Glossary

50-50 MORTGAGE

A 50–50 mortgage, also known as a hybrid mortgage, is a mortgage combining the features of a fixed rate mortgage with the features of a variable rate mortgage.

 

ACCELERATED BI-WEEKLY MORTGAGE PAYMENTS

Mortgage payments that are made every two weeks (the date of which won’t always fall on the first day of a month). If you choose accelerated bi-weekly payments, you will make 26 payments a year.

 

ADJUSTABLE RATE MORTGAGE

Also known as an ARM, this is a mortgage where the payments do not change and the interest rate is periodically adjusted based on Prime Rate.

 

ADJUSTMENT DATE

An adjustment date, or interest adjustment date, is the date in which the interest will begin to accrue on your mortgage. The amount is determined by the time between your interest adjustment date and first mortgage payment date.

 

AMORTIZATION PERIOD

Amortization period refers to the number of years it will take to pay down the principal balance of your mortgage in full. The most common amortization period is 25 years, however you can choose an amortization period of up to 35 years.

 

AMORTIZATION SCHEDULE

An amortization schedule is a table of periodic payments made to a mortgage. It shows the amount paid, the amount applied to interest, the amount applied to principal and the remaining balance after the payment is made.

 

APPRAISAL

A report prepared by a real estate appraiser that estimates the value of a home and states features/properties of the home. Lenders generally require appraisals to verify that the buyer has purchased the home for a fair market price, to determine what the market rents are for the home, to ensure that the home meets the lender’s standards, to determine how much equity the home owner has in the home, etc.

 

APPRAISED VALUE

Appraised value is the fair market value of a piece of property as determined by a licensed and qualified appraiser. More articles on appraisals can be found on our blog.

 

ARTICLES OF INCORPORATION

A document filed with the Government by a corporation’s founders describing the purpose, name, place of business, and other details of the corporation. These will frequently include a certificate of incorporation as well.

 

ASSET

Something that you own that has value or use. Example: RRSPs, vehicle, savings, home, etc.

 

ASSUMABLE MORTGAGE

An assumable mortgage is a mortgage that may be transferred without changing the terms of the original mortgage.

 

BENCHMARK RATE

The benchmark rate is set by the Bank of Canada. It is used to to determine if you qualify for a mortgage when taking a variable rate mortgage term, or fixed term of 4 years or less. 5-year fixed terms or longer qualify at the contract rate offered.

 

BRIDGE FINANCING

See Interim Financing.

 

BRIDGE LOAN

Also known as interim financing, a bridge loan is a second mortgage that is paid of immediately following the closing date of the buyer’s current home. Bridge financing is typically used when the sale of the buyer’s current home closes after the purchase of his or her new home closes.

 

CLOSED MORTGAGE

A mortgage that, for a specified term, locks you into paying the mortgage for that period of time. It also locks in a mortgage rate, which doesn’t increase/decrease if rates do. Generally, if you break a closed mortgage, you will be required to pay a penalty to get of the mortgage before your term is finished. The most common term for a closed mortgage is five years.

 

CLOSING COSTS

These are costs that are associated with completing the mortgage transaction. Some closing costs could be lawyer fees, title insurance, appraisal fees, fire insurance and home inspection fees.

 

CLOSING DATE

The closing date represents the day ownership of a home transfers from the seller to the buyer and is stated and agreed to by all parties on the sale contract. For refinances, it is the date your new mortgage funds.

 

COLLATERAL

A security or guarantee pledged for the repayment of a loan if an individual does not have enough funds to repay. In respect to mortgage loans, the collateral is the property being mortgaged.

 

COMPOUND PERIOD

The number of times per year that the interest rate is compounded. In Canada, mortgage interest rates are compounded semi-annually, or twice per year. Some variable rate or home equity line of credit products feature interest that compounds every month.

 

CONDO FEE

Condo fees consist of the monthly payments collected that cover a resident’s shared expenses for the upkeep of all common areas.

 

CONVENTIONAL MORTGAGE

A mortgage loan that is up to 80% of the home’s appraised value or purchase price (whichever is less).

 

CO-SIGNER

If you cannot qualify for a mortgage on your own, you may be asked to bring on a co-signer. A strong co-signer will add strength to the mortgage application increasing the likelihood of an approval. Your co-signer will go on the title of the property, and be responsible for the mortgage payments if you do not pay. They will also have to disclose the mortgage payments on any applications for future borrowings.

 

CREDIT BUREAU

Also known as a credit report, Is a document that details a borrowers repayment habits. A credit reporting agency gathers credit information and compiles it into a credit report & in turn a credit score. The two credit bureaus in Canada are Equifax Canada and Trans Union of Canada.

 

CREDIT SCORE

A credit score is a grade given to your credit situation and credit history.

 

CREDITOR

A person or company to whom money is owed. Also known as the lender.

 

DEBT CONSOLIDATION

Debt consolidation is a means of combining several debts into one debt that has one monthly payment.

 

DEFAULT

Failure to pay a debt as agreed. In respect to mortgages, failure to pay mortgage payments, which could lead to foreclosure.

 

DEPOSIT

A monetary deposit given to a lender, seller or landlord as proof of intent. Security deposits can be either refundable or nonrefundable, depending on the terms of the transaction. As the name implies, the deposit is intended as a measure of security for the recipient.

 

DOWN PAYMENT

The amount of cash that the buyer can initially invest in the property. The down payment is the difference between the purchase price and the value of the mortgage loan.

 

EQUITY

The value of the property beyond any amounts being owed, therefore the difference between the price that a home could be sold for and the amount still owing on any mortgages.

 

EQUITY LOAN

An equity loan is a loan secured by real estate, often used when referring to mortgage applications based more on the strength of the property than the borrower.

 

EQUITY TAKE OUT MORTGAGE

An equity take out mortgage is a mortgage loan used to ‘take out’ equity from a property for a variety of reasons.

 

FAIR MARKET VALUE

Fair market value (FMV) is defined as the price a ready, willing and able buyer, with knowledge of all pertinent facts, is willing to pay for a certain piece of property.

 

FIRST MORTGAGE

The mortgage whose holder has the first place claim on assets in the event of default. They are also the first to be paid out from the proceeds in the event of a sale.

 

FIXED RATE MORTGAGE

A mortgage for which the interest rate has been fixed for a certain period of time (generally the length of a mortgage term).

 

FORECLOSURE

The legal process in which the mortgage lender sells the mortgaged property because the borrower has defaulted on his or her mortgage loan.

 

GDS RATIO

GDS stands for Gross Debt Service. This is the percentage of annual gross income that is required to cover mortgage principal payments, mortgage interest payments, property taxes, and heat payments. If the property is a condominium, condo fees will also be worked into this ratio.

 

GIFT LETTER

This is a letter stating that the gift giver (an immediate family member) in making a gift of a certain amount to the gift receiver for the down payment of a home. It also states that the gift is genuine and that the gift receiver (or home buyer) is not required to pay back the gift at any time.

 

HELOC or HOME EQUITY LINE OF CREDIT

A HELOC is an acronym standing for Home Equity Line of Credit. It is a product that features an open term, a variable rate and interest- only payments.

 

HIGH-RATIO MORTGAGE

A mortgage that is more than 80% of the home’s appraised value or purchase price (whichever is less). High-ratio mortgages must be insured to protect the lender against default.

 

HOME INSURANCE

Home insurance provides payment to the homeowner and/or mortgage holder in the event of loss due to fire, theft, or damage through certain natural elements such as hail, tornado, lightning and flooding.

 

HOME INSURANCE POLICY

A home insurance policy is an insurance policy covering your physical home in the event of fire or other casualty, the contents of the home and other losses you may suffer due to destruction of the property, in whole or in part.

 

INTEREST RATE

The percentage of the mortgage loan charged by the lender for use of the lender’s money. In Canada, this mortgage rate is compounded semi-annually, or twice per year, on most products.

 

INTEREST RATE DIFFERENTIAL

The IRD amount is calculated on the amount being repaid using an interest rate equal to the difference between your existing mortgage interest rate and the interest rate the lender can now charge when re-lending the funds for the remaining term of the mortgage.

 

INTERIM FINANCING

Also known as bridge financing, interim financing is a second mortgage that is paid of immediately following the closing date of the buyer’s current home. Interim financing is typically used when the sale of the buyer’s current home closes after the purchase of his or her new home closes.

 

JOB LETTER

A letter from your employer stating your length of employment, guaranteed number of hours worked per week, income amount, and signed by a superior on company letterhead.

 

LENDER

A mortgage lender is an entity that provides financing for the purchase of real estate.

 

LIABILITY

A financial obligation of an individual, such as credit card debt, car payments, mortgage payments, etc.

 

LIEN

A claim against a property to secure the payment of a debt or other obligation.

 

LOAN

A borrowed amount of money that is generally repaid in full as well as with a certain amount of interest.

 

LOAN TO VALUE RATIO (LTV)

The ratio of the value of the mortgage loan to the appraised value or purchase price of the property (whichever is less). For example, if someone purchased a home for $100,000 and had $20,000 as a down payment, the mortgage would be $80,000, or 80% of the value of the home (therefore an 80% LTV).

 

LOANS OFFICER

A loans officer is an employee of a lending institution that functions as the liaison between that lender and it’s customers that are applying for a loan.

 

MARKET RENT

This option can be used in lieu of a lease agreement in order to determine rental income earned on an investment property. The market rent for a property is determined by an appraiser who sends the report to the lender.

 

MARKET VALUE

The highest price a buyer would pay and the lowest price a seller would accept on a property. Market value could differ from the price that the property could be sold for at a given time.

 

MATURITY DATE

The date that your mortgage term ends. At this point, you can either pay off your mortgage or renew it.

 

MORTGAGE

To pledge a property to a lender as security on a loan.

 

MORTGAGE AFFORDABILITY

Mortgage affordability is the amount of money a mortgage borrower can make on a monthly basis towards a mortgage, based upon their income, expenses, and the proposed monthly payment.

 

MORTGAGE APPLICATION

First step in obtaining financing for a real estate purchase.

 

MORTGAGE BALANCE

A mortgage balance is the full amount owed at any period of time during the duration of the mortgage, and is the sum of the remaining principal owing and accrued interest.

 

MORTGAGE BROKER

A Mortgage Broker can be a Licensed mortgage professional. Or, alternatively, a mortgage brokerage must employ a Mortgage Broker to oversee the brokerage employees. Generally Brokers are responsible for the management role within the brokerage. They are also responsible for ensuring that the brokerage complies with the Real Estate Act.

 

MORTGAGE BROKERAGE

A mortgage brokerage is a legal identity licensed to trade in mortgages. Mortgage Brokers and Licensed Mortgage Associates must be licensed under a brokerage.

 

MORTGAGE COMPANY

A mortgage company is a business with the principal activity of providing or servicing mortgage loans. A mortgage company may be a chartered bank, a credit union, a trust company or other financial institution providing mortgage loans.

 

MORTGAGE DEED

A mortgage deed is a document in which the mortgagor transfers an interest in real estate to a mortgagee for the purpose of providing a mortgage loan.

 

MORTGAGE HOLDER

A mortgage holder is an individual or entity who owns the mortgage loan that was extended to a homeowner, and is the party entitled to enforce the terms of the mortgage.

 

MORTGAGE INSURANCE

This is insurance that is required for high-ratio mortgages. It protects the lender in the event that a borrower defaults on a mortgage. The three mortgage insurers in Canada are CMHC(Canadian Mortgage and Housing Corporation), Genworth, and Canada Guaranty. Prior to the creation of CMHC, Canadians could not purchase a home without a 25% down payment.

 

MORTGAGE LENDER

A mortgage lender is an entity that provides financing for the purchase of real estate.

 

MORTGAGE LIFE INSURANCE

This is insurance that pays off the mortgage in the event of death, or covers your payments for a period of time in the if there’s a disability.

 

MORTGAGE LOAN

A mortgage loan is a loan secured by real estate owned by the borrower.

 

MORTGAGE PAYMENT

A mortgage payment is a periodic amount paid to a mortgage holder for repayment of a mortgage loan. There are different payment frequencies available.

 

MORTGAGE PRINCIPAL

Mortgage principal is the outstanding balance of your mortgage.

 

MORTGAGE QUALIFICATION

Mortgage qualification is the process of applying for a mortgage, having a mortgage application underwritten and submitting mortgage documents to a mortgage lender for review. The qualification is the standard by which the lender will lend money on a mortgage loan.

 

MORTGAGE RATE

Mortgage rate is the interest that a mortgage borrower will pay for money borrowed against a mortgage.

 

MORTGAGE REFINANCING

Mortgage refinancing is the process of replacing your mortgage or mortgages on your property with a new mortgage.

 

MORTGAGE RENEWAL

A mortgage renewal is a new agreement to extend or renew mortgage terms with your mortgage holder.

 

MORTGAGE STATEMENT

A statement received from your mortgage lender that includes such information as property address, outstanding principal balance, monthly payment, interest rate, mortgage term, etc.

 

MORTGAGE TERM

A mortgage term is the length of time, usually in years, in which the parameters of a mortgage have legal effect.

 

MORTGAGEE

The party that advances the funds for a mortgage loan; the lender.

 

MORTGAGOR

The party that uses their home as a security for a mortgage; the borrower.

 

NOTICE OF ASSESSMENT

This is also known as an NOA. It is the summary form that Revenue Canada sends you after your income tax has been filed. It specifies what you claimed as income on your taxes last year, as well as the amount of taxes you owe, or the amount of money that you will be received as a tax refund.

 

OPEN MORTGAGE

This is a mortgage with no payout penalties to break the term early. Open mortgage rates are usually higher than closed mortgage rates. Open terms can include Home Equity Line of Credits or open term mortgages products.

 

OVERNIGHT RATE

The overnight rate is the interest rate at which large banks borrow money, short term, among themselves.

 

PAYOUT PENALTY

Refer to our blog post for a more detailed definition of payout penalties.

 

PAY STUB

Usually a document you receive from your employer on your pay day stating, for that pay period, your gross earnings, the amount of CPP payments deducted, the amount of EI payments deducted, the amount of income income taxes deducted, net income, etc. Your pay stub should also state the year to date amounts of all the aforementioned income and payments.

 

PORTABLE MORTGAGE

A portable mortgage is a mortgage that permits the mortgage borrower to transfer their mortgage balance to a new property while staying with the same lender so as not to incur any penalties.

 

PORTABILITY

A feature of a mortgage that allows the borrower to “port” their mortgage to a new property if they move before his or her mortgage term is up (with no penalty).

 

PRE-APPROVED MORTGAGE

A pre-approved mortgage qualifies you for a loan amount before you start looking for houses. It also acts as a rate hold, guaranteeing you today’s interest rates until up to 120 days in the future.

 

PREPAYMENT PENALTIES

Also knows as a payout penalty. If you “break” (or pay off) your mortgage before your term is up, you’ll have to pay a prepayment penalty. The penalty is generally three months’ interest payments or something called an interest rate differential.

 

PREPAYMENT PRIVILEGES

Some mortgages allow you prepayment privileges. Examples of these are doubling up payments, paying off a certain percentage of your mortgage principal a year, or increasing your monthly mortgage payments by a certain percentage. The annual percentage is usually between 15-20% without penalty to you.

 

PRIME RATE

Prime rate or prime lending refers to the lowest commercial interest rate charged by a banks at a particular time. Prime rate is used to determine the interest rate charged on Variable Rate Mortgages & Home Equity Lines of Credit.

 

PRINCIPAL

The amount of money borrowed or still owing on a mortgage.

 

PROPERTY TAX ASSESSMENT

A property tax assessment is a method of placing value on real estate for the purpose of taxation.

 

PURCHASE CONTRACT

A legally binding document stating your (the buyer’s) intention to purchase a home from the seller provided that certain conditions be met (such as condition of financing, condition of a home inspection, etc.)

 

PURCHASE PRICE

A legally agreed upon price for purchase of a piece of land and/or property.

 

RATE LOCK

A rate lock refers to an agreement between a mortgage lender and a borrower to fix a certain interest rate for a number of days between the issuance of a mortgage approval and closing of the real estate purchase and mortgage loan. Also known as a rate hold.

 

READVANCEABLE MORTGAGE

A readvanceable mortgage is a feature of some mortgage lines of credit, including home equity lines of credit (HELOC) that allows you to pay off the balance and then charge it up again.

 

REAL ESTATE AGENT

A person who is authorized to act as an agent for the sale of real estate on behalf of the property owner.

 

REALTOR®

A real estate agent who is a member of a local real estate board, the Canadian Real Estate Association and a provincial association.

 

REFINANCING

Paying off the existing mortgage and arranging a new one with a different lender, or re-negotiating a new term, interest rate, etc. of an existing mortgage.

 

RENEWAL

The re-negotiation of the terms, interest rates, etc. of a mortgage at the end of the term.

 

RENT-TO-OWN

Rent-to-own is a type of legally documented transaction under which tangible property, such as furniture, consumer electronics and home appliances, is leased in exchange for a weekly or monthly payment, with the option to purchase at some point during the agreement.

 

REVERSE MORTGAGE

A reverse mortgage is a type of mortgage loan available in Canada that is designed for homeowners 60 years and older.

 

SALE CONTRACT

A sale contract, or Offer to Purchase, is a written agreement between a buyer and seller of real estate, setting forth the terms of the sale, and specifying the rights and duties of the parties in the real estate transaction. It is a legally binding document.

 

SECOND MORTGAGE

The mortgage whose holder has the second place claim on assets in the event of default, the 2nd mortgagor appears after the 1st mortgage holder on the property title.

 

SECURITY

The property that will be pledged as collateral for a loan. See Collateral.

 

SELLER FINANCING

Seller financing is a loan provided by the seller of a property or business to the purchaser. Usually, the purchaser will make some sort of down payment to the seller, and then make instalment payments (usually on a monthly basis) over a specified time, at an agreed-upon interest rate, until the loan is fully repaid.

 

SEMI-MONTHLY MORTGAGE PAYMENTS

Semi monthly mortgage payments are structured for the borrower to make payments 2 times per month, for instance, on the 1st and 15th of each month.

 

SWEAT EQUITY

Equity created by a purchaser or homeowner by performing self-done renovations to the property being purchased or refinanced.

 

TAKE OUT MORTGAGE

A take out mortgage is a mortgage loan used to “take out” equity for other purposes.

 

TDS RATIO

TDS stands for Total Debt Service. This is the percentage of annual gross income that is required to cover mortgage principal payments, mortgage interest payments, property taxes, and heat payments, plus monthly payments of any other debt the borrower holds. If the property is a condominium, condo fees will also be worked into this ratio.

 

TERM

The length of time the interest rate is fixed. The end of the term is also the time when the borrower must either pay the outstanding mortgage balance, or re-negotiate a new mortgage with the lender. If the borrower pays of his or her mortgage before the term is up, prepayment penalties may apply.

 

THIRD MORTGAGE

A third mortgage is a lien on property subordinate or junior to the first and second mortgages.

 

TITLE

Is the document that shows legal ownership of land and/or the property on the land.

 

TITLE INSURANCE

Insurance that protects the lender and/or owner or mortgagee of the property from any lawsuits or claims arising from a defective title.

 

UNDERWRITING

The process of deciding whether or not to provide a mortgage loan to a home buyer based on credit, employment, assets and other factors. This is also the matching of the home buyer to a mortgage lender, mortgage product, interest rate, mortgage term, etc.

 

VARIABLE RATE MORTGAGE

A mortgage that has fixed payments, but whose principal portion of the payment fluctuates with interest rate changes. Variable rate mortgages generally fluctuate in respect to the prime lending rate.

 

VENDOR-TAKE-BACK

A type of mortgage in which the seller offers to lend funds to the buyer to help facilitate the purchase of the property. The take-back mortgage often represents a secondary lien on the property, as most buyers will have a primary source of funding other than the seller.

 

VOID CHEQUE

A personal, pre-printed cheque with “void” written across is. This is provided to the lender for the account your mortgage payments will be coming out of, as proof that the account is, indeed, yours.