A

Agreement of Purchase and Sale – 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 Period – The time over which all regular payments would pay off the mortgage. This is usually 25 years for a new mortgage, however can be greater, up to a maximum of 35 years.

Annual Percentage Rate (APR)-The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents the actual yearly cost of funds over the term of a loan. This includes any fees or additional costs associated with the transaction.

Appraisal – The process of determining the value of property, usually for lending purposes. This value may or may not be the same as the purchase price of the home.

Appraisal Value – An estimate of the market value of the property.

B

Bankruptcy- A legal proceeding involving a person or business that is unable to repay outstanding debts. The bankruptcy process begins with a petition filed by the debtor (most common) or on behalf of creditors (less common). All of the debtor’s assets are measured and evaluated, whereupon the assets are used to repay a portion of outstanding debt. Upon the successful completion of bankruptcy proceedings, the debtor is relieved of the debt obligations incurred prior to filing for bankruptcy.

Benchmark Rate-The benchmark rate is the rate that lenders need to use to qualify mortgage borrowers in Canada who want to secure a variable rate mortgage or a mortgage term less than 5 years.

Blanket Mortgage- A mortgage which covers two or more pieces of real estate. The real estate is held as collateral on the mortgage, but the individual pieces of the real estate may be sold without retiring the entire mortgage.

Blended Payments – Payments consisting of both a principal and an interest component, paid on a regular basis (e.g. weekly, biweekly, monthly) during the term of the mortgage. The principal portion of payment increases, while the interest portion decreases over the term of the mortgage, but the total regular payment usually does not change.

C

Canada Mortgage and Housing Corporation (CMHC) – The National Housing Act (NHA) authorized Canada Mortgage and Housing Corporation (CMHC) to operate a Mortgage Insurance Fund which protects NHA Approved Lenders from losses resulting from borrower default.

Certificate of Location or Survey – 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 – A document setting out instruments registered against the title to the property, e.g. deed, mortgages, etc.

Closed Mortgage – A mortgage agreement that cannot be prepaid, renegotiated or refinanced before maturity, except according to its terms.

Closing Costs – Various expenses associated with purchasing a home. These costs can include, but are not limited to, legal/notary fees and disbursements, property land transfer taxes, as well as adjustments for prepaid property taxes or condominium common expenses, if any.

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

CMHC Insurance Premium – Mortgage insurance insures the lender against loss in case of default by the borrower. Mortgage insurance is provided to the lender by CMHC or 1 or 1 of the other 2 insurers, and the premium is paid by the borrower.

Collateral-Collateral is a form of insurance to the lender in case the borrower fails to pay back the loan. For example, if a person gets a mortgage, the collateral would be the house. In margin stock trading, the securities in the account act as collateral against the margin loan.

Conditional Offer – 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.

Consumer Proposal- is an alternative to bankruptcy available in Canada. It is essentially a negotiated settlement between between a consumer unable to pay and their creditors.

Conventional Mortgage – A mortgage that does not exceed 80% of the purchase price of the home. Mortgages that exceed this limit must be insured against default, and are referred to as high-ratio mortgages (see below).

Co-Signer- A term referring to a person, other than the principal borrower, who signs for a mortgage. The cosigner(s) assumes equal liability for the loan and must disclose it as a debt on any future credit applications.

Credit Report- A credit report is a record of your credit activities. It lists any credit-card accounts or loans you may have, the balances, and how regularly you make your payments. It also shows if any action has been taken against you because of unpaid bills.

Credit Score-Your credit score is drawn from your credit report, which outlines your borrowing, charging, and repayment activities. Your credit score is determined by a variety of different factors. If you would like to learn more about those factors, you can contact us at Please Click here to Contact Us and we would be happy to send you more information.

D

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 condominium fees.

Deed (Certificate of Ownership) – 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 – A 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.

Down-payment- The part of the purchase price paid in cash up front by the borrower, reducing the amount of the mortgage needed.

E

Equity – 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.

F

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 – An offer to buy the property as outlined in the offer to purchase with no conditions attached.

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

Foreclosure – A legal procedure whereby the lender eventually obtains ownership of the property after the borrower has defaulted on payments.

G

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.

Gross Household Income – Gross household income is the total salary, wages, commissions and other assured income, before deductions, by all household members who are co-applicants for the mortgage.

H

High Ratio Mortgage – If you don’t have 20% of the lesser of the purchase price or appraised value of the property, your mortgage must be insured against payment default by a Mortgage Insurer, such as CMHC.

Holdback – 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.

Home Equity – The difference between the price for which a home could be sold (market value) and the total debts registered against it.

I

Inspection – The examination of the house by a building inspector selected by the purchaser.

Interest- The interest charged on a loan used to purchase a residence. Mortgage interest is charged for both primary and secondary loans, home equity loans, lines of credit, and as long as the residence is used to secure the loan.

Interest Rate Differential Amount (IRD) – An IRD amount is a compensation charge that may apply if you pay off your mortgage principal prior to the maturity date or pay the mortgage principal down beyond the prepayment privilege amount. The IRD amount is calculated on the amount being prepaid using an interest rate equal to the difference between your existing mortgage interest rate and the interest rate that we can now charge when re-lending the funds for the remaining term of the mortgage. For more information, click on compensation amounts.

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.

M

Maturity Date – Last day of the term of the mortgage agreement.

Mortgage Critical Illness Insurance – Mortgage Critical Illness Insurance is available as an enhancement to Mortgage Life Insurance. Mortgage Critical Illness Insurance is underwritten by the Canada Life Assurance Company. Complete details of benefits, exclusions and limitations are contained in the Certificate of Insurance. It is recommended for all mortgagors. It can pay off your TD Canada Trust mortgage (up to $300,000) if you are diagnosed with life-threatening cancer, heart attack or stroke.

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

Mortgage Life Insurance – 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 – The number of years or months over which you pay a specified interest rate. Terms usually range from six months to 10 years.

O

Open Mortgage – A mortgage which can be prepaid at any time, without penalty.

Offer to Purchase-An agreement between a buyer and seller to purchase real estate. An offer to purchase, also known as a binder or a sales contract, secures the right to purchase real estate upon agreed terms for a limited period of time. If the buyer changes his mind or is unable to purchase, the earnest money that was paid is forfeited unless the binder expressly provides that it is to be refunded.

P

Payment Frequency – The choice of making regular mortgage payments every week, every other week, twice a month or monthly.

Payout Penalty- A payout penalty is charged when you pay off the mortgage principle prior to the renewal date or pay the mortgage principal down beyond the prepayment privilege amount. The most common payout penalty calculations are the GREATER of 3 months interest or interest rate differential (IRD)

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

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 Privileges – Most lenders offer pre-paypayment privileges, meaning you can pay off a small portion of your mortgage with no penalty.

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

R

Refinancing – Renegotiating your existing mortgage agreement. 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.

S

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

T

Term – The length of the current mortgage agreement. A mortgage may be amortized over a long period (such as 35 years) with a shorter term (six months to five years or more). After the term expires, the balance of the principal then owing on the mortgage can be repaid or a new mortgage agreement can be entered into at the then current interest rates. Visit our Renewal site.

Total Debt Service (TDS) Ratio – The percentage of gross income needed to cover monthly payments for housing and all other debts and financing obligations. The total should generally not exceed 37% of gross monthly income.

V

Variable Rate Mortgage – 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.