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Mortgage Glossary

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 professional Realtor 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. The initial amortization can be set as high as 35 years.

Appraisal
An evaluation process to determine the current market value of your home.

Assets
A useful or valuable thing that you own or can call upon. Often used in determining net worth, sometimes used to secure 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.

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Canada Mortgage and Housing Corporation (CMHC)
CMHC is a Federal Crown Corporation that administers the National Housing Act (NHA). Among other services, they also default 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 without limitations cannot be prepaid or renegotiated for a set period of time without penalties.

Closing Date
The date on which the new owner takes possession of the property and the sale becomes final.

Collateral
An asset, such as your home, a term deposit, Canada Savings Bond, or automobile, that you offer as security for repayment of a loan or mortgage, to be forfeited in the event of a default.

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.

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.

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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 real estate 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).

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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.

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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.

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Gross Debt Service Ratio (GDS)
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.

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High-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.

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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

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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.

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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.

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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.

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.

Prime
The lowest rate a financial institution charges its best customers.

Principal
The original amount of a loan, before interest.

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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).

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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.

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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.

Title Insurance
Title insurance is unlike any other kind of insurance. It is not house insurance which only protects the contents of your home or its structure, and for which you have to pay a monthly premium.
Title insurance protects your ownership to the property and protects you against losses arising from:
Fraud – fraudulently obtained mortgages on your home
Errors in surveys or other official public records
Encroachments onto neighbouring properties
Zoning infractions
Existing liens against the property’s title
…and many more known and unknown defects that could affect your ability to sell your property in the future, or that could cost you thousands of dollars to rectify.
Unlike other home/casualty insurances, you only pay a one-time premium with no deductible should a claim arise. Coverage lasts for as long as you own your property.
Title insurance also helps reduce closing costs because it eliminates the need for your lawyer to order many searches and an up-to-date survey.
For covered claims, title insurance covers legal expenses related to defending or restoring your title, meaning that you do not have to take time off work and deal with the added stress needed to defend yourself.
For information on title insurance visit: www.stewart.ca

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.

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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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Trusted Lenders & Partners We Deal With... Mortgage Renewals Moving Resources Mortgage Resources Referral Rewards Why Use a Broker? Mortgage Calculator's FAQ's Mortgage Glossary Proud Member of CAAMP & IMBA	Mortgage Glossary 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 professional Realtor 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. The initial amortization can be set as high as 35 years. Appraisal An evaluation process to determine the current market value of your home. Assets A useful or valuable thing that you own or can call upon. Often used in determining net worth, sometimes used to secure 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. back to top B No Items back to top 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 default 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 without limitations cannot be prepaid or renegotiated for a set period of time without penalties. Closing Date The date on which the new owner takes possession of the property and the sale becomes final. Collateral An asset, such as your home, a term deposit, Canada Savings Bond, or automobile, that you offer as security for repayment of a loan or mortgage, to be forfeited in the event of a default. 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. 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. back to top 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 real estate 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). back to top 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. back to top F 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. back to top G Gross Debt Service Ratio (GDS) 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. back to top H High-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. back to top 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 back to top J No Items back to top K No Items back to top L No Items back to top 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. back to top N No Items back to top 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. back to top 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. 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. Prime The lowest rate a financial institution charges its best customers. Principal The original amount of a loan, before interest. back to top Q No Items back to top 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). back to top 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. back to top 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. Title Insurance Title insurance is unlike any other kind of insurance. It is not house insurance which only protects the contents of your home or its structure, and for which you have to pay a monthly premium. Title insurance protects your ownership to the property and protects you against losses arising from: Fraud – fraudulently obtained mortgages on your home Errors in surveys or other official public records Encroachments onto neighbouring properties Zoning infractions Existing liens against the property’s title …and many more known and unknown defects that could affect your ability to sell your property in the future, or that could cost you thousands of dollars to rectify. Unlike other home/casualty insurances, you only pay a one-time premium with no deductible should a claim arise. Coverage lasts for as long as you own your property. Title insurance also helps reduce closing costs because it eliminates the need for your lawyer to order many searches and an up-to-date survey. For covered claims, title insurance covers legal expenses related to defending or restoring your title, meaning that you do not have to take time off work and deal with the added stress needed to defend yourself. For information on title insurance visit: www.stewart.ca 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. back to top U No Items back to top 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. back to top W No Items back to top X No Items back to top Y No Items back to top Z No Items back to top