Mortgage Glossary

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.

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

A

Agreement of Purchase and Sale: The legal contract and seller and purchaser enter into. It is recommended that you use a professional
(also know as a Purchase Contract) realtor or lawyer in order to protect yourself.

Amortization Period: The term used to describe thea mount of time in which the mortgage will be paid in full, assuming equal
payments. The standard amortization

Appraisal: The process of determining the value of the property.

Assumed Mortgage: The process of taking over someone else's mortgage without qualifying. The is only allowed in some Provinces.

B


Blended Payments: Equal payments consisting of both and interest and principle component.

C

Canada Mortgage and Houssing Corporation (CMHC): The Canadian Mortgage and Housing Corporation: this is a Federally run institution that provides banks and lenders
with mortgage insurance. Not to be confused with life or property insurance. In the event of default or foreclosure CMHC assumes responsibility of the property and reimburses the bank/lender the entire mortgage amount. This insurance is required generally when you have less than 25% equity or down payment. This insurance is paid by the property owner in advance but usually added to the mortgage amount. GE Canada is the other mortgage insurer in Canada.

Closed Mortgage: A mortgage that cannot be pre-paid or re-negotiated without paying a penalty or not at all.

Closing Date: The date the sale of the home takes place and the new owner takes possession of the property.

Conventional Mortgage: A mortgage up to 75% of the value of the property. This is on a purchase or a refinance. A mortgage the
exceeds 75% of the value is referred to as a "high-ratio mortgage."

Collateral: Any asset that you use as security for a loan or mortgage, for example, a vehicle or home.

Credit Rating: Every piece of credit history information in your credit file is assigned a rating by the credit grantor. The most common ratings are "R" ratings. These are known as North American Standard Account Ratings and are the most frequently used. The "R" indicates that the item being described involves revolving credit. If you always pay on time, it will be coded an R1. If an amount was written off because you never paid it back, it is coded R9. The R ratings are a coding
system that translates "on time", "one month late", "two months late", etc., into two-digit codes.
*source Equifax Canada

D


Debt Consolidation: A means of consolidating all or part of your debts into one easier payment each month.

Default: Non-payment of your obligation as outlined in the agreement.

Demand Loan: A loan where the balance must be repaid upon request from the lender.

Discharge: Removal of all mortgages and financial encumbrances on a property.



E

Equity: The difference between the market value of the property and the existing mortgage balances.

Equity Mortgage: A mortgage that is based solely on the equity in your home, the normal requirements are not used if there is
enough equity in your home.


F

First Mortgage: A mortgage registered on your property first. They have first claim to the home should there be a foreclosure.

Fixed Rate Mortgage: A mortgage that has an interest rate that does not change for the term of the mortgage.

Foreclosure: A legal procedure whereby the lender obtains ownership of the property following default by the borrower.


G

GE Canada: The other mortgage insurer in Canada that insures mortgages over 75% of the value of the home for lenders.
(CMHC is the other insurer).

Gross Debt Service Ratio (GDS): This is one of the calculations that lenders use to determine eligibility for a mortgage. It takes into account
the mortgage payment you want plus taxes and heat and divides it by your income. The maximum ratio you
are allowed is 32% by most lenders.

Guarantor: This is a person who goes on a loan or mortgage with you and guarantees that they will pay your debt for you
if you do not. They have to have good established credit, income and assets in order to qualify as a guarantor.

H


High-Ratio Mortgage: A mortgage that is for more than 75% of the value or purchase price of the home.

Home Equity Line of Credit: A line of credit that is secured against the house.


I


Interest Adjustment Date (IAD): The date on which the term of your mortgage starts. It is usually the first date of the month following the possession date.


M

Mortgage: Mortgage Insurance (optional): Insurance that gives you peace of mind so that if anything should happen to the mortgage holders, the mortgage will be paid off and your beneficiaries will not be left with the burden of keeping up your mortgage payments.


O


Open Mortgage A mortgage that can be paid out in full at anytime without penalty. Rates are normally higher on these types of mortgages.


P

P.I. (Principal and Interest): A payment that applies to the principle of the mortgage and the interest, but you have to pay your property taxes on your own.

P.I.T (Principal, Interest and Taxes) : A paymnet that applies to the principle of the mortgage, the interest on the mortgage and also pays monthly the property taxes.

Pre-Approved Mortgage: A no obligation mortgage that allows you to search the market place in confort knowing what mortgage amount you qualify for. It also locks in the rate for 90 to 120 days which also gives you the peace of mind that if rates go up in the time it takes to find your new home, you will still be ensured a low rate.

Pre-Payment Penalty: A fee charged to the mortgage holder if the mortgage is paid in full or above the amount allowed within the closed term of the mortgage.

Prime Rate of Canada: The rate that is set by the Bank of Canada in which lenders base their prime mortgage lending rate on The original amount of the loan.

R


Renewal: A mortgage is up for renewal when the term is up. At this time you can pre-pay the mortgage in part or in full without any penalty. You can also renew with the current lender or change lenders in order to obtain the lowest rate possible.

S

Second Mortgage: A mortgage registered against the property in second place. This means that the lender who is registered first, has first claim if the house goes into foreclosure and the lender in second place will only receive what is left. Because of the higher risk, second mortgages have higher interest rates and higher fees.

T

Term: The period of time the financing agreement covers. Terms are available for as short as 6 months and as long as 18 years. The rates depend on the term you choose. Traditionally, the majority of people chose a 5 year term.


Total Debt Service Ratio (TDS) : One of two caculations used by lenders to determine eligibility. It takes into account your monthly mortgage payment, property taxes, approximate heating costs and any other monthly obligations.


V

Variable Rate Mortgage: A mortgage that has an interest rate that fluctuates as the Prime Rate of Canada fluctuates.

 

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