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Mortgage Glossary

Amortization - the length of time over which your mortgage is financed.  This may be anywhere up to 30 years, with 25 years being the traditional amortization.  Note that mortgage amortization is different than "mortgage term" which is the length of your agreement with the mortgage lender.

Assumable - this means that your mortgage MAY be taken over by another party if, for example, you sold your house and the buyer wanted to take over your mortgage payments.  This may be of an advantage to a buyer if the rate on your mortgage is lower than current rates.  Even though the mortgage is assumable, the borrower MUST qualify to the satisfaction of the mortgage lender.

Appraisal - The process of determining the value of property, usually for mortgage lending purposes. This value may or may not be the same as the purchase price of the home.  A qualified appraiser physically inspects the property making note of condition, special features and then assesses the value including assessment of comparable properties.

Blend and Extend - Taking your existing mortgage and adding to the term and combining the old and new rate into a blended rate on a weighted basis.  It can be a good way of avoiding prepayment penalties if you are moving and increasing the size of your mortgage.

Blended payment - Payment consisting of both a principal and an interest component, paid on a regular basis during the term of the mortgage.

Closing Costs – Various expenses associated with purchasing a home. Please click here for more information.

CMHC - Canada Mortgage and Housing Corporation (CMHC) operates a Mortgage Insurance Fund which protects approved lenders from losses resulting from borrower default.  CMHC insurance can insure for loans where the mortgage amount is greater than 80% of the value of the property, and insures for a variety of other specialty lending situations.  A premium is charged for the insurance.

Credit Bureau – Report used by lenders when making credit decisions. Please click here for more information on understanding your credit.

Collateral Charge - With a collateral charge, security is provided in favour of the lender, registered in first position priority on the land and building. The specific details of the mortgage loan might not be included in the charge that is registered on the title to your property. A collateral charge can be used to secure multiple loans with your lender, including a mortgage or a line of credit. A separate credit agreement contains the specific terms of the mortgage loan

Commitment - a mortgage commitment is a document where the lender agrees to lend the borrow money under a set of specified conditions.  The conditions usually include things like receiving income verification (employment letter, pay stubs, tax information), appraisal, copies of MLS listing, proof of down payment etc.

Conventional Charge - With a conventional charge, security is provided in favour of the lender, registered in first position priority on the land and building.  The specific details of the mortgage loan, such as the amount, term and interest rate, are included in the charge that is registered on the title to the property. A conventional charge only secures the mortgage loan that is detailed in the document, and not any other loans you may have with your lender, such as a line of credit. The lender must provide all of the details of your mortgage, such as payment and prepayment privileges, in a separate credit agreement.

Conventional Mortgage - A mortgage where the mortgage amount is greater than 80% of the property value and generally requires insurance by CMHC or Genworth or AIG.

Discharge - Process where lawyer removes mortgage from title registered at Land Titles.

Debt-Service Ratio - The percentage of the borrower's gross income that will be used for monthly payments of principal, interest, taxes, heating costs and any strata fees.

Deposit - A sum of money paid 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.

Equity - The value the owner has in a property over and above all mortgages against the property. It is usually the difference between the market value of the property and any outstanding encumbrances.

Fixed-Rate Mortgage - The mortgage interest rate is fixed for the term of the mortgage.

Foreclosure - A process undertaken by lawyers where the lender obtains ownership of the property after the borrower has not made regular payments per the loan agreement.

Gross Debt Service (GDS) Ratio - The percentage of gross income required to cover monthly payments associated with housing costs. Most lenders recommend that the GDS ratio be no more than 32% of your gross (before tax) monthly income.

High Ratio Mortgage - Mortgages of less than 20% of the lesser of the purchase price or appraised value of the property.  Contrasted to conventional mortgages - High ratio mortgages require default insurance.

Holdback - Money withheld by the lender during the construction or renovation of a house to ensure that construction is satisfactorily completed at every stage.

Inter Alia Mortgage - A single mortgage covering more than one property.  The term is latin for "amongst other things."

Interest Adjustment Date - is a date from which interest is calculated when mortgage funds are advanced before a regular payment cycle.  For example if a mortgage is advanced March 29th and regular monthly payments commence May 1st, there will be an interest adjustment for 3 extra days.

IRD - Interest Rate Differential - is a common prepayment penalty method where the difference between current interest rates and the mortgage interest rate is charged for the remainder of the term.  IRD is generally only applicable if current interest rates are lower than that of the original mortgage and are intended to compensate the lender for the difference in interest income it will receive.

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.

Maturity Date - Last day of the mortgage term.

Mortgage Insurance - Both mortgage life insurance and mortgage disability insurance are available and should be considered by all buyers.  Many buyers are qualifying based on two incomes and they should consider how they would pay their mortgage payments if one income ceased due to disability or death.  If mortgage insurance is declined, it it common practice to have a waiver signed to protect all parties.

Mortgagee and Mortgagor - The lender is the mortgagee and the borrower is the mortgagor.

Mortgage Term - The length of time the current mortgage agreement applies between mortgagee and mortgagor -usually range from six months to 10 years.

Open Mortgage - A mortgage which can be prepaid at any time, without penalty.  Interest rates are usually  higher for open mortgages.

Payment Frequency - How often you want to make payments: every week, every other week, twice a month or monthly.

P.I.T. - Principal, interest and taxes. These make up the regular payment on a mortgage if the lender is including property taxes in your mortgage payments

Porting - This means that you can take your mortgage with you to another qualifying property without having to lose your existing interest rate and avoid prepayment penalties.

Prepayment Charge - A fee charged by the lender when the borrower prepays any part of a closed mortgage beyond what is allowed in prepayment privileges set out in the mortgage agreement.

Prepayment Privileges - Lenders generally offer some prepayments without penalty like 20% per year lump sum plus 20% increase in regular payment but vary based on the mortgage agreement.

Principal - The amount of money borrowed for a new mortgage.

Property Transfer Tax - Provincial Tax when property changes hands.  The 2008 provincial budget increased the threshold for first time buyers exemption to $425,000.  For the rest of us, the the tax is calculated at 1% of the first $200,000 and 2% thereafter.

Refinancing - Renegotiating your existing mortgage agreement. You may be increasing the principal or paying out the mortgage in full and arranging a new mortgage.

Renewal - At the end of a mortgage term, a mortgage can  be renewed if the terms and conditions acceptable to both the lender and the borrower. Otherwise, the lender will be repaid in full and the borrower will arrange financing elsewhere.  It is never advisable to just renew without having your mortgage broker review available options.

Term - The length of the current mortgage agreement. This is different than amortization which is the length of time it will take to pay off the mortgage in full.  The term is the lenth of time that the existing terms and conditions (like interest rate and prepayment privileges) apply.

Title Insurance - Title insurance is different from all other types of insurance.  Policies are available for lenders AND for homeowners.  Lenders often request title insurance to protect their interests if a property survey is not available (title insurance is usually faster and less expensive than getting a new survey done).  A homeowner policy protects your ownership or title against losses incurred as a result of undetected or unknown title defects, for as long as you own your home. Even if you are the rightful owner of your home, there are instances such as real estate title fraud, when your title can come into question.  Attached please find a brochure for First Canadian Title

Total Debt Service (TDS) Ratio - The percentage of gross income needed to cover monthly payments for housing and all other debts and financing obligations.

Variable Rate Mortgage - A mortgage where interest rates float with the prime rate.

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