Glossary of Mortgage Terms

2017-03-22 | 06:56:47

Glossary of Mortgage Terms

We've compiled a list of mortgage terms for your reference. 
 

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
The number of years it takes to repay a mortgage in full.
 
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. 
 
Appraised Value
An estimate of the market value of the property used as security for the mortgage. Usually an independent appraiser using a variety of methods determines an estimated value of the property. An appraisal is normally required by a lender.
 

B 

Blended Mortgage Payment
Payments consisting of both a principal and an interest component, paid on a regular basis during the term of the mortgage. The principal portion of payment increases, while the interest portion decreases over the term.
 
Bridge Financing
A loan required to provide the funds needed for the closing of a property purchased to the time of the later closing of the property that was sold.
 

C

Canada Mortgage and Housing Corporation (CMHC)
The Canada Mortgage and Housing Corporation is a federal crown corporation providing housing programs that allows lenders to loan up to 95% of property value.
 
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
Mortgages that are locked in for a specific period. To get out of the mortgage usually requires a penalty payment.
 
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 the purchase of the property becomes final and the new owner takes possession.
 
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.
 
Conveyance
The transfer of the property title from the vendor (seller) to the purchaser on the records at the Land Titles Office.
 
Counteroffer
When the seller has amended something on the original offer, such as the price or closing date. If a counteroffer is presented, there is a specified amount of time to accept or reject it.
 
Credit Report: 
The main report that a lender uses to determine whether you can repay the loan.
 

D 

Debt-Service Ratio 
The percentage of the mortgage payments (principal and interest), heating costs and property taxes (and condominium fees when applicable) divided by the total gross income.
 
Deed (Certificate of Ownership)
A legal document that transfers ownership of the property to the buyer.
 
Default: Failure to fulfill the terms of a mortgage loan agreement. If you fail to make mortgage payments (defaulting the loan) this may result in the mortgage holder taking legal action to possess (foreclose) the mortgaged property.
 
Deposit 
Money placed in trust by the purchaser when an Offer to Purchase is made. The money is held by the real estate representative or your lawyer/notary, and is paid to the vendor when the sale is closed.
 
Depreciation: The decrease in value of something over time.
  
Discharge
The removal of the mortgage from the title. The house is then free of that mortgage debt.
 
Down payment
The portion of the home price that is not financed by the mortgage loan.
 

E 

Equity
The difference between the current value of a property and the outstanding mortgage amount at any time.
 

F

Firm Offer
An offer to buy the property as outlined in the offer to purchase with no conditions attached.
 
First Mortgage
A mortgage which is registered first in priority against the property.
 
Fixed Rate Mortgage
The rate of interest that is fixed for the term.
 
Foreclosure 
A legal procedure whereby the lender eventually obtains ownership of the property after the borrower has defaulted on payments.
 

G

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.
 

I

Inspection 
The examination of the house by a building inspector selected by the purchaser.
 
Interest
The cost of borrowing money.
 
Interest Rate
The amount charged by a lender for borrowing money (annual percentage).
 
Interest Rate Differential Amount (IRD) 
An IRD Amount is a prepayment 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 equivalent to the difference between your annual interest rate and the posted interest rate on a mortgage that is closest to the remainder of the term less any rate discount you received, multiplied by the amount being prepaid, and multiplied by the time that is remaining on the term.
 

L 

Lender: An organization that lends money to a borrower.
 
Lump Sum Prepayment
An extra payment made to reduce the balance of your mortgage, with or without penalty
 
Lending Value
The appraised value of property or the purchase price, whichever is the least.
 
Loan To Value Ratio (LTV)
The amount of the mortgage as compared to the appraised value or purchase price.
 

M 

Maturity Date
The last day of the term of the mortgage. On this day, the mortgage loan must be paid in full, the mortgage agreement renewed, or a new mortgage arranged.
 
Mortgage Payment
The regular principal and interest payments made to repay the mortgage.
 
Mortgagee and Mortgageor
The lender is the mortgagee and the borrower is the mortgagor.
  
Mortgage broker
An individual that may or may not own a mortgage brokerage, where mortgage brokers and mortgage agents work out of, in order to arrange financing for borrowers by working with multiple banks and lenders. 
 
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 that can be prepaid or renegotiated at any time without penalty. The interest rate on an open mortgage is usually higher than a closed mortgage with an equivalent term.  Typically open terms are only available for 6 months or 1 year at a time. 
 

P 

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.
 
Pre-Approval
A mortgage approval for a pre-determined amount and interest rate arranged prior to the borrower’s purchasing a property. A pre-approval will determine the borrower’s purchasing power and hold the interest rate for up to 120 days.
 
Prepayment Charge
Compensation when the borrower prepays all or part of a closed mortgage more quickly than is allowed as set out in the mortgage agreement.
 
Prepayment Options
The ability to prepay all or a portion of the principal balance. Prepayment charges may be incurred on the exercise of prepayment options
 
Principal
The mortgage balance outstanding at any time.
 

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.
 

Second Mortgage
The mortgage next in line after the first mortgage. A second mortgage is usually offered at a higher interest rate than the first mortgage.
 
Security
The property being purchased or refinanced forms the security for the mortgage.
 

T 

Term 
The length of the current mortgage agreement. A mortgage may be amortized over a long period (such as 30 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. 
 
Title
Full and exclusive ownership of land and building(s) for an indefinite period.
 

V 

Variable Rate Mortgage
A mortgage in which the rate of interest changes if market conditions change. This is also referred to as a floating rate mortgage.
 
Vendor
The individual who is selling a property (also called the seller).
 

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