Glossary of Mortgage Terms

Here’s a glossary of mortgage terms you’ll run into as you search for that perfect mortgage – in alphabetical order.

Amortization period: The actual number of years it will take to pay back your mortgage loan.

Anniversary: Many mortgage products allow you to make payments against the principal on the anniversary of the mortgage.

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

Assumability: Allows the buyer to take over the seller’s mortgage on the property.

CMHC: Canada Mortgage and Housing Corporation, a Crown corporation that administers the National Housing Act for the federal government and encourages the improvement of housing and living conditions for Canadians. CMHC is another source for high-ratio mortgage insurance.

Capped rate: An interest rate with a pre-determined ceiling, usually associated with a variable-rate mortgage.

Closed mortgage: Locks you into a specific payment schedule. A penalty usually applies if you repay the loan in full before the end of a closed term.

Closing costs: Costs in addition to the purchase price of a property and which are payable on the closing date. Examples include legal fees, land transfer taxes, and disbursements.

Closing date: The date on which the sale of a property becomes final and the buyer takes possession.

Conditional offer: An offer subject to conditions such as loan approval.

Condominium fee: A fee paid by the condo owner that is allocated to pay building expenses.

Conventional mortgage: A loan issued for up to 80% of the property’s appraised value or purchase price, whichever is less.

Convertible mortgage: A mortgage that you can change from short-term to long-term.

Deed: A legal document, signed by both parties, that transfers ownership.

Default: Failure to abide by the terms of the mortgage; may result in legal action such as foreclosure.

Deposit: A sum paid to the seller and held by a third party upon the offer to purchase.

Down payment: The buyer’s cash payment toward the property; the difference between the purchase price and the mortgage loan.

Easement: The right to use another’s property for a specific purpose (e.g. a shared driveway).

Encroachment: A physical intrusion from one property to an adjoining property.

Equity: The difference between your home’s value and the money you owe against it.

Genworth: A private sector supplier of mortgage default insurance in Canada. A leading source of high-ratio mortgage insurance.

Gross debt service ratio: The percentage of a borrower’s monthly income to go to mortgage payments, utilities, taxes, and half of condo fees.

High-ratio mortgage: A mortgage that exceeds 80% of the home’s appraised value. (These mortgages must be insured for payment.)

Home insurance: Insurance to cover both your home and its contents in the event of fire, theft, vandalism, etc. (also referred to as property insurance). This is different from mortgage life insurance, which pays the outstanding balance of your mortgage in full if you die.

Inspection: The process of having a qualified home inspector identify potential strengths and weaknesses in the property you are interested in so that you may have a good idea of its functional condition.

Interest adjustment: The amount of interest due between the date your mortgage starts and the date the first mortgage payment is calculated from. Avoid it by arranging to make your first mortgage payment exactly one payment period after your closing date.

Interest rate: The value charged by the lender for the use of the lender’s money, expressed as a percentage.

Land transfer tax, deed tax, or property purchase tax: A fee paid to the municipal and/or provincial government for the transferring of property from seller to buyer.

Legal fees and disbursements: Some of the legal costs associated with the sale or purchase of a property. It’s in your best interest to engage the services of a real estate lawyer (or a notary in Quebec).

Lien: A claim for money owed by a property owner to a supplier or contractor.

Listing agreement: A legal agreement between the listing broker and the seller describing the property for sale and stating the services to be provided and the terms of payment. A commission is generally payable to the broker upon closing.

Lump-sum payment: An extra payment that you make to reduce the amount of your mortgage. This is the same as pre-paying, which you cannot do if you have a closed mortgage.

Maturity date: The end of the term of the loan, at which time you can pay off the mortgage or renew it.

MLS®: Multiple Listing Service®, trademarks owned by the Canadian Real Estate Association. They are used in conjunction with a real estate database service, operated by local real estate boards, under which properties may be listed, purchased, or sold.

Mortgage: A loan that you take out in order to buy property. The collateral is the property itself.

Mortgage broker: A person or company offering mortgage products from several financial institutions.

Mortgage insurance: Applies to high-ratio mortgages. It protects the lender against loss if the borrower is unable to repay the mortgage.

Mortgage life insurance: Pays off the mortgage if the borrower dies so that his or her heirs do not assume the debt.

Mortgage rate: The percentage interest that you pay on top of the loan principal.

Mortgagee: The lender.

Mortgagor: The borrower.

Moving expenses: The cost of hiring packers, movers, or renting a van.

Offer to purchase: A legally binding agreement between you and the person who owns the house you want to buy. It includes the price you are offering, what you expect to be included with the house, and the financial conditions of sale (your financing arrangements, the closing date, etc.).

Open mortgage: Allows partial or full payment of the principal at any time, without penalty.

Portability: A mortgage option that enables borrowers to take their current mortgage with them to another property without penalty.

Pre-approved mortgage: Qualifies you for a mortgage amount before you start shopping.

Pre-approved mortgage certificate: A written agreement stating that you will get a mortgage for a set amount of money at a set interest rate.

Prepaid property tax and utility adjustments: The amount you will owe if the person selling you the home has prepaid any property taxes or utility bills.

Prepayments: Voluntary payments in addition to regular mortgage payments.

Principal: The amount borrowed or still owing on a mortgage loan.

Property survey: A legal description of your property and its location and dimensions (usually required by your mortgage lender).

REALTOR®: Trademark identifying real estate professionals in Canada who are members of the Canadian Real Estate Association, and as such, who subscribe to a high standard of professional service and to a strict code of ethics.

Refinancing: Increasing the amount of your current mortgage (at a new interest rate). The term of the new mortgage must be equal to or greater than the term remaining on your current mortgage.

Renewal: Renegotiation of a mortgage loan at the end of a term for a new term.

Sales taxes: Taxes applied to the purchase cost of a property. Some properties are exempt from sales tax and some are not. For instance, residential resale properties are usually GST exempt, while new properties require GST.

Service charges: Extra costs incurred when hooking up hydro, gas, phone, etc. to a new address.

Second mortgage: Additional financing, which usually has a shorter term and a higher interest rate than the first mortgage.

Survey: A document that shows the boundaries of the property and specifies encroachments, easements, and the placement of buildings on the property.

Term: The period for which the conditions of the mortgage apply and after which must be renegotiated.

Title: Legal ownership in a property.

Total debt service ratio: The percentage of the buyer or owner’s gross annual income required to pay mortgage, utilities, insurance, debts, and all other payments.

Variable-rate mortgage: A mortgage with an interest rate that changes with the market.

Vendor take-back mortgage: When the seller provides some or all of the mortgage financing in order to sell the property.

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