Mortgage Glossary

Amortization Period
The actual number of years it will take to repay the mortgage loan in full. Most mortgages are amortized over 25 years. Making the set monthly payments for 25 years will pay back the principal and interest in full. It is possible to select shorter amortization periods. Choosing a shorter amortization of 15 or 20 years for example, will mean higher monthly payments, but a significantly lower interest cost. Amortization is not the same as term.

Appraisal
The process of determining the value of a home, usually for lending purposes. This value may differ from the purchase price of the home.

Appraised Value
An estimate of the market value of a home and property that the borrower pledges as security for the mortgage. This value may differ from the purchase price of the property.

Assets
Items of value owned by an individual, such as vehicles, property and investments.

Assumable mortgage
A loan that lets the new buyer of a home take over the existing mortgage.

Balance
The amount of the loan owing or outstanding at any time.

Blended Mortgage Payments
Portions of each mortgage loan payment are applied toward both the principal and the interest of the loan. Over the term of the mortgage the principal portion of the payment increases, while the interest portion decreases. This is the norm for mortgage payments. Blended payments are separate from the concept of a blended-rate mortgage.

Blended-Rate Mortgage
A mortgage that combines an existing mortgage held by a borrower with an additional mortgage. The interest rate for the combined mortgage amount is a “blend” (or combination) of the interest rate of the “old mortgage” and the interest rate for the additional amount borrowed.

Canada Mortgage and Housing Corporation (CMHC)
The Canada Mortgage and Housing Corporation is the national housing agency of the Government of Canada. CMHC’s provide housing information and assistance to consumers as well as mortgage default insurance for high-ratio mortgages.

Carrying Costs
The expenses of living in, and maintaining a home and property. Carrying costs include mortgage payments, property taxes, heating, repairs and so on.

Certificate of Location (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 (Abstract of Title)
A document detailing out instruments registered against the title to the property. For example, a deed or mortgage may be registered against the title.

Closed Mortgage
A conventional mortgage agreement in which the interest rate is fixed for a term and cannot be prepaid, renegotiated or refinanced before maturity, except upon payment of a pre-payment penalty. Some lenders may allow limited pre-payment privileges.

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

Collateral Mortgage
A mortgage which secures a loan by way of a promissory note. The money borrowed can be used for the purchase of a home, or more commonly for another purpose such as a vacation, or home renovations.

Conditional Offer (Conditions of Sale)
An Offer to Purchase subject to conditions. These conditions often relate to financing, home inspection, or the sale of an existing home. Usually a time limit is stipulated in which the specified conditions must be satisfied.

Conventional Mortgage
A mortgage that does not exceed 75% of the appraisal value or purchase price of the property, whichever is lower. Mortgage loan insurance is not required for this type of mortgage.

Convertible Mortgage
A mortgage that gives the borrower the flexibility to change from a short-term to a longer-term mortgage if it appears advantageous to do so, most often when interest rates appear to have reached the lowest point possible.

Debt-Service Ratio
see Gross Debt Service Ratio

Deed (Certificate of Ownership)
A legal document signed by the seller transferring ownership of the home to the buyer. This document is then registered against the title to the property as evidence of the buyer’s ownership of the property.

Default
Failure to abide by the terms of a mortgage loan agreement. May result in the lender taking legal action to possess or foreclose the mortgaged property.

Deposit
A sum of money deposited in trust by the purchaser when an Offer to Purchase is made. The deposit is held in trust by the seller’s agent, broker, lawyer or notary until the closing of the transaction, at which time it is paid to the vendor. If the offer is later turned down by the buyer, the deposit may or may not be returned.

Down Payment
The amount of money put forward by the buyer before securing a mortgage. It usually ranges from 5% to 25% of the purchase price.

Encumbrance
A registered claim of debt against a property, such a mortgage.

Equity
The difference between the price for which a property could be sold and the total amount owing on it (encumbrance). Equity usually increases as the mortgage is paid back. Improvements and market value can also affect the equity of a property.

Fire Insurance
The purchaser must have fire insurance before a mortgage can be advanced. Verification of fire insurance may be required on closing.

Firm Offer
An offer to buy the property, as outlined in the Offer to Purchase, with no conditions attached.

Fixed-Rate Mortgage
A mortgage for which the rate of interest is set at a specific level for a certain term, ranging from six months to five years or more.

Floating-Rate Mortgage
See Variable-rate mortgage

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

Gross Debt Service (GDS) Ratio
The percentage of the borrower’s gross (before tax) monthly income that can be used to pay housing costs, including monthly mortgage payments, property taxes, heating costs, and condominium fees. Most lenders recommend that the GDS ratio not exceed 32% of monthly gross income. The GDS is not the same as the total debt service ratio.

High-Ratio Mortgage
A mortgage for more than 75% of a property’s appraised value or purchase price, whichever is less. This type of mortgage must be insured against payment default by a Mortgage Insurer, such as CMHC.

Holdback
A sum of money withheld by the lender during the construction or renovation of a house to ensure that construction is satisfactorily completed at every stage. The standard holdback is 10% of the total cost of the project.

Inspection
The examination of the condition of a house by an expert selected by the purchaser.

Interest
Interest is the cost of borrowing money for a given period of time. It is represented as an annual percentage rate applicable to the mortgage. Interest is usually paid to the lender in installments along with the repayment of the principal loan amount.

Interim Financing
A loan granted for a short term, to cover the time gap between completing the purchase of one property and finalizing payment arrangements. The need for this type of financing often results from mismatched closing dates of the sale of an existing house and the purchase of a new one.

Liabilities
Your personal debt, for example taxes, mortgages, car loans and credit card balances.

Maturity Date
Last day of the term of the mortgage agreement. The mortgage agreement must be renewed, or paid in full, by this date.

Mortgage
A mortgage is a loan used to purchase or refinance a home. The property that is being purchased is used as security for the loan.

Mortgage Default Insurance
Insurance required by lenders on high-ratio mortgages It is available from CMHC or other private insurers and usually costs between 0.5% and 3.75% of the principle amount of the loan. The insurance premium is paid by the borrower.

Mortgage Disability Insurance
Insurance that pays the mortgage installments in the event that the borrower becomes ill or disabled and unable to work.

Mortgage Insurance
see Mortgage Default Insurance

Mortgage Life Insurance
Insurance that pays the mortgage debt in full should the insured borrower die.

Mortgage Payment
The regular installments made towards paying back the principal and paying interest on a mortgage.

Mortgagee
The lender.

Mortgagor
The borrower.

Multiple Listing Service (MLS)
A computer-based system providing information to real-estate agents about properties for sale.

Open Mortgage
A mortgage that allows the borrower to pay off, renew or refinance as much of the outstanding balance as desired, without penalty, at any time.

Pre-Approved Mortgage
Preliminary approval granted by the lender of the borrower’s application for a mortgage to a certain maximum amount and rate. Often arranged prior to home-shopping, this option can help the purchaser establish an affordable price range.

Pre-Payment Options
These options allow the borrower to prepay a portion, or all of the principal balance, with or without penalty. These options are typically restricted to specific amounts and times and vary from lender to lender.

Pre-Payment Penalty
A fee charged by the lender when the borrower prepays all or part of a closed mortgage more quickly than as stipulated in the mortgage agreement.

Principal
The mortgage amount initially borrowed from the lender. Does not include interest costs.

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, such as the Canadian Real Estate Association, that is engaged in the business of buying and selling real estate.

Refinance
To pay off your mortgage or other registered encumbrance and arrange for a new mortgage.

Renewal
At the end of a mortgage term, new terms and conditions acceptable to both the lender and the borrower must be agreed upon. This is known as renewing a mortgage. If satisfactory terms cannot be agreed upon, the borrower may seek alternative financing to repay the lender in full.

Second Mortgage
An additional mortgage on a property that already has a registered mortgage. If the borrower defaults and the property is sold, the second mortgage is paid after the first.

Security
Assets offered as collateral for a loan. In the case of mortgages, the property being purchased or refinanced forms the security for the loan.

Survey
A document describing details of a property’s boundaries, measurements and structures. It will also describe any easements, rights-of-way, or encroachments made by either your property or by adjoining properties.

Term
The length of the current mortgage agreement, usually from 6 months to 5 years. It can be thought of as the length of the contract entered into by the borrower and the lender. Technically speaking, at the end of the term the mortgage amount must be paid in full. However, in practice the outstanding balance of the mortgage is simply renegotiated at the current rate of interest. Borrowers may approach any financial institution when their current term has expired. Term is not the same as amortization.

Title
The legal evidence of ownership of a property.

Title Search
A detailed search of the registered title documents to ensure there are no liens or other encumbrances (claims) on the property, establishing the seller’s statement of ownership.

Total Debt Service (TDS) Ratio
The percentage of a borrower’s gross monthly income needed to cover monthly payments for housing and all other debts and financing obligations. The total should generally not exceed 40% of gross monthly income.

Variable-Rate Mortgage
Also called Floating-Rate Mortgage. A mortgage for which the rate of interest fluctuates as money market rates change. Payments on a variable-rate mortgage generally do not rise and fall. If interest rates go down, more of the monthly payment goes to pay off the principal; if rates go up, more money goes towards paying the interest charges.

Vendor
The seller in a real estate transaction.

Vendor-Take-Back Mortgage
Mortgage financing arranged between the seller of a property and the buyer. Usually this type of loan is in the form of a second mortgage that the seller is willing to arrange at below market values in order to allow the buyer to purchase the house.

 

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