Mortgage Glossary

A

Acceleration

This is an expression that is usually used when a person chooses to pay a mortgage on a weekly or a bi-weekly basis although it can apply to any repayment program. All mortgages are drawn with a requirement that you make payments monthly, however, the bank will usually agree to administer one half of the required monthly payment each bi-weekly period, you are paying the equivalent to one extra monthly payment per year and therefore paying off your mortgage more quickly. If you chose to pay weekly and pay one quarter of a monthly payment each weekly period you get the same benefit.

Additional Interest

The amount sometimes charged by the bank when you prepay principal or renegotiate the terms of your mortgage. The amount compensates the bank for loss of revenue.

Agreement of Purchase and Sale

A legal agreement that offers a certain price for a home. The offer may be firm (no conditions attached), or conditional (certain conditions must be fulfilled before the deal can be closed).

Amortization:

With a mortgage, the borrower agrees to pay back the amount borrowed over a period of time. This breaking of the loan into smaller parts to be paid back over uniform blocks of time is amortization.

Amortization Period

The actual number of years it will take to repay a mortgage in full. This period can be longer than the loan’s term. For example, a mortgage may have a five-year term and a 25-year amortization period.

Appraisal

A process which determines the market value of property. This will usually be performed by a professional appraiser who will prepare a comprehensive report complete with photographs of the home.

Appraisal Value

An estimate of the market value of the property.

Assets

The things of value that you own, such as your home, car or summer home.

Assumable

When a mortgage is assumable, a buyer may take over the responsibilities and benefits of the sellers’ existing mortgage. This may be advantageous to a buyer if the interest rate on the mortgage is below the current market rates. Before assuming a mortgage, approval must be obtained from the lender.

B

Blended Rate Mortgage

A mortgage that combines the amount the borrower owes under an existing mortgage with additional mortgage money required by the borrower. The interest rate for the new amount borrowed is a “blend” – or combination – of the interest rate of the old mortgage and the interest rate for the additional amount to be borrowed.

Blended Payment

A mortgage payment that includes both interest and principal repayment. The amount of interest taken from each payment reduces while the amount applied to principal reduction increases over time, but the payment remains constant.

Bridge Financing

A loan made for a short term, to “bridge” (or cover) the time gap between completing the purchase of one property and finalizing arrangements to pay for it. The need for this type of financing often results from mismatched closing dates.

C

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.

Carrying Costs

The expenses of living in and maintaining a home and property. This includes mortgage payments, property taxes, heating, repairs, maintenance fees, etc.

Certificate of Location or Survey

A document specifying the exact location of the building on the property and describing the type and size of the building including additions, if any.

Certificate of Search or Abstract of Title

A document setting out instruments registered against the title to the property, e.g. deed, mortgages, etc.

Closed Mortgage

A mortgage may be an open or closed mortgage. An open mortgage usually charges a higher interest rate but may be paid off at any time without penalty while a closed mortgage may not be paid off during the term without penalty. Be careful as some mortgages may not be paid off even with a penalty before the maturity date. See also Prepayment Penalty and Maturity Date.

Closing Costs

Expenses, in addition to the purchase price of the home, that are payable on completion date.

CMHC or GENWORTH Insurance Premium

Mortgage insurance insures the lender against loss in case of default by the borrower. Mortgage insurance is provided to the lender by CMHC or GENWORTH and the premium is paid by the borrower.

Collateral Mortgage

A loan evidenced by a promissory note and backed by the collateral security of a mortgage on a property. The money borrowed is generally used for a purpose other than the purchase of a home, such as a vacation or home renovations.

Commitment Letter

Written notification from the lender to the borrower that approves the mortgage request and which should include the amount of the mortgage, interest rate, payment and all terms and conditions.

Completion Date

The date on which your purchase will complete and money will change hands between you and the sellers.

Conditional Offer

An offer to purchase subject to conditions. These conditions may relate to financing, or the sale of an existing home. Usually a time limit in which the specified conditions must be satisfied is stipulated.

Conventional Mortgage

A mortgage loan up to a maximum of 80% of the purchase price is referred to as a conventional mortgage. Any mortgage in excess of 80% must be insured against default.

Convertible Mortgage

A mortgage that may be prepaid or changed to another term at any time.

D

Deed (Certificate of Ownership)

The document signed by the seller transferring ownership of the home to the purchaser. This document is then registered against the title to the property as evidence of the purchaser’s ownership of the property.

Default

Failure to repay an outstanding debt as agreed.

Deposit

A sum of money deposited in trust by the purchaser when making an offer to be held in trust by the vendor’s agent, lawyer or notary until the closing of the transaction.

E

Equity

The interest of the owner in a property over and above all claims against the property. It is usually the difference between the market value of the property and any outstanding encumbrances.

F

Fire Insurance

Before a mortgage can be advanced, the purchaser must have arranged fire insurance. A certificate or binder from the insurance company may be required on closing.

Firm Offer

An offer to buy the property as outlined in the offer to purchase with no conditions attached.

First Mortgage

A mortgage that is registered first against the property. This mortgage has to be paid first in the event of sale or default.

Fixed-Rate Mortgage

A mortgage for which the rate of interest is fixed for a specific period of time (the term).

Floating Rate Mortgage

Another name for variable rate mortgage.

Foreclosure

A legal procedure whereby the lender eventually obtains ownership of the property after the borrower has defaulted on payments.

G

Gross Debt Service Ratio (GDS)

The percentage of your gross income which you will be using to pay for the mortgage payment including property taxes. See also Total Debt Service Ratio. (TDS).

H

High Ratio Mortgage

A mortgage where you have a down payment of less that 20% of the purchase price. This type of mortgage must be insured against default. See also Conventional Mortgages.

Holdback

An amount of money required to be withheld by the lender during the construction or renovation of a house to ensure that construction is satisfactorily completed at every stage.

Home Equity

The difference between the price for which a home could be sold (market value) and the total debts registered against it.

I

Inspection

The examination of the house by a building inspector selected by the purchaser.

Interest

Interest is the cost of borrowing and is the amount paid on the money borrowed. It is represented as an annual percentage rate applicable to the mortgage.

Interest Adjustment Date

The date that the lender will start collecting interest. Your regular payments will commence one payment period after this date. For example, if you have chosen to make bi-weekly payments, your first payment will come due two weeks after the Interest Adjustment Date. When you sign your mortgage papers the bank will collect from you an “Interest Adjustment” which is a calculation of interest from the Completion Date to the Adjustment Date.

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.

J

K

L

Liabilities

What you owe, including taxes, mortgage, car loan and credit card balances.

Loan to Value Ratio

The amount of the mortgage expressed as a percentage of the value of the home. For example, if you wish to borrow $190,000 on a home you are buying for $200,000, the Loan to Value Ratio is 95%.

M

Maturity Date

The last day of the term of your mortgage agreement. On the Maturity Date the mortgage must be paid in full, renewed with the same lender or transferred to a new lender.

Maximum Rate

An alternative term for protected rate

Mortgage

A mortgage is actually a document which is registered in Land Titles Office and provides evidence that you have given your home as collateral to a lender to secure a loan. In practice, the loan itself is usually referred to as a mortgage.

Mortgage Disability Insurance

Insurance that pays your mortgage payments should you become ill or disabled and unable to work.

Mortgage Default Insurance

Government-backed or privately backed insurance protecting the lender against the borrower’s default on a high-ratio mortgage.

Mortgage Life Insurance

A form of reducing term insurance recommended for all mortgagors. If you die, have a terminal illness, or suffer an accident, the insurance can pay the balance owing on the mortgage. The intent is to protect survivors from the loss of their homes.

Mortgage Payment

The regular instalments made towards paying back the principal and paying interest on a mortgage.

Mortgage Term

The number of years or months over which you pay a specified interest rate. Terms usually range from six months to 10 years.

Mortgagee

The lender who provides a loan secured by a mortgage.

Mortgagor

A person who takes out a loan which is secured by a mortgage.

Multiple Listing Service (MLS)

A computer-based system for relaying information to real-estate agents about properties for sale.

N

Net Worth

The difference between what you own (assets) and what you owe (liabilities) is called your net worth.

O

Open Mortgage

A mortgage which can be prepaid at any time, without penalty.

Open Variable Mortgage

A variable rate mortgage in which the interest rate varies with money market conditions. You may prepay or renegotiate an Open Variable mortgage at anytime without additional interest.

P

P.I.T.

Principal, interest and taxes. Together, these make up the regular payment on a mortgage if you elect to include property taxes in your mortgage payments.

Portable

A portable mortgage is a mortgage that can be transferred from one property to another. This is particularly useful if you sell one home and buy another.

Porting

This allows you to move to another property without having to lose your existing interest rate. You can keep your existing mortgage balance, term and interest rate plus save money by avoiding early discharge penalties.

Pre-Approved Mortgage

A mortgage for a set maximum amount and interest rate that is arranged prior to the purchaser finding a house. Often arranged prior to shopping for a home, this option can help the purchaser establish an affordable price range. Also known as a pre-arranged mortgage

Prepayment Option

The ability to prepay all or a portion of the principal balance. Prepayment charges may be incurred on the exercise of prepayment options.

Prepayment Penalty

Unless it is open, the mortgage may not be paid off before the Maturity Date without paying a Prepayment Penalty. Be very careful when negotiating a mortgage as some mortgages cannot be paid off at all before the Maturity Date. See also Closed Mortgages and Maturity Date.

Prepayment Privilege

When you negotiate a closed mortgage, you are entering into an agreement with the lender that you will not pay off the mortgage during the term. In return, the lender agrees to maintain the same interest rate throughout the term. However, most mortgages allow certain prepayment privileges such as an annual prepayment of a certain percentage of the mortgage amount or an annual increase in the mortgage amount. An open mortgage will usually cost more but allows you to repay the mortgage in full or in part at any time without penalty.

Principal

The amount of money actually borrowed.

Q

R

Rate (Interest)

The annual percentage amount charged in return for borrowing funds.

Realtor

A real estate professional who is a member of a local real estate board and the Canadian Real Estate Association.

Refinancing

Renegotiating your existing mortgage agreement. May include increasing the principal or paying out the mortgage in full.

Renewal

At the end of a mortgage term, the mortgage may “roll over” on new terms and conditions acceptable to both the lender and the borrower. This is known as renewing a mortgage. Otherwise, the lender is entitled to be repaid in full. In this case, the borrower may seek alternative financing.

S

Second Mortgage

A mortgage granted when there is already a mortgage registered against a property. If the borrower defaults and the property is sold, the second mortgage is paid after the first.

Security

In the case of mortgages, real estate offered as collateral for the loan.

Survey

A certificate showing the home and other buildings relative to the property boundary.

T

Term

The length of time that the lender guarantees the interest rate. At the end of the term, the mortgage comes up for re-negotiation. See also Maturity Date.

Title

The legal evidence of ownership to a property.

Title Search

A detailed examination of the registered title documents to ensure there are no liens or other encumbrances, or claims, on the property, and no question regarding the seller’s statement of ownership.

Total Debt Service Ratio(TDS)

The percentage of your gross income which you will be using to pay for the mortgage payment including property taxes and all other debt payment such as credit cards and bank loans.

U

V

Variable Rate Mortgage

A mortgage for which the rate of interest may change if other market conditions change. This is sometimes referred to as a floating rate mortgage.

Vendor

The seller in a real estate transaction.

W

X

Y

Z