Mortgage glossary

Acceleration
This is an expression that is usually used when a person chooses to pay a mortgage on a weekly or a bi-weekly basis although it can apply to any repayment program. All mortgages are drawn with a requirement that you make payments monthly. However, the bank will usually agree to administer one half of the required monthly payment each bi-weekly period. You are paying the equivalent to one extra monthly payment per year and therefore paying off your mortgage more quickly. If you chose to pay weekly and pay one quarter of a monthly payment each weekly period you get the same benefit. Be sure to arrange that your mortgage payment dates match your paydays!

Agreement of Purchase and Sale
This is a legal agreement that offers a certain price for a home. The offer may be firm (no conditions attached), or conditional (certain conditions must be fulfilled before the deal can be closed).

Amortization
This is the period of time it takes to pay off your mortgage in full. Typically you would choose the longest amortization available which is 30 years

Appraisal
This is a process, which determines the market value of property. A professional appraiser who will prepare a comprehensive report complete with photographs of the home will usually perform this.

Appraisal Value
This is an estimate of the market value of the property.

Assumable
When a mortgage is assumable, a buyer may take over the responsibilities and benefits of the sellers' existing mortgage. This may be advantageous to a buyer if the interest rate on the mortgage is below the current market rates. Before assuming a mortgage, approval must be obtained from the lender.

Blended Payment
This is a mortgage payment that includes both interest and principal repayment. The amount of interest taken from each payment reduces while the amount applied to principal reduction increases over time, but the payment remains constant.

Certificate of Location or Survey
This is a document specifying the exact location of the building on the property and describing the type and size of the building including additions, if any.

Certificate of Search or Abstract of Title
This is a document setting out instruments registered against the title to the property, e.g. deed, mortgages, etc.

Closed Mortgage
A mortgage may be an open or closed mortgage. An open mortgage usually charges a higher interest rate but may be paid off at any time without penalty while a closed mortgage may not be paid off during the term without penalty. Be careful, as some mortgages may not be paid off even with a penalty before the maturity date. See also Prepayment Penalty and Maturity Date.

Closing Costs
These are expenses, in addition to the purchase price of the home, that are payable on completion date. CHMC and Genworth require that you have 1.5% of mortgage available for closing fees.

CMHC, Genworth or CG (Canada Guaranty)

Mortgage insurance insures the lender against loss in case of default by the borrower. CMHC, Genworth or CG provides mortgage insurance to the lender and the borrower pays the premium.

Commitment Letter
This is written notification from the lender to the borrower that approves the mortgage request and which should include the amount of the mortgage, interest rate, payment and all terms and conditions.

Completion Date
This is the date on which your purchase will complete and money will change hands between you and the sellers.

Conditional Offer
This is an offer to purchase subject to conditions. These conditions may relate to financing, or the sale of an existing home. Usually a time limit in which the specified conditions must be satisfied is stipulated.

Conventional Mortgage
A mortgage loan up to a maximum of 80% of the purchase price is referred to as a conventional mortgage. Any mortgage in excess of 80% must be insured against default. See High Ratio Mortgage.

Deed (Certificate of Ownership)
This is the document signed by the seller transferring ownership of the home to the purchaser. This document is then registered against the title to the property as evidence of the purchaser's ownership of the property.

Deposit
This is the sum of money deposited in trust 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
This is the interest of the owner in a property over and above all claims against the property. It is usually the difference between the market value of the property and any outstanding encumbrances.

Fire Insurance
Before a mortgage can be advanced, the purchaser must have arranged fire insurance. A certificate or binder from the insurance company may be required on closing.

Firm Offer
This is an offer to buy the property as outlined in the offer to purchase with no conditions attached.

Fixed-Rate Mortgage
This is a mortgage for which the rate of interest is fixed for a specific period of time (the term).

Foreclosure
This is a legal procedure whereby the lender eventually obtains ownership of the property after the borrower has defaulted on payments.

Gross Debt Service Ratio (GDS)
This is the percentage of your gross income, which you will be using to pay for the mortgage payment including property taxes and a fixed amount for heat ( usually $85/per month). See also Total Debt Service Ratio. (TDS).

High Ratio Mortgage
This is a mortgage where you have a down payment of less that 20% of the purchase price. This type of mortgage must be insured against default. See also Conventional Mortgages.

Holdback
This is an amount of money required to be withheld by the lender during the construction or renovation of a house to ensure that construction is satisfactorily completed at every stage.

Inspection
This is the examination of the house by a building inspector selected by the purchaser.

Interest Adjustment Date
This is the date that the lender will start collecting interest. Your regular payments will commence one payment period after this date. For example, if you have chosen to make bi-weekly payments, your first payment will come due two weeks after the Interest Adjustment Date. When you sign your mortgage papers the bank will collect from you an "Interest Adjustment" which is a calculation of interest from the Completion Date to the Adjustment Date.

Interim Financing
This is 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.

Loan to Value Ratio
The amount of the mortgage expressed as a percentage of the value of the home. For example, if you wish to borrow $190,000 on a home you are buying for $200,000, the Loan to Value Ratio is 95%.

Maturity Date
This is the last day of the term of your mortgage agreement. On the Maturity Date the mortgage must be paid in full, renewed with the same lender or transferred to a new lender.

Mortgage
A mortgage is actually a document, which is registered in Land Titles Office and provides evidence that you have given your home as collateral to a lender to secure a loan. In practice, the loan itself is usually referred to as a mortgage.

Mortgage Life Insurance
This is a form of reducing term insurance recommended for all mortgagors. If you die, have a terminal illness, or suffer an accident, the insurance can pay the balance owing on the mortgage. The intent is to protect survivors from the loss of their homes.

Mortgage Term
This is the number of years or months over which you pay a specified interest rate. Terms usually range from six months to 10 years.

Mortgagee
This is the lender who provides a loan secured by a mortgage.

Mortgagor
This is the person who takes out a loan, which is secured by a mortgage.

Net Worth
The difference between what you own (assets) and what you owe (liabilities) is called your net worth.

Open Mortgage
This is a mortgage, which can be prepaid at any time, without penalty.

P.I.T.
Principal, interest and taxes. Together, these make up the regular payment on a mortgage if you elect to include property taxes in your mortgage payments.

Portable
A portable mortgage is a mortgage that can be transferred from one property to another. This is particularly useful if you sell one home and buy another.

Porting
This allows you to move to another property without having to lose your existing interest rate. You can keep your existing mortgage balance, term and interest rate plus save money by avoiding early discharge penalties.

Prepayment Option
The ability to prepay all or a portion of the principal balance. Prepayment charges may be incurred on the exercise of prepayment options.

Prepayment Penalty
Unless it is open, the mortgage may not be paid off before the Maturity Date without paying a Prepayment Penalty. Be very careful when negotiating a mortgage, as some mortgages cannot be paid off at all before the Maturity Date. See also Closed Mortgages and Maturity Date.

Prepayment Privilege
When you negotiate a closed mortgage, you are entering into an agreement with the lender that you will not pay off the mortgage during the term. In return, the lender agrees to maintain the same interest rate throughout the term. However, most mortgages allow certain prepayment privileges such as an annual prepayment of a certain percentage of the mortgage amount or an annual increase in the mortgage amount. An open mortgage will usually cost more but allows you to repay the mortgage in full or in part at any time without penalty.

Principal
This is the amount of money actually borrowed.

Refinancing
This is renegotiating your existing mortgage agreement, and may include increasing the principal or paying out the mortgage in full.

Renewal
At the end of a mortgage term, the mortgage may "roll over" on new terms and conditions acceptable to both the lender and the borrower. This is known as renewing a mortgage. Otherwise, the lender is entitled to be repaid in full. In this case, the borrower may seek alternative financing.

Security
In the case of mortgages, it is real estate offered as collateral for the loan.

Survey
This is a certificate showing the home and other buildings relative to the property boundary.

Total Debt Service Ratio
This is the percentage of your gross income which, you will be using to pay for the mortgage payment including property taxes, heat and all other debt payment such as credit cards and bank loans. See also Gross Debt Service Ratio (GDS).

Variable Rate Mortgage
This is a mortgage for which the rate of interest may change if other market conditions change. This is sometimes referred to as a floating rate mortgage.