Mortgage Glossary

A

Additional Interest: Revenue compensation to the bank when you renegotiate terms of the mortgage or prepay principal.

Amortization Period: The period of time over which mortgage payments would pay off the mortgage; terms are usually 25 to 30 years.

Appraisal: Process of determining the value of a property. An appraisal is usually a necessary process required by lenders.

Assets: Things that you own that have value such as: cash in bank, mutual funds, stocks and bonds, real estate owned, vehicles, furniture and furnishings and other items of value.

B

Blended Rate Mortgage: A mortgage rate that combines the amount owed from an existing mortgage with the amount of a new mortgage. The interest rate is a ‘blend’ of both rates.

Bridge Financing: A short term loan made to cover the time spent completing the purchase of a property and the sale of another when there is mismatched closing dates.

C

Canadian Housing and Mortgage Corporation (CMHC): CMHC administers the National Housing Act (NHA). CMHC provides mortgage insurance to protect NHA approved lenders.

Closed Mortgage: Is a mortgage that usually cannot be paid out or renewed early without paying a penalty or selling the home.

Closing Date: The date the purchase is finalized and the buyer takes possession of the property.

Closing Costs: Costs associated with purchasing a home. Costs can include fees such as: legal, land transfer taxes, broker, lender, appraisal, inspection, and anything else associated with the property that a lender may require.

Carrying Costs: Expenses associated with the living in and maintaining a property. These include such costs as: mortgage payments, property taxes, condo fees, heating and air conditioning, water, repairs as needed, etc.

Conventional Mortgage: A mortgage that does not exceed 80% of the appraised value of the house or purchase price.

Conditional Offer: In the Offer to Purchase there are conditions which may relate to a certain time limit in order to obtain financing or subject to a home inspection or other conditions specified by the buyer and vendor that must be satisfied before conditions are waived and the contract is made firm.

D

Deed: Legal document that transfers or registers the ownership of the property to the buyer or new owner.

Deposit: A sum of money paid by the purchaser to the vendor. The deposit represents a commitment to buy. If the sale is finalized, the deposit goes towards the purchase of the property, but if the buyer declines the offer, the deposit may or may not be returned depending on the specifications on the signed offer/agreement.

Debt- Service Ratio: The percentage of the borrower’s gross income that will be used for monthly payments of carrying costs.

E

Equity: The difference between the value of the property and the amount of money registered against the property.

F

Fixed Rate Mortgage: A mortgage with an interest rate that is locked in for the term of the mortgage and the rate does not fluctuate with the prime bank rates.

Floating Rate Mortgage: A mortgage with an interest rate that fluctuates with the prime bank rates (another name for ‘variable rate mortgage’)

First Mortgage: A mortgage that is the first registered lien against a property. This mortgage takes priority over any registered liens behind it and will be paid off first.

G

Gross Debt Service Ratio (GDS) : Percentage of gross income required to cover monthly payments to do with housing costs (principal, interest and property taxes). The recommended GDS ratio is 32% -35% of your gross income before taxes.

Gross House Income: The total salary, wages and/or commission before deductions by all household members that are registered on the deed/mortgage.

H

Home Equity: The difference between the value of a home and the amount of money owing against the home.

Holdback: The lender requires money to be withheld during construction or renovation of a house to ensure that it is complete.

I

Interest: The amount of interest paid on the amount of money borrowed and is represented as an annual percentage rate which is applicable to the mortgage.

Inspection: When a certified home inspector examines the house and provides a report of the specific working order and details of the home that may need improvements, etc. This inspection report is usually required by lender or purchaser when buying a new home or resale home.

L

Loan to Value ratio (LTV): An assessment ratio that lenders consider when financing a home or property. The LTV is calculated by the mortgage amount outstanding against the property and dividing the value of the property. The higher the LTV ratios are, the higher the risk is for lenders.

M

Maturity Date: The last day of your mortgage agreement term. The mortgage must be paid off or renewed by this date.

Mortgage Term: The period of time over which you pay a specified interest rate. The term usually ranges from six months to 10 years.

Mortgagee: The mortgage borrower.

Mortgagor: The lender.

O

Open mortgage: A mortgage that can be prepaid, paid off or negotiated at any time without any interest penalties.

P

Principal: The amount of money outstanding on a mortgage at any given time without any interest or penalty.

R

Refinancing: Renegotiating the existing mortgage agreement to either increase the mortgage to consolidate and pay off debts, do an equity take out for cash or to simply obtain a lower rate on the existing mortgage amount.

Renewal: At the end of your term, the lender and the borrower can agree on new terms otherwise the lender must be paid out in full.

S

Second Mortgage: A mortgage to obtain money without disturbing the first mortgage. It is registered behind the first mortgage in second position and is usually a higher interest rate depending on either being lent from an institution or private lender.

Securities: Properties and assets owned that provide security to lenders. In the case of mortgages, the security is the home.

T

Total Debt Service Ratio (TDS): The percentage of the borrower’s gross monthly income to cover all monthly payments. Payments include mortgage payments, housing costs, property taxes, and other loans such as vehicles, credit card debts, etc. An ideal total amount should be lower than 40% to 45%.

V

Variable Rate Mortgage: A mortgage in which your monthly payments fluctuate with the set prime rate. For example, you are given a mortgage with prime +0.5%, so if the prime rate is 3%, you will be paying 3.5% and likewise, if the prime rate drops to 2%, you will be paying at 2.5%. Your payments will rise or fall depending on the fluctuating prime rate.

Vendor: the Seller of a real estate transaction.