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16 Dec

This vs That – Volume 3


Posted by: Jeff Parsons

Trilogy is a set of three works of art that are connected and that can be seen as a single work of art or as three individual pieces. I pulled this definition from WIKIPEDIA. I wouldn’t quite go as far to say this series was ‘work of art,’ the only thing I did find comparable with the meaning was this could be read as a series or they can stand alone separately. Anyway, you can read Volume 1 here and Volume 2 here to complete the trilogy of mortgage terminology.

Consumer Proposal vs Bankruptcy

A consumer proposal is a formal, legally binding process that is administered by a bankruptcy trustee. The trustee will work to develop a plan or an offer to pay creditors a percentage of what is owed, or extend time you have to pay off the debt…or both. The concept of personal bankruptcy in Canada is to assign or surrender everything you own to a Trustee in exchange for the elimination of your debts. This is governed by federal law, the law is designed to permit an honest but unfortunate debtor to obtain relief from his or her debts while treating creditors equally and fairly with a fresh start. Debt must be insolvent; a minimum of $1,000 owing and able to meet ones debts as they are due to be paid. You may be entitled to an automatic discharge from personal bankruptcy in 9 months, the minimum time set by the Court to be bankrupt, provided you have never been bankrupt before and you complete various duties and responsibilities.

Monoline Lenders vs Chartered Banks

A monoline lender is a mortgagee that only processes mortgage applications; mono is the numerical prefix representing anything single, meaning one. Monoline lenders do not have other products that they cross sell and try to bundle with their mortgage product, they only provide financing solutions. Most monolines back-end insure or securitize their mortgages instead of keeping them on their balance sheet. This allows them to sell the asset to an investor. Monoline lenders are quite restrictive because they are back-end insured by CMHC, Canada Guaranty or Genworth therefore, their tolerance for exceptions on the debt service ratios is extremely limited.

Chartered banks are quite the opposite. They are a full-service financial portal offering everything from savings/chequing accounts, to investment opportunities to personal loans and of course mortgage financing. Their mortgage lending services are always cross-sold with other in-house banking products. Another major difference to mention is how each entity calculates the Interest Rate Differential (IRD) penalty.

Monoline lenders utilize the PUBLISHED RATE METHOD and banks use the POSTED RATE METHOD. Be sure to have the mortgage provider explain the IRD penalty calculation in detail. The different calculations can amount to a difference of thousands of dollars. Monoline lenders typically offer more competitive rates from the start, as their overhead and operating costs are substantially lower than Banks. These lower operating costs are passed onto the consumer as an interest savings. Banks will usually match the rate if challenged, but it’s not profitable.

Conventional vs High Ratio Mortgage

These are two terms that Mortgage Brokers and bankers use to categorize two types of mortgages, ones that require mortgage insurance and ones that do not. For a mortgage file to be deemed conventional, the borrower must demonstrate that they can put a minimum of 20% of the purchase price or 20% of the market value down. Mortgages that fall into the high ratio category are utilizing 19.99% down payment or less to a minimum of 5%. These mortgage applications require a third party to insurance to protect against future potential default. The most recognizable mortgage insurer is CMHC but there are 2 other privately operated organizations called Canada Guaranty and Genworth.

HELOC (Home Equity Line of Credit) vs LOC (Line of Credit)

Similar but different, both being securitized by the subject property. The HELOC is described as a multi-segmented mortgage product utilizing various types of mortgages; variable, fixed and line of credit product all registered against title as one charge. For example if one had a $300,000 HELOC product they could slice it up into three different segments, each totaling $100,000. A LOC is a single segment standing on its own as a charge against the title. Both allow for easy access to funds at any given time. A LOC is a great mortgage vehicle for someone in the growth stage of the financial cycle, which can be defined as young families with kids in school buying their first home that may require some renovations. As the mortgage consumer progresses into stage two and three of their financial life cycle, one may want to convert the LOC into a standard mortgage with structured payment amortized over a period of time.

Home Inspection vs Home Appraisal

I often come across clients that use these terms incorrectly, referring to the appraisal as the inspection and vice versa. An inspection is the careful examination or scrutiny of the subject property with the main purpose to uncover defects. An appraisal is used to determine the market value of real estate to lend against. This process involves comparing historical sales of the same product to the subject property.

Reverse Mortgage vs Standard Mortgage

A Reverse Mortgage is a mortgage product that allows any home owner 55 years or older to borrow money against the value of their property. It can be deemed a financial planning tool to assist with retirement or assisting loved ones with their own personal finances. The mortgage payments are 100% deferred until they die, sell or move. Simply put, a standard mortgage is the opposite of the a reverse mortgage. Standard mortgage products require a principle and interest payment on a regular frequency; monthly, weekly, bi-weekly or semi-monthly. Over time the equity or ownership stake will shift from the lender to the deed holder.

As always, if you are looking for help with your mortgage, we here at Dominion Lending Centres would love to chat with you!


Michael Hallett

Dominion Lending Centres – Accredited Mortgage Professional