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Mortgage Glossary

Appraisal
A process undertaken by an independent appraiser hired by the bank to determine the value of the property and whether it meets lending criteria. This value may or may not match the purchase price of the home.

Amortization Period
Number of years it takes to repay the entire amount of the mortgage.

Adjustments
Property taxes and/or utility bills and condominium common expenses, if any, that have been prepaid by the vendor are pro-rated and paid by the purchaser to the vendor on closing.

Closed Mortgage
A mortgage which cannot be prepaid, renegotiated or refinanced prior to the expiry of the term, except with compensation or breakage costs.

Conditional Offer
An offer to purchase subject to specified conditions. These conditions could include the arranging of satisfactory mortgage financing, a satisfactory inspection or the selling of a present home. A time limit in which the specified conditions must be met should be stipulated in the offer to purchase.

Conventional Mortgage
The principal amount of which cannot exceed 80% of the lesser of the appraised value of the property or the purchase price for the property.

Equity
The interest the owner holds in a property over and above all claims to the property. It is usually the difference between any outstanding mortgages and the market value of the property

Fire and Property Insurance
Before closing date, the purchaser must have fire and property insurance arranged and in effect. Evidence of the insurance is required by the mortgage lender prior to advancing mortgage funds.

Fixed-rate Mortgage
The interest rate on a fixed-rate mortgage is set for a pre-determined term - usually between 6 months and 25 years - and cannot be renegotiated, except upon payment of breakage costs. Interest is calculated semi-annually, not in advance.

Foreclosure
A legal procedure whereby the lender obtains ownership of the property following default by the borrower by terminating all of the borrower's rights in the property covered by the mortgage.

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

Mortgage Default Insurance
This insurance is mandatory for borrowers with a down payment of less than 20%

Offer to Purchase
A written contract setting forth the terms under which the buyer agrees to purchase a property. Upon acceptance by the seller, it forms a contract which determines the rights and obligations of the buyer and seller concerning the purchase and sale. It includes the legal and/or municipal description (this may consist of lot numbers as well as street address), purchase price, closing date, mortgage and terms of repayment, and lists specific items included or excluded from the sale.

Prepayment Option
The right to pay specified amounts of the principal balance prior to the maturity date of the mortgage. Breakage costs may be payable when a prepayment option is exercised under a closed mortgage.

Term
The length of time during which the specific mortgage agreement is effective. When the term expires, the balance of the principal is either repaid in full or the mortgage is renegotiated at then-current market rates and conditions.

Title
Right of ownership of property, and including evidence of such ownership.

Total Debt Service Ratio
The percentage of the borrower's gross income that will be used for monthly payments of principal, interest, taxes, heating and other outstanding loans and debts.

Variable Rate Mortgage
An interest rate on a mortgage that fluctuates according to changes in the prime lending rate. A variable rate mortgage has payments which are fixed for the term, even though interest rates may fluctuate during that time. If interest rates go down, more of the payment is applied to reduce the principal; if rates go up, more of the payment is applied to payment of interest. Variable rate mortgages may be open or closed.

Zoning Laws
Municipal laws prescribing the use of land for specific purposes, and the use to which buildings on the land may be put.