Mortgage Glossary

A

Agreement of Purchase and Sale

A legally binding agreement between the seller and the buyer of a home. It contains the price, the closing date and other information.

Amortization period

The period of time it will take to fully pay off the principal amount of a mortgage. This should not be confused with the term of the mortgage, which is usually shorter.

The most common amortization period for a new mortgage is 25 years.

Appraisal

An appraisal is a determination of the value of a property for lending purposes. A lender usually requires an appraisal and is charged a fee by the appraiser, which the lender may require the borrower to pay.

Assuming a mortgage

A mortgage assumption may occur when a purchaser buys property that has a mortgage on it, and by doing so accepts responsibility for the mortgage. In some cases the person who originally signed the mortgage (usually the seller of the property) also remains responsible for the mortgage. The lender’s permission is usually required before a mortgage may be assumed.

Usually a purchaser wishes to assume a seller’s mortgage because the seller’s mortgage has a lower interest rate than the interest rate the purchaser can get for a new mortgage at the time of closing.

50-50 MORTGAGE

A 50–50 mortgage, also known as a hybrid mortgage, is a mortgage combining the features of a fixed rate mortgage with the features of a variable rate mortgage.

Abandonment

When the condition of ownership for a property becomes a burden or is troublesome to the owner, he or she may choose to become a nonpayer and abandon the property. In the event of “abandonment,” creditors can seek to recover their money as the property is no longer part of the estate.

Accelerated Bi-weekly Mortgage Payments

Mortgage payments that are made every two weeks (the date of which won’t always fall on the first day of a month). If you choose accelerated bi-weekly payments, you will make 26 payments a year.

Accredited Mortgage Professional

Accredited Mortgage Professional (or AMP) is a professional designation created the by Canadian Association of Accredited Mortgage Professionals. It essentially a designation that demonstrates commitment to ongoing education and ethical behavior in the mortgage industry.

Adjustable Rate Mortgage

Also known as an ARM, this is a mortgage where the payments change and the interest rate is periodically adjusted based on an index (in Canada, the index is the prime lending rate).


B

Bridege Loan

Also known as interim financing, a bridge loan is a second mortgage that is paid of immediately following the closing date of the buyer’s current home. Bridge financing is typically used when the sale of the buyer’s current home closes after the purchase of his or her new home closes.


C

Canada Mortgage and Housing Corporation (CMHC)

A Crown corporation that administers the National Housing Act for the federal government and encourages the improvement of housing and living conditions for all Canadians.

CMHC sells mortgage default insurance for high-ratio mortgages and other types of mortgages.

Closed mortgage

A closed mortgage is one that cannot be prepaid, renegotiated or refinanced before the end of the term without paying a prepayment charge.

However, some closed mortgages permit certain prepayment privileges, such as the right to make a prepayment of 10-20% of the original mortgage amount each year, without paying a prepayment charge.

A closed mortgage often has a lower interest rate than an open mortgage or a convertible mortgage.

Closing costs

Closing costs are transaction costs that are payable by the home buyer or seller in order to close the transaction. For example, a home buyer’s closing costs usually include land transfer taxes, and legal fees and disbursements.

Closing date

The closing date is when a property sale, purchase or mortgage becomes final. For a purchase and sale, typically this is when the buyer pays the balance of the purchase price, takes possession of the property and registers a transfer of ownership from the seller to the buyer. For a mortgage, typically this is when the lender advances the mortgage funds and the mortgage is registered.

Collateral mortgage

A collateral mortgage is a mortgage that is registered on a property to secure one or more loans or lines of credit. Often a collateral mortgage can secure not only loans or lines of credit given by the borrower at the time the mortgage is registered, but also loans or lines of credit that may be given by the borrower to the lender in the future.

Convertible mortgage

A convertible mortgage is a short-term mortgage (usually with a fixed interest rate) that allows you to change to a longer term without paying a prepayment charge.

It combines the flexibility of a short-term mortgage that lets you take advantage of falling interest rates with the security of being able to lock in an interest rate for a longer term if you think interest rates will rise.

Creditor Insurance

Insurance that pays certain debts of a borrower if certain events happen. For example, mortgage life insurance pays off the borrower’s mortgage if the borrower dies. Mortgage disability insurance makes mortgages payments on the borrower’s behalf if the borrower becomes disabled.

Not to be confused with property insurance, mortgage default insurance or title insurance.


D

Down payment

The amount of money that a home buyer pays towards the purchase price of the home. In many cases the buyer borrows the rest of the purchase price from a lender and the lender registers a mortgage as security for repayment.

If the buyer’s down payment is less than 20% of the purchase price, the mortgage will be a high-ratio mortgage and the buyer will have to pay for mortgage default insurance.

Debt Consolidation

Debt consolidation is a means of combining several debts into one debt that has one monthly payment.

Default

Failure to pay a debt as agreed. In respect to mortgages, failure to pay mortgage payments.


E

Equity

The value of the property beyond any amounts being owed, therefore the difference between the price that a home could be sold for and the amount still owing on any mortgages.

Equity Loan

An equity loan is a loan secured by real estate.

Equity Take Out Mortgage

An equity take out mortgage is a mortgage loan used to ‘take out’ equity from a property for a variety of reasons.

F

Fixed rate mortgage

A fixed interest rate mortgage is a mortgage where the interest rate and payment amount do not change during the term.

It provides the security of knowing exactly how much of your mortgage principal will be paid off at the end of the term.

Fair Market Value

Fair market value (FMV) is defined as the price a ready, willing and able buyer, with knowledge of all pertinent facts, is willing to pay for a certain piece of property.

Foreclosure

The legal process in which the mortgage lender sells the mortgaged property because the borrower has defaulted on his or her mortgage loan.


G

Genworth Financial Canada

A private mortgage insurance company that sells mortgage default insurance for high-ratio mortgages and other types of mortgages.

GDS Ratio

GDS stands for Gross Debt Service. This is the percentage of annual gross income that is required to cover mortgage principal payments, mortgage interest payments, property taxes, and heat payments. If the property is a condominium, condo fees will also be worked into this ratio.

Gift Letter

This is a letter stating that the gift giver (an immediate family member) in making a gift of a certain amount to the gift receiver for the down payment of a home. It also states that the gift is genuine and that the gift receiver (or home buyer) is not required to pay back the gift at any time.


H

High-ratio mortgage

A high-ratio mortgage is one with a principal amount that is more than 80% of the property’s value. For example, home buyers with a down payment of less than 20% of the purchase price will require high-ratio mortgage insurance.

For a high-ratio mortgage, mortgage default insurance is required. See also Mortgage Default Insurance.

Home equity

The value of a home, minus the amount of any debts registered on the property, such as liens or mortgages.

For example, if the value of a property is $250,000 and the mortgages on the property total $200,000, the owner’s home equity is $50,000 ($250,000$200,000 = $50,000).

Property insurance (or home insurance)

Insurance that pays for certain types of damage to your home or its contents. Your lender will require that you keep adequate property insurance coverage in effect during the term of your mortgage.

Property insurance is not to be confused with creditor insurance (such as mortgage life insurance or mortgage disability insurance), mortgage default insurance or title insurance.

Home inspection

An inspection of a home to determine the condition of the home, identify any needed and list the cost of the repairs. A home inspection is usually performed by a qualified or licensed home inspector. In many cases, a home buyer obtains a home inspection to help decide whether to buy the home.

HELOC

A HELOC is an acronym standing for Home Equity Line of Credit.

Home Insurance

Home insurance provides payment to the homeowner in the event of loss due to fire, theft, or damage through certain natural elements such as hail, tornado, lightning and flooding.

Home Insurance Policy

A home insurance policy is an insurance policy covering your physical home in the event of fire or other casualty, the contents of the home and other losses you may suffer due to destruction of the property, in whole or in part.

High Yield Mortgage

A high yield mortgage is a mortgage with a higher than average interest rate. The yield refers to the compound interest charged on the mortgage, also known as the Annual Percentage Rate (APR).

 


I

Interest adjustment date

The interest adjustment date for your mortgage is the date the amortization period begins. You will be required to pay an interest adjustment amount if the mortgage funds are advanced before the interest adjustment date.Interest Rate Differential (IRD)

For a full prepayment, the prepayment charge is calculated on the full amount of the prepayment. For a partial prepayment, the prepayment charge is calculated on the amount of the prepayment that is more than your annual prepayment privilege amount.

Interest Rate

Interest is money paid by a borrower to a lender for the use of the lender’s money. The amount of interest charged by a lender is usually expressed as an annual percentage rate, which is called the mortgage interest rate.

Interim Financing

Also known as a bridge, a interim financing is a second mortgage that is paid of immediately following the closing date of the buyer’s current home. Interim financing is typically used when the sale of the buyer’s current home closes after the purchase of his or her new home closes.

 


J

Job Letter

A letter from your employer stating your length of employment, guaranteed number of hours worked per week, and income amount.

L

Land transfer tax

A provincial or municipal tax that must be paid at the time of purchasing or taking a transfer of title to a property. Land transfer tax is payable by the purchaser and is usually calculated on the purchase price or other consideration given for the transfer.

Legal fees and disbursements

Costs payable to a lawyer, paralegal or notary to close a sale, purchase or mortgage of a property. Legal fees and disbursements are an example of closing costs.

Liability

A financial obligation of an individual, such as credit card debt, car payments, mortgage payments, etc.

Licensed Mortgage Agent

A Licensed Mortgage Agent is the most common person within a brokerage to deal with clients. A Mortgage Agent will take clients’ applications on behalf of the brokerage, and walk them through the mortgage process.

Lien

A claim against a property to secure the payment of a debt or other obligation.

Loan

A borrowed amount of money that is generally repaid in full as well as with a certain amount of interest.

Loan Officer

A loans officer is an employee of a lending institution that functions as the liaison between that lender and it’s customers that are applying for a loan.


M

Maturity date

The date a mortgage term ends. On the maturity date, the mortgage must either be paid off or renewed into a new term.

Market Value

The highest price a buyer would pay and the lowest price a seller would accept on a property. Market value could differ from the price that the property could be sold for at a given time.

Mortgage

To pledge a property to a lender as security on a loan.

Mortgage Affordability

Mortgage affordability is the amount of money a mortgage borrower can make on a monthly basis towards a mortgage, based upon their income, expenses, and the proposed monthly payment.

Mortgage Amortization

Mortgage amortization is the process of repaying a mortgage loan.

Mortgage Application

First step in obtaining financing for a real estate purchase.

Mortgage Balance

A mortgage balance is the full amount owed at any period of time during the duration of the mortgage, and is the sum of the remaining principal owing and accrued interest.

Mortgage Broker

A mortgage brokerage must employ a mortgage Broker to oversee the brokerage employees. Generally Brokers are responsible for the management role within the brokerage. They are also responsible for ensuring that the brokerage complies with the Real Estate Act. An individual must be a Licensed Mortgage Associate for two years before being eligible to become a Broker.

Mortgage Brokerage

A mortgage brokerage is a legal identity licensed to trade in mortgages. Mortgage Brokers and Licensed Mortgage Associates must be licensed under a brokerage.

Mortgage Deed

A mortgage deed is a document in which the mortgagor transfers an interest in real estate to a mortgagee for the purpose of providing a mortgage loan.

Mortgage Holder

A mortgage holder is an individual or entity who owns the mortgage loan that was extended to a homeowner, and is the party entitled to enforce the terms of the mortgage.

Mortgage Insurance

This is insurance that is required for high-ratio mortgages. It protects the lender in the event that a borrower defaults on a mortgage. The three mortgage insurers in Canada are CMHC(Canadian Mortgage and Housing Corporation), Genworth, and AIG. Prior to the creation ofCMHC, Canadians could not purchase a home without a 25% down payment.

Mortgage Lender

A mortgage lender is an entity that provides financing for the purchase of real estate.

Mortgage Loan

A mortgage loan is a loan secured by real estate owned by the borrower.

Mortgage Payment

A mortgage payment is a periodic amount paid to a mortgage holder for repayment of a mortgage loan.

Mortgage Rate

Mortgage rate is the interest that a mortgage borrower will pay for money borrowed against a mortgage.

Mortgage Refinancing

Mortgage refinancing is the process of replacing your mortgage or mortgages on your property with a new mortgage.’

Mortgage Renewal

A mortgage renewal is a new agreement to extend or renew mortgage terms with your mortgage holder.

Mortgage Statement

A statement received from your mortgage lender that includes such information as property address, outstanding principal balance, monthly payment, interest rate, mortgage term, etc.

Mortgage Term

A mortgage term is the length of time, usually in years, in which the parameters of a mortgage have legal effect.

Mortgagee

The party that advances the funds for a mortgage loan; the lender.

Mortgagor

The party that uses their home as a security for a mortgage; the borrower.

N

Notice Of Assessment

This is also known as an NOA. It is the summary form that CRA sends you after your income tax has been filed. It specifies what you claimed on your taxes last year, as well as the amount of taxes you owe, or the amount of money that you will be received as a tax refund.


O

Open mortgage

An open mortgage that may be prepaid, in part or in full, during the term without paying a prepayment charge.

The interest rate on an open mortgage may be higher than the interest rate on a closed mortgage. An open mortgage provides flexibility until you are ready to lock into a closed term.

P

Portability

The mortgage portability option allows you to transfer or “port” the remainder of your existing mortgage term, outstanding principal balance and interest rate to a new property if you are selling your current home and buying a new one.

You must apply in writing to port your mortgage.

Posted rate

The interest rate advertised or shown by a lender as the interest rate it charges for a mortgage product. A borrower may be able to negotiate with the lender for a lower interest rate.

Pre-approved mortgage certificate (or mortgage pre-approval certificate)

A letter from a lender stating that you are pre-approved for a mortgage on certain terms. The pre-approval certificate will also list requirements that you must satisfy to obtain final approval for the mortgage.

Pre-payment (sometimes called a lump sum payment)

Early repayment of all or part of a mortgage.

When a closed mortgage is prepaid, the lender may charge a prepayment charge.

Pre-payment charge

The amount charged by a lender when the borrower pays all or part of the mortgage before it is due during the mortgage term. However most closed mortgages allow the borrower to pay a certain amount of the mortgage early without paying a prepayment charge.

Prepaid property tax and utility adjustments

These are amounts a home buyer must pay to the seller on closing if the seller has prepaid property taxes or utility bills.

For example, if your purchase closed on June 1 and the seller prepaid taxes and utilities to June 30, you will be required to pay the seller the amount of this overpayment. The adjustment amount is calculated by the lawyer, paralegal or notary closing the transaction.

Prime rate (or prime interest rate)

The prime rate is the interest rate that a lender publicly announces as its reference rate for certain variable interest rate loans. The prime rate can change at any time.

For most CIBC variable interest rate mortgages, the interest rate is based on CIBC’s prime rate. For example, if the interest rate for a variable rate mortgage is CIBC prime rate plus 1%, the interest rate charged is one percent per year above the CIBC prime rate in effect from time to time. For most variable rate mortgages, the interest rate changes when the prime rate changes.

Principal

The amount of money borrowed or still owing on a mortgage.


Q


R

Refinancing or renegotiating

Changing the conditions of your mortgage before its maturity date. Often a mortgage is refinanced to obtain a lower interest rate.

Renewal or renewing

Extending your mortgage when it matures. Often the interest rate and other terms of the mortgage offered by the lender for the renewal are different from the interest rate and terms of your original mortgage.

If you do not renew your mortgage, it must be paid off at maturity.

Rate Lock

A rate lock refers to an agreement between a mortgage lender and a borrower to fix a certain interest rate for a number of days between the issuance of a mortgage approval and closing of the real estate purchase and mortgage loan.

Reverse Mortgage

A reverse mortgage is a type of mortgage loan available in Canada that is designed for homeowners 60 years and older.


S

Survey (or and survey or property survey)

A survey is a drawing prepared by a professional land surveyor that shows certain information about a property, usually including the dimensions of the property and the location of its boundaries.

Your mortgage lender may require an up-to-date survey of the property, which may be available from the seller of your property. You or your lawyer, paralegal or notary can also arrange for a land surveyor to perform a property survey for a fee.

Second Mortgage

The mortgage whose holder has the second place claim on assets in the event of default.

Semi-monthly mortgage payments

Semi monthly mortgage payments are structured for the borrower to make payments 2 times per month, for instance, on the 1st and 15th of each month.

Sweat Equity

Equity created by a purchaser or homeowner by performing work on a property being purchased or refinanced.


T

Term

The period of time your mortgage agreement with the lender is in effect. A mortgage term is usually between 6 months and 5 years long.

Not to be confused with amortization period. For example, a mortgage could have a term of 5 years and an amortization period of 25 years.

Title Insurance

Insurance that pays for losses caused by certain title defects.

For example, a homeowner may buy an owner’s title insurance policy to protect the homeowner against losses caused by title fraud, municipal work orders, zoning violations, encroachments and other defects. A lender may buy a lender’s title insurance policy to protect the lender against the same types of losses, plus losses caused by certain types of defects in the mortgage.

TDS Ratio

TDS stands for Total Debt Service. This is the percentage of annual gross income that is required to cover mortgage principal payments, mortgage interest payments, property taxes, and heat payments, plus monthly payments of any other debt the borrower holds. If the property is a condominium, condo fees will also be worked into this ratio.

Third Mortgage

A third mortgage is a lien on property subordinate or junior to the first and second mortgages.

U

Underwriting

The process of deciding whether or not to provide a mortgage loan to a home buyer based on credit, employment, assets and other factors. This is also the matching of the home buyer to a mortgage lender, mortgage product, interest rate, mortgage term, etc.


V

Variable rate mortgage

A variable interest rate mortgage has an interest rate that can vary during the term. The interest rate varies in accordance with changes in market interest rates. For example, the interest rate for most CIBC variable rate mortgages changes whenever CIBC’s prime rate changes.

For variable rate mortgages, the mortgage payment amount may be fixed, or it may change with changing interest rates, depending on the terms of the mortgage. For most CIBC mortgages, your regular payment stays the same even if rates change. This means that when rates go down, a larger portion of your payment amount is applied to pay down your mortgage principal. When rates go up, a smaller portion of your payment amount is applied to pay down your mortgage principal.


W


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