SIMPLE GLOSSARY OF MORTGAGE TERMS
Here is a simple glossary of mortgage terms.
To help you find the term you are looking for quickly, simply
click on the letter below. For example, to find the "mortgage",
click the letter "M".
A
Agreement of Purchase and Sale:
The legal contract a purchaser and a seller
go into. We recommend that you have your offer prepared by
a Real Estate Professional that has the knowledge and experience
to satisfactorily protect you with the most suitable clauses
and conditions.
Amortization Period:
The number of years it takes to repay the
entire amount of the financing based on a set of fixed payments.
Appraisal:
The process of determining the value of a
property.
Assets:
What you own or can call upon. Often used
in determining net worth or in securing financing.
Assumption 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.
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.
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.
Closing Date:
The date on which the new owner takes possession
of the property and the sale becomes final.
Conventional Mortgage:
A mortgage up to 80% of the purchase price
or the value of the property. A mortgage exceeding 80% is
referred to as a "Hi-Ratio" mortgage and the lender
will require insurance for that mortgage.
Collateral:
An asset, such as term deposit, Canada Savings
Bond, or automobile, that you offer as security for a loan.
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.
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 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).
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.
First Mortgage
A debt registered against a property that
has first call on that property.
Fixed-Rate Mortgage:
A mortgage for which the interest is set
for the term of the mortgage.
G
Gross Debt Service (GDS.) Ratio:
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.
H
Hi-Ratio Mortgage:
A mortgage that exceeds 80% of the purchase price or appraised value of the property. This type of mortgage
must be insured. To avoid the cost of the insurance, a 1'st
mortgage up to 80% is arranged and a 2'nd mortgage for the
balance (up to 90% of the purchase price).
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.
I
Interest Adjustment Date
(IAD):
The date on which the mortgage term will
begin. This date is usually the first day of the month following
the closing. The interest cost for those days from the closing
date to the first of the month are usually paid at closing.
That is why it is always better to close your deal towards
the end of the month.
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 once
is not paying any principal.
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:
The financial institution or person (lender)
who is lending the money using a mortgage.
Mortgagor:
The person who borrows the money using a
mortgage.
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.
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.
Portable Mortgage:
An existing mortgage that can be transferred
to a new property. One would want to port their mortgage in
order to avoid any penalties, or if the interest rate is much
lower than the current rates.
Prime:
The lowest rate a financial institution charges
its best customers.
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.
Principal:
The original amount of a loan, before interest.
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).
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.
T
Term:
The period of time the financing agreement
covers. The terms available are: 6 month, 1,2,3,4,5,6,7,10
year terms, and the interest rates will be fixed for whatever
term once chooses.
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.
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.
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What is a mortgage?
