Mortgage Glossary


mortgage glossarymortgage glossarymortgage definitionsglossarymortgage glossaryglossarymortgage definitionsmortgage definitionsglossarydefinitionsglossaryglossarymortgage definitionsdefinitionsglossaryglossarydefinitionsglossarydefinitionsdefinitionsglossarydefinitionsglossaryglossarydefinitionsdefinitions


A


Adjustable Mortgage

A mortgage whose interest rate and payments are changed at an agreed upon frequency based on a plus/minus adjustment to the prime lendingrate. It may be converted to a fixed rate mortgage for a term equal to or greater than the remaining term.


Adjustments

Common expenses, if any, such as property taxes or utility bills, that have been prepaid by the vendor are pro-rated and paid by the purchaser to the vendor on closing.


Agreement of Purchase and Sales

The legal contract a purchaser and a seller go into. We recommend that you have your offer prepared by a professional realtor that has the knowledge and experience to satisfactorily protect you with the most suitable clauses and conditions.


Amortization

The time over which the mortgage is to be completely repaid, assuming equal payments. For example, if you have a mortgage with a 25-year amortization period, it would take 25 years to bring the balance to zero, if all regular payments were made on time.


Amortization Period

The number of years it takes to repay the entire amount of the financing based on a set of fixed payments.


Amortization Schedule

A breakdown of the principal and interest payments for the initial term.


Appraisal

The process of determining the market value of a property.


Assets

What you own or can call upon. Often used in determining net worth or in securing financing.


Assumtion Agreement

A legal document signed by a buyer that requires the buyer assume responsibility for the obligations of an existing mortgage. If someone assumes your mortgage, make sure that you get a release from the mortgage company to ensure that you are no longer liable for the debt.


back to top


B


Blended Payments

Equal payments consisting of both an interest and a principal component. Typically, while the payment amount does not change, the principal portion increases, while the interest portion decreases.


back to top


C


Canada Mortgage and Housing Corporation (CMHC)

CMHC is a federal Crown corporation that administers the National Housing Act (NHA). Among other services, they also insure mortgages for lenders that are greater than 80% of the purchase price or value of the home. The cost of that insurance is paid for by the borrower and is generally added to the mortgage amount. These mortgages are often referred to as ‘Hi-Ratio’ mortgages.


Closed Mortgage

A mortgage that cannot be prepaid or renegotiated for a set period of time without penalties.


Closing Date

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


Collateral

An asset, such as term deposit, Canada Savings Bond, or automobile, that you offer as security for a loan.


Conventional Mortgage

A mortgage of up to a maximum of 80% of the lending value of the property.


Conversion

A feature that allows borrowers to fix the rate of their variable rate mortgage to a term equal to or greater than the remaining term with no penalty.


Credit Scoring

A system that assesses a borrower on a number of items, assigning points that are used to determine the borrower’s credit worthiness.


back to top


D


Demand Loan

A loan where the balance must be repaid upon request.


Deposit

A sum of money deposited in trust by the purchaser on making an offer to purchase. When the offer is accepted by the vendor (seller), the deposit is held in trust by the listing real estate broker, lawyer, or notary until the closing of the sale, at which point it is given to the vendor. If a house does not close because of the purchaser’s failure to comply with the terms set out in the offer, the purchaser forgoes the deposit, and it is given to the vendor as compensation for the breaking of the contract (the offer).


back to top


E


Equity

The difference between the market value of the property and any outstanding mortgages registered against the property. This difference belongs to the owner of that property.


back to top


F


First Mortgage

A debt registered against a property that has first call on that property.


Fixed Term Mortgage

A mortgage with a fixed rate for a specific term.


back to top


G


Gross Debt Service Ratio (GDS)

It is one of the mathematical calculations used by lenders to determine a borrower’s capacity to repay a mortgage. It takes into account the mortgage payments, property taxes, approximate heating costs, and 50% of any maintenance fees, and this sum is then divided by the gross income of the applicants. Ratios up to 32 % are acceptable.


Guarantor

A person with an established credit rating and sufficient earnings who guarantees to repay the loan for the borrower if the borrower does not.


back to top


H


High Ratio Mortgage

A mortgage loan that exceeds 80% of the lending value of the property, and which is insured through a mortgage insurance program or self insured by some lenders.


Home Equity Line of Credit

A personal line of credit secured against the borrower’s property. Generally, up to 75% of the purchase price or appraised value of the property is allowed to be borrowed with this product.


back to top


I


Interest Adjustment Date (IAD)

The date from which interest is calculated, at the rate and compounded at the frequency, set out in the mortgage contract. It is normally the first day of the month following the closing of the mortgage transaction.


Interest Rate

The rate of return the lender gets for letting the borrower use the mortgage money for a specified term. The interest rate is usually expressed as an annual percentage rate.


Interest Rate Differential (IRD)

A penalty for early prepayment of all or part of a mortgage outside of its normal prepayment terms. This is usually calculated as “the difference between the existing rate and the rate for the term remaining, multiplied by the principal outstanding and the balance of the term”.


Example:


1. $100,000 mortgage at 9% with 24 months remaining.
2. Current 2-year rate is 6.5%.
3. Differential is 2.5% per annum.
4. IRD is $100,000 * 2.5% * 24 months / 12 months. = $5,000.


Interest-Only Mortgage

A mortgage on which only the monthly interest cost is paid each month. The full principal remains outstanding. The payment is lower than an amortized mortgage since one is not paying any principal.


back to top


L


Loan to Value (LTV)

A calculation that expresses the amount of a first mortgage lien as a percentage of the total appraised value of the property. The resulting percentage is commonly called the loan to value ratio.


Example: An appraised property value of $120,000 and a first mortgage of $90,000 produce a LTV ratio of 75%. Lenders consider loan to value as one of the key risk factors when qualifying borrowers.


back to top


M


Mortgage

A mortgage is a loan that uses a piece of real estate as a security. Once that loan is paid-off, the lender provides a discharge for that mortgage.


Mortgagee/Mortgagor

The Mortgagee is the lender that advances the funds for a mortgage loan; the Mortgagor (that’s you!) is the borrower who gives title to, or a lien on, real property to a Mortgagee to secure repayment of a mortgage loan.


back to top


O


Open Mortgage

A mortgage that can be repaid at any time during the term without any penalty. For this convenience, the interest rate is between 0.75-1.00% higher than a closed mortgage. A good option if you are planning to sell your property or pay-off the mortgage entirely.


back to top


P


P.I.T.

Principal, interest, and property tax due on a mortgage. If your down payment is greater than 25% of the purchase price or appraised value, the lender will allow you to make your own property tax payments.


Penalty

A sum of money paid to a lender for the privilege of prepaying a mortgage in part, or in full, before the mortgage matures.


Portability

A feature that allows an existing mortgage to be transferred to a new property (generally with credit approval and property appraisal).


Prepayment

Full or partial payment of all or part of the principal amount owing. A separate payment from regular payments allowed in a mortgage agreement.


Prepayment Penalty

A fee charged a borrower by the lender when the borrower prepays all or part of a mortgage over and above the amount agreed upon. Although there is no law as to how a lender can charge you the penalty, a usual charge is the greater of the Interest Rate Differential (IRD) or 3 months interest.


Prime

The lowest rate a financial institution charges its best customers.


Principal

The amount of the loan owed to the lender at any specified time, not including interest.


back to top


R


Rate Commitment

The number of days the lender will guarantee the mortgage rate on a mortgage approval. This can vary from lender to lender anywhere from 30 to 120 days.


Renewal

When the mortgage term has concluded, your mortgage is up for renewal. It is open at this time for prepayment in part or in full, then renew with same lender or transfer to another lender at no cost (we can arrange).


back to top


S


Second Mortgage

A debt registered against a property that is secured by a second charge on the property.


Switch

To transfer an existing mortgage from one financial institution to another. We can have this arranged for you at no cost to you.


back to top


T


Term

The length of the current mortgage agreement.


Title

Right of ownership of property, including evidence of such ownership.


Title Insurance

A contract by which the insurer, a title insurance company, agrees to pay the insured a specific amount for any loss caused by insured defects to title of a property, for which the insured has an interest as purchaser, lender or otherwise.


Total Debt Service (TDS) Ratio

It is the other mathematical calculations used by lenders to determine a borrower’s capacity to repay a mortgage. It takes into account the mortgage payments, property taxes, approximate heating costs, and 50% of any maintenance fees, and any other monthly obligations (i.e. personal loans, car payments, lines of credit, credit card debts, other mortgages, etc.), and this sum is then divided by the gross income of the applicants. Ratios up to 40 % are acceptable.


back to top


V


Variable Rate Mortgage

A mortgage for which the interest rate fluctuates based on changes in prime.


Vendor Take Back (VTB) Mortgage

A mortgage provided by the vendor (seller) to the buyer.


back to top