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Glossary Information:
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B
C
D
E
F
G
H
I
J
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M
N
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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. Be sure to arrange that your
mortgage payment dates match your pay days!
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
The period of time it takes to pay off your mortgage in full.
Typically you would choose the longest amortization available
which is 25 years.
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.
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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.
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B
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.
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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.
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 GEMICO 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 GEMICO and the premium is paid by the
borrower.
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 75% of the purchase price is
referred to as a conventional mortgage. Any mortgage in excess
of 75% must be insured against default. See High Ratio Mortgage.
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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.
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, broker,
lawyer or notary until the closing of the transaction.
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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.
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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.
Fixed-Rate Mortgage
A mortgage for which the rate of interest is fixed for a
specific period of time (the term).
Foreclosure
A legal procedure whereby the lender eventually obtains
ownership of the property after the borrower has defaulted on
payments.
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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).
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H
High Ratio Mortgage
A mortgage where you have a down payment of less that 25% 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.
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I
Inspection
The examination of the house by a building inspector selected by
the purchaser.
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.
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J
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K
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L
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%.
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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.
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 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 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.
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N
Net Worth
The difference between what you own (assets) and what you owe
(liabilities) is called your net worth.
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O
Open Mortgage
A mortgage which can be prepaid at any time, without penalty.
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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.
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.
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R
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.
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S
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.
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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.
Total Debt Service Ratio
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. See also
Gross Debt Service Ratio (GDS).
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U
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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.
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W
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X
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Y
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Z
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