When you are purchasing a new condominium unit, the developer is legally required to provide a copy of any mortgage or proposed mortgage that affects the title to the unit. Alternatively, a developer can provide a notice with the following information:
- the maximum principal amount available under the mortgage;
- the maximum monthly payment that may be paid under the mortgage;
- the amortization period;
- the term;
- the interest rate (or the formula for determining the interest rate); and
- any prepayment privileges.
What do these terms mean?
Principal: The amount of money a buyer borrows to purchase a property.
Amortization Period: Length of time required to pay off the mortgage in full. The amortization period will impact how much interest you pay over the lifetime of the mortgage.
Term: The length of the current mortgage agreement. Many mortgage agreements have a three to five year term with an amortization period of 25 years. For the term, there may be a set interest rate and certain rules around how much can be paid on the mortgage every month. Once the term expires, you either have to enter into a new term agreement or pay back the mortgage in full. If you enter into a new agreement, you may be able to renegotiate the interest rate and rules around repayment.
Interest Rate: This is the amount the lender charges for loaning you the principal amount (the money you borrowed to pay for the property). The interest rate will usually vary by term agreement and may be renegotiated when a term comes to an end.
Prepayment Privileges: Some mortgages will allow you to make extra payments to pay off the mortgage early. However, some mortgages come with a financial penalty if prepayments are made. It is important to consider whether you will want this option available.
Thank you to the Alberta Real Estate Association for allowing portions of their Condominium A to Z course manual to be adapted for use in this section.
Where to go for more information
It is important to educate yourself about mortgages before you purchase a property. Visit the Government of Canada’s Financial Consumer Agency for detailed information about mortgages. If you’re buying your first home, the Financial Consumer Agency’s Mortgages 101 is a great place to start.
Last updated: September 2015
