certain loans can often be secured, but with interest rates rising as the credit scores fall. People with credit scores below 580 may have trouble finding any type of legitimate credit.
Based on data compiled by Credit Karma, there is a correlation between age and average credit scores, with scores rising along with age. According to their data, the average credit score by age is as follows:

Age	Credit Score
18-24	638
25-34	652
35-44	659
45-54	685
55+	724

Keep in mind, these are averages based on limited sampling of data, and many individuals' credit scores will be above or below these averages for a variety of reasons. A twenty-something, for example, could have a credit score above 800 by making careful credit decisions and paying bills on time. Likewise, a person in his or her 50s could have a very low credit score because he or she took on too much debt and made late payments. The FICO credit scores take all five factors into consideration.
The Bottom Line
The Experian National Credit Index study helps explain how the behavior of certain age groups can affect average credit scores. The study found that people in the 18-39 age group had the greatest number of late payments during the previous 12 months; that the 40-59 age group held the greatest amount of debt; and the 60+ age group had the lowest average credit utilization (used the least amount of credit that was available to them).
Though it is not unheard of for a young person to have a stellar credit score, more commonly these ratings rise as people acquire credit, make careful credit decisions, pay bills on time, and gain depth and length in their credit histories.

Copyrighted, Copyright © 2010 Investopedia ULC. All rights reserved.

The Incredibly Shrinking Variable Discount

Just weeks ago you could find variable-rate mortgages at prime – 0.80% (P-.80%) or better. Consumers thought they were here to stay, but the tables turned…fast.
Economic troubles and lender profit motives have shrunken variable discounts beyond expectations. Banks are now commonly quoting prime rate, for example, with little discounting.
Once the last few holdout lenders with P-.50% disappear, discounted variables could move towards P-.25%…or worse. Some lenders even suggest that prime or prime plus could be the new normal.
Meanwhile, aggressive brokers are selling five-year fixed rates at 3.25% or less. That’s an unusually low 50 basis point premium to a variable. A spread that tight doesn’t come around often, and it makes you rethink all of the research suggesting variables are the way to go.

Popular research indicates that people have saved money on variable-rate mortgages:

• 88.6% of the time:
  • Source: Floating Your Way to Prosperity, 2001, Moshe Milevsky, PhD; Study period: 1950-2000
• 90.1% of the time:
  • Source: Moving Mortgages, 2008, Moshe Milevsky, PhD; Study period: 1950-2008
• 83% of the time:
  • Source: Variable Rate Roller Coaster Still Hard to Beat, 2011, Douglas Porter and Benjamin Reitzes, BMO; Study period: 1975-2011

Odds like that make some people question the sanity of going fixed.
But there’s a little more to the story.
While variables have cost less than 5-year fixed mortgages a majority of the time in the past, favourites don’t win every game.
More importantly, assumptions are key when it comes to rate studies. Two important factors have impacted the research quoted above:

1. A multi-decade bias towards falling rates
2. Use of posted rates (instead of discount rates)

“Interest rates have been trending downward for two decades,” BMO Capital Markets Senior Economist Benjamin Reitzes told us in a recent interview. By default, he says, that’s tilted the table more in favour of variables than it otherwise would be.
Looking ahead, rates are no longer able to drop over one percent. The most we can realistically hope for is an extended period of horizontal rate movement. (The BoC can still cut rates slightly, but the European and American crises and sub-2% core inflation won’t delay hikes forever.)
As a result, Reitzes says, “Going forward, borrowers won’t see the same advantage to variable rates as they have in the past 25 years”
The second factor that’s largely ignored when citing rate research is the actual mortgage rates used for backtesting. Each of the three studies above uses posted rates in their historical analysis.
Reitzes states that this practice distorts the results somewhat. “Discounts off posted rates were not as prevalent historically.” Nowadays, however, “Most people get a (rate) discount if they are credit-worthy borrowers.”
That matters, because the rate discount you get obviously impacts the likelihood of your mortgage outperforming other options.
Here’s an example.

• If you look at data from 1970 to 1995, the average difference (spread) between 5-year fixed and variable rates was 126 basis points.*
• The average difference today is roughly 50 basis points.

That’s a remarkable 76 basis points lower than historical rate spreads. That makes a huge difference in research conclusions.
If you theoretically backtested with the same spreads as today (i.e., 25 bps off prime for variables and 204 bps off posted for 5-year fixeds), you’d find that fixed rates outperform considerably more often.
According to Milevsky, “…The historical probability of doing better with the floating rate mortgage…hovered around 70% to 80%” when the borrower used deep discount rates (based on a 1965-2000 study period).
Using today’s discounts, that 70-80% drops to just 53%, based on our findings from 1970 to 2006. (Obviously today’s spreads would not have applied historically but, as Milevsky maintained in his research above, that is beside the point.)
In other words, the fixed/variable decision would have been a coinflip, based on today’s spreads.

(Click to enlarge)
This isn’t meant to imply that fixed rates now have an insurmountable edge. If the Bank of Canada drops rates unexpectedly, a variable could easily beat all other terms over the next five years.
A variable may also prevail for other reasons. See:

• The Fixed/Variable Mortgage Conundrum
• IDEAS for Choosing Fixed or Variable

That said, if the BoC’s next rate move is up (which is the highest probability outcome, say economists), the boring old 5-year fixed could certainly outperform. That’s true even when compared to a variable with payments set at the 5-year fixed rate. (We’ll post a scenario like this soon.)
The nice part is this: If you go fixed and variables end up winning, you’ll likely be out far less money than in most prior years.

---

* Data source: Bank of Canada. (We chose 1970-1995 because 1970 is as far back as we have clean 5-year fixed rate data, and 1995 was before rate discounting started taking off. Yes, people actually used to pay posted rates.)
Note: If you’re already in a discounted variable, the conclusions drawn here may not apply to you. For guidance on locking in, always consult a mortgage professional.

---

Rob McLister, CMT

6 Credit Report Items That Scare Lenders

You pay your bills on time and never miss a payment. If you're still having trouble with credit, something on your credit report could be scaring lenders. Everyone knows the big gremlins that haunt credit reports: items such as bankruptcies, foreclosures and even late or missed payments. Less dramatic items can also spark some anxiety in skittish lenders. When you apply for a loan or a card account, lenders review your credit score and pull your credit report. Or they may take that report and pump it through one of their own scoring systems. If they don't like what they see, you could be rejected. Or you may get approved with less-favorable terms. And it isn't just new applicants who have to run the gauntlet. Credit card issuers periodically review their current customers' files, too. Even more confusing is that different lenders zero in on different credit report items. So it's entirely possible that, even for the same loan, no two lenders will see your credit history in exactly the same light. Think there could be something heinous lurking on your credit report? Here are six items that could scare lenders.  

1. Multiplying Lines of Credit Opening one new card is normal. Opening three in a short amount of time could signal something bad is going on in your financial life. When it comes to credit card issuers, "the account monitoring window has shrunk," says Norm Magnuson, vice president of public affairs for the Consumer Data Industry Association, the trade association for credit reporting companies. "It used to be months and months. Now you find companies doing account monitoring monthly or every other month." And the one thing those issuers don't want to see is that you're asking everyone in town to lend you money. "That would raise some questions," he says. "It could be an indicator of something that's going on. I don't think it's in the best interest of any consumer to go out there and be a collector of credit lines."

2. A Housing Short Sale "People are told short sales won't hurt their credit," says Maxine Sweet, vice president of public education for credit bureau Experian. "But there is no such thing as a 'short sale' in terms of how the sale is reported to us." "The way the account is closed out is that it is settled for a lesser amount than you agreed to pay originally," she says. "The status is 'settled.' And it's just as negative as a foreclosure." One tip: Negotiate so the lender doesn't report the difference between your mortgage and what you repaid as "balance owed" on your credit report, says John Ulzheimer, formerly of FICO, now president of consumer education for SmartCredit.com. Your credit score will take a heavyweight hit, but this action will slightly soften the blow, he says. Sweet's advice is not to discount the notion of a short sale, just go into it with your eyes open. "It may be the right decision to get out of the house," she says. It may be "better than a foreclosure in terms of the economy, moving the house and moving on with your life. Just don't expect to walk away with no impact to your credit history."

3. Someone Else's Debt Here's something you might not know: When you co-sign on the dotted line to help someone else get a loan or a card, that entire debt goes on your credit report. While the fact you've co-signed is neither good nor bad, it does mean that -- as far as any potential lenders are concerned -- you're carrying that debt yourself. And it will be included in your existing debt load when you apply for a home mortgage, credit card or any other form of credit, says Ulzheimer. And if the person you co-signed for stops paying, pays late or misses payments, that bad behavior will likely go on your credit report. So when someone tells you that co-signing is painless because you'll never have to part with a dime, you can tell them that's not true. Co-signing means agreeing not only to repay the obligation if necessary, but also to allow the debt -- and any nonpayment -- to count against you the next time you apply for credit yourself. Co-signing for a friend or family member "plays well at the Thanksgiving table, but it doesn't play well in the underwriting office," says Ulzheimer.

4. Minimum Payments While creditors make money when you carry a balance, lenders who view your credit report don't like to see you paying just the minimums. "It suggests you're under financial stress," says Nessa Feddis, vice president and senior counsel for the American Bankers Association. "You may be defaulting," she says. Paying minimums once in a while doesn't necessarily signal a problem, she says. For instance, paying minimums in January, after holiday spending. Or paying minimums one month as you wait for your annual bonus to arrive. But consistently paying minimums month after month signals that you can't pay off the full balance, and your current and future lenders will see that as a giant red "stop" sign when it comes to granting additional credit.

5. A Lot of Inquiries This is similar to soliciting a lot of new credit. When lending standards tightened, a lot of borrowers, especially subprime borrowers, were having trouble getting credit, says Sweet. That meant that they had to apply multiple times to try and get what they wanted. And, with the VantageScore at least, that "actually influenced the impact of inquiries -- they are more important than they used to be," she says. With the FICO score, the impact of inquiries has remained about the same, according to Ulzheimer. Every time you allow a potential lender to pull your credit report, your score can take a small hit. The exact impact varies with the consumer, the score and the number of inquiries. And if you're applying for a home, auto or student loan, you can minimize the damage by making all of your applications within a two-week period. When you do that, the score bundles all the similar inquiries and treats them as one. Unfortunately, there is no similar grace period for credit card applications. 6. Cash Advances "Cash advances, in many cases, indicate desperation," says Ulzheimer. "Either you've lost your job or are underemployed. Nobody takes out cash advances against a credit card because they want money sitting in a bank somewhere." Because the interest rate is generally higher than for the credit card charges, "you're generally borrowing from Peter to pay Paul," he says. How it hurts: First, the cash advance is immediately added to your debt balance, which lowers your available credit and can lower your credit score, says Ulzheimer. And all potential lenders will see your score. Second, larger card issuers regularly re-evaluate their customer's behavior. To do that they often pull the credit report, the FICO score and the customer's account history and put those three ingredients through their own scoring systems, says Ulzheimer. Many of the those scoring models penalize for cash advances, which are often seen as risky, he says. Since your account history is available only to that issuer, only your behavior score with that card is likely to be affected, he says. However, if the issuer slices your credit line or cancels your account, that could impact your credit score. And that could affect your relationship with other lenders.

5 Costly fees home buyers should not miss

5 Costly fees home buyers should not miss

Buying a home? In addition to setting up a mortgage, be aware of hidden costs like inspection fees, taxes, and more.

Buying a home is likely the biggest investment you'll ever make. So before losing your head over the perfect property this spring, try to get a handle on all the costs to protect your wallet.

I asked Jason Neumann, a Realtor with Century 21 Assurance Realty Ltd. in Kelowna B.C., to share five fees home buyers should not miss.

1. Home Inspection

Don't scrimp on your home inspection to save a little cash, advises Neumann. "It is a must-have service in my opinion, only because at the end of the day you could be buying a $400,000 house with a cracked foundation."

Home inspection rates can vary depending on location and property. Some inspectors charge $100 an hour while others bill by house size, and don't forget to add HST or GST to the total inspection tab. To be safe, budget around $400 to cover this essential cost.

"I try to advise the buyers: If you can spare the three hours, go through the process with your home inspector because they love to show you what they're finding," he says.

2. Legal Fees

Lawyers often draw up mortgage documents, deal with disbursements, search titles, tend to closing details, and more. Your total legal bill will depend on your location, the complexity of the sale, and the type of property being purchased. To get a handle on your legal fees, be sure to ask your lawyer for a solid estimate before buying a property since fees can range from $1,000 to well over $2,500.

3. Property Appraisal

Your lender may require a property appraisal at your expense, or could include this fee with your mortgage package. If you're paying out of pocket, expect to fork over at least $150.

"We find many banks are ordering appraisals regardless of list price or the last time one was done," says Neumann. "The appraisal is mandatory now because banks want to make sure they can qualify the amount, that it's substantiated, and there's not going to be a $100,000 'oops' in the equation."

4. Transfer Tax

Most Canadian home buyers should budget for the dreaded 'land transfer' or 'property transfer' tax -- this one could cost you up to two per cent of the market value of your new home. Transfer taxes are not charged in Alberta or Saskatchewan, but residents of Ontario and British Columbia should be prepared to pay around $5,000 for a modest home.

But exemptions are possible.

"A legitimate first-time home buyer [in B.C.] can get exemptions from the property transfer tax up to a maximum of $425,000," says Neumann.

And first-time home buyers in Ontario may qualify for the 'Land Transfer Tax Refund' by meeting these qualifications. See property transfer taxes across Canada for the graduated rates in your area.

5. Survey Certificate

Count yourself lucky if the seller has an up-to-date survey on record -- all other buyers should plan on spending at least $300 if your lender requires one, says Neumann.

Home Buying Glossary

Adjustable mortgage interest rate:

 

With an adjustable rate, both the interest rate and the mortgage payment vary, based on market conditions.

Amortization:

 

Length of time over which the debt will be repaid.

Appraisal:

 

Process for estimating the market value of a property.

Appraiser:

 

Certified professional who carries out an appraisal.

Appreciation:

 

The increase in value of something because it is worth more now than when you bought it.

Approved Lender:

 

A lending institution authorized by the Government of Canada through CMHC to make loans under the terms of the National Housing Act. Only Approved Lenders can negotiate CMHC insured mortgages.

Assumption Agreement:

 

A legal document signed by a homebuyer that requires the buyer to assume responsibility for the obligations of a mortgage by the builder or the previous owner.

Blended Payment:

 

A mortgage payment that includes principal and interest. It is paid regularly during the term of the mortgage. The payment total remains the same, although the principal portion increases over time and the interest portion decreases.

Builder:

 

A person or company that builds homes.

Carriage home:

 

A carriage, or link home, is joined by a garage or carport. The garage or carport gives access to the front and back yards. Builders sometimes join basement walls so that link houses appear to be single-family homes on small lots. These houses can be less expensive than single-family detached homes.

Certificate of location (or land survey):

 

A document that shows property boundaries and measurements, specifies the location of buildings on the property and states easements or encroachments.

Certificate of status:

 

Also called an Estoppel certificate, it is a certificate that outlines a condominium corporation's financial and legal state. Fees may vary and may be capped by law (does not apply in Quebec).

Closed mortgage:

 

A closed mortgage cannot be paid off, in whole or in part, before the end of its term. Many closed mortgages limit prepayment options such as increasing your mortgage payment or lump sum prepayment (usually up to 20% of your original principal amount).

Closing costs:

 

Costs in addition to the purchase price of the home, such as legal fees, transfer fees and disbursements, that are payable on closing day. They range from 1.5% to 4% of a home’s selling price.

Closing day:

 

Date on which the sale of the property becomes final and the new owner takes possession of the home.

CMHC:

 

Canada Mortgage and Housing Corporation. A Crown corporation that administers the National Housing Act for the federal government and encourages the improvement of housing and living conditions for all Canadians. CMHC also develops and sells mortgage loan insurance products.

CMHC Insurance Premiums:

 

The CMHC Mortgage Loan Insurance premium is calculated as a percentage of the loan and is based on the size of your down payment. The higher the percentage of the total house price/value that you borrow, the higher percentage you will pay in insurance premiums.

Commitment Letter (or Mortgage Approval):

 

Written notification from the mortgage lender to the borrower that approves the advancement of a specified amount of mortgage funds under specified conditions.

Compound Interest:

 

Interest calculated on both the principal and the accrued interest.

Conditional offer:

 

An Offer to Purchase that is subject to specified conditions, for example, the arrangement of a mortgage. There is usually a stipulated time limit within which the specified conditions must be met.

Condominium (or strata):

 

A unit, usually in a highrise or lowrise, or a townhouse that can be owned. You own the unit you live in and share ownership rights for the common space of the building. Common space includes areas such as corridors, the grounds around the building, and facilities such as a swimming pool and recreation rooms. Condominium owners together control the common areas through an owners’ association. The association makes decisions about using and maintaining the common space.

Contractor:

 

A person responsible for overall construction of a home, including buying, scheduling, workmanship, and management of subcontractors and suppliers.

Conventional mortgage:

 

A mortgage loan up to a maximum of 80% of the lending value of the property. Typically, the lending value is the lesser of the purchase price and market value of the property. Mortgage insurance is usually not required for this type of mortgage.

Counteroffer:

 

If your original offer to the vendor is not accepted, the vendor may counteroffer. This means that the vendor has amended something from your original offer, such as the price or closing date. If a counteroffer is presented, the individual has a specified amount of time to accept or reject.

Credit bureau:

 

A company that collects information from various sources and provides credit information on a person’s borrowing and bill paying habits to help lenders assess whether or not to lend money to the person.

Credit history or Credit Report:

 

The main report a lender uses to determine your creditworthiness. It includes information about your ability to handle your debt obligations and your current outstanding obligations.

Curb appeal:

 

How attractive the home looks from the street. A home with good curb appeal will have attractive landscaping and a well-maintained exterior.

Deed:

 

A legal document that is signed by both vendor and purchaser, transferring ownership. This document is registered as evidence of ownership.  

Default on payment:

 

Failure to make a mortgage payment.

Delinquency:

 

Failing to make a mortgage payment on time.

Deposit:

 

Money placed in trust by the purchaser when an Offer to Purchase is made. The sum is held by the real estate representative or lawyer/notary until the sale is closed and then it is paid to the vendor.

Depreciation:

 

The decrease in value of something because it is now worth less than when you bought it.

Down payment:

 

The portion of the home price that is not financed by the mortgage loan. The buyer must pay the down payment from his/her own funds or other eligible sources before securing a mortgage.

Duplex:

 

A duplex is a building containing two single-family homes, located one above the other.

Easement:

 

This is where someone else has the right for access to or over another person’s land for a specific purpose, such as a driveway or public utilities.

Equity:

 

The difference between the price for which a home could be sold and the total debts registered against it. Equity usually increases as the mortgage is reduced through regular payments. Market values and improvements to the property may also affect equity.

Estoppel Certificate:

 

Also called a certificate of status, it is a certificate that outlines a condominium corporation's financial and legal state. Fees may vary and may be capped by law (does not apply in Quebec).

Fixed mortgage interest rate:

 

A locked-in rate that will not increase for the term of the mortgage.

FlexHousing™:

 

A housing concept that incorporates, at the design and construction stage, the ability to make future changes easily and with minimum expense, to meet the evolving needs of its occupants.

Foreclosure:

 

The legal process where the lender takes possession of your property and sells it to cover the debts you have failed to pay off. When you default on a loan and the lender feels that you are unable to make payments, you may lose your home to foreclosure.

Freehold :

 

Ownership of land and buildings (house) by one person (or two, such as joint ownership by spouses). Detached and semi-detached homes, duplexes and townhouses are usually owned freehold. Freehold owners can do what they want with their property — up to a point. They must obey municipal bylaws, subdivision agreements, building codes and federal and provincial laws, such as those protecting the environment.

Gross Debt Service Ratio (GDS):

 

The percentage of the borrower's gross monthly income that will be used for monthly payments of principal, interest, taxes and heating costs (P.I.T.H.) and half of any condominium maintenance fees.

Gross monthly income:

 

Monthly income before taxes and deductions.

High-ratio mortgage:

 

A mortgage loan higher than 80% of the lending value of the property. This type of mortgage may have to be insured — by CMHC, for example — against payment default.

Home inspector:

 

A person who visually inspects a home to tell you if something is not working properly,  or is unsafe. He or she will also tell you if repairs are needed, and maybe even where there were problems in the past.

Home warranty:

 

(New Home Warranty Program) A guarantee that if something covered under the warranty needs to be repaired it will be. If the builder doesn’t repair it, the repair will be made by the organization that provided the warranty.

Household budget:

 

A plan that allocates income for household expenses.

Insurance:

 

insurance provides coverage to ensure a loan is paid. See also Mortgage Loan Insurance and Mortgage Life Insurance.

Insurance premium:

 

Payment for insurance.

Interest:

 

The cost of borrowing money. Interest is usually paid to the lender in regular payments along with repayment of the principal (loan amount).

Interest rate:

 

The price paid for the use of money borrowed from a lender.

Land registration:

 

A legal document that records the ownership of a property and land.

Land survey:

 

(Survey or Certificate of Location) : A document that shows property boundaries and measurements, specifies the location of buildings on the property and states easements or encroachments.

Land surveyor:

 

A professional who can survey a property in order to provide a certificate of location.

Lawyer:

 

A legal advisor who assists people by representing them on legal matters.

Lender:

 

A mortgage lender is an institution (bank, trust company, credit union, etc.) that lends money for a mortgage.

Life insurance:

 

See Mortgage life insurance.

Lien:

 

A claim against a property for money owing. A lien may be filed by a supplier or a subcontractor who has provided labour or materials but has not been paid.

Link home:

 

A link, or carriage home, is joined by a garage or carport. The garage or carport gives access to the front and back yards. Builders sometimes join basement walls so that link houses appear to be single-family homes on small lots. These houses can be less expensive than single-family detached homes.

Lump Sum Prepayment:

 

An extra payment, made in lump sum, to reduce the principal balance of your mortgage, with or without penalty. A closed mortgage typically restricts the amount and frequency of the prepayments you can make. With an open mortgage, however, you can make a lump sum prepayment at any time without penalty. Making prepayments can help you pay off your mortgage sooner and ultimately save on interest costs over the life of your mortgage.

Manufactured home:

 

Sometimes called a mobile home is a factory-built, single-family home. It is transported to a chosen location, and placed onto a foundation.

Maturity Date:

 

The last day of the term of the mortgage. On this day, the mortgage loan must either be paid in full or the agreement renewed.

Mobile home:

 

These are built in factories, and then taken to the place where they will be occupied. While these homes are usually placed in one location and left there permanently, they do retain the ability to be moved.

Modular Home:

 

A factory-built, single-family home. The home is typically shipped to a location in two, or more, sections (or modules).

Mortgage:

 

A mortgage is a security for a loan on the property you own. It is repaid in regular mortgage payments, which are usually blended payments. This means that the payment includes the principal (amount borrowed) plus the interest (the charge for borrowing money). The payment may also include a portion of the property taxes.

Mortgage approval:

 

Written notification from the mortgage lender to the borrower that approves the advancement of a specified amount of mortgage funds under specified conditions.

Mortgage broker:

 

The job of the mortgage broker is to find you a lender with the terms and rates that will best suit you.

Mortgage life insurance:

 

Mortgage life insurance gives coverage for your family, if you die before your mortgage is paid off.

Mortgage loan insurance:

 

If you have a nigh-ratio mortgage (more than 80% of the lending value of the property) your lender will probably require mortgage load insurance, which is available from CMHC or a private company.

Mortgage payment:

 

A regular payment to the lender that includes both the interest and the principal.

Mortgage term:

 

Length of time that the agreed-upon mortgage contract conditions, including interest rate, is fixed.

MLS — Multiple Listing Service:

 

A multiple listing service is a real estate agents’ cooperative service that contains descriptions of most of the homes that are for sale. Real estate agents use this computer-based service to keep up with properties they are listing for sale in their area.

Net worth:

 

Your financial worth, calculated by subtracting your total liabilities from your total assets.

New Home Warranty Program:

 

Coverage in the event that an item under the warranty needs to be repaired. If the builder doesn’t repair it, the repair will be made by the organization that provided the warranty.

Notary:

 

In Quebec a notary handles the legal matters related to homebuying.

Offer to purchase:

 

A written contract setting out the terms under which the buyer agrees to buy the home. If the Offer to Purchase is accepted by the seller, it forms a legally binding contract that binds the people who signed to certain terms and conditions.

Open mortgage:

 

A flexible mortgage that allows you to pay part before the end of its term.

Open-house:

 

A period of time during which a house or apartment for sale or rent is held open for public viewing.

Operating Costs:

 

The expenses that a homeowner has each month to operate a home. These include property taxes, property insurance, utilities, telephone and communications charges, maintenance and repairs.

Payment schedule:

 

The monthly, biweekly, or weekly mortgage payments

Premium:

 

See CMHC Insurance Premiums.

Principal:

 

The amount that you borrow for a loan. Each monthly mortgage payment consists of a portion of the principal that must be repaid plus the interest that the lender is charging you on the outstanding loan balance. During the early years of your mortgage, the interest portion is usually larger than the principal portion.

P.I.T.H.:

 

Principal, interest, taxes and heating — costs used to calculate the Gross Debt Service ratio (GDS).

Property Insurance:

 

Insurance that you buy for the building(s) on the land you own. This insurance should be high enough to pay for the building to be re-built if it is destroyed by fire or other hazards listed in the policy.

Property taxes:

 

Taxes charged by the municipality where the home is located based on the value of the home. In some cases the lender will collect a monthly amount to cover your property taxes, which is then paid by the lender to the municipality on your behalf.

Real estate:

 

Property consisting of houses and land.

Realtor or real estate agent:

 

A person who acts as an intermediary between the seller and the buyer of a property.

Reserve Fund:

 

This amount is set aside by the homeowner on a regular basis so that funds are available for emergency or major repairs. Setting aside 5% of your monthly take-home pay will give you a well-funded reserve.

Row house:

 

Also called a townhouse, a row house is one unit of several similar single-family homes, side-by-side, joined by common walls.

Security:

 

Property that can be claimed by a creditor if a loan is not repaid.

Single-family detached home:

 

Free-standing home for one family, not attached to a house on either side.

Single-family semi-detached home: 

 

Home for one family, attached to another building on one side.

Stacked townhouse:

 

Two two-story homes are stacked one on top of the other. The buildings are usually attached in groups of four or more. Each unit has direct access from the outside.

Strata (or condominium):

 

a unit, usually in a highrise or lowrise, or a townhouse that can be owned. You own the unit you live in and share ownership rights for the common space of the building. Common space includes areas such as corridors, the grounds around the building, and facilities such as a swimming pool and recreation rooms. Strata owners together control the common areas through an owners’ association. The association makes decisions about using and maintaining the common space.

Survey or Certificate of Location:

 

A document that shows property boundaries and measurements, specifies the location of buildings on the property and states easements or encroachments.

Sustainable neighbourhood:

 

Neighbourhood that meets residents needs while protecting the environment.

Total Debt Service (TDS) ratio:

 

The percentage of gross monthly income required to cover the monthly housing payments and other debts, such as car payments.

Term:

 

Mortgage term is the length of time that the mortgage contract conditions, including interest rate, are fixed.

Title:

 

A freehold title gives the holder full and exclusive ownership of the land and building for an indefinite period. A leasehold title gives the holder the right to use and occupy the land and building for a defined period.

Title Insurance:

 

Insurance against loss or damage caused by a matter affecting the title to immoveable property, in particular by a defect in the title or by the existence of a lien, encumbrance or servitude.

Total Debt Service Ratio (TDS):

 

The percentage of gross monthly income required to cover the monthly housing payments and other debts, such as car payments.

Townhouse:

 

Also called a row house, a townhouse is one unit of several similar single-family homes, side-by-side, joined by common walls.

Variable mortgage interest rate:

 

Fluctuates based on market conditions but the mortgage payment remains unchanged.

Vendor:

 

The seller of a property.

Vendor take-back mortgage (Sometimes called take-back mortgage):

 

The vendor, not a financial institution, finances the mortgage. The title of the property is transferred to the buyer who makes mortgage payments directly to the seller. These types of mortgages, can be helpful if you need a second mortgage to buy a home.

Warranty (New Home Warranty Program):

 

Coverage in the event that an item under the warranty needs to be repaired. If the builder doesn’t repair it, the repair will be made by the organization that provided the warranty. All provinces have New Home Warranty programs for newly built homes. However, there are currently no such programs in the Territories.