Mortgage Dictionary

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 - Your amortization is the total length of time it will take you to pay off your mortgage. Often when you first get a mortgage it is amortized over 25 years. If you make your mortgage payments over 25 years, your mortgage will be paid off. However, you can increase this to 35 years or decrease it to pay your mortgage off faster.

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 value of the property offered as security for a mortgage loan.

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.

Canada Mortgage and Housing Corporation (CMHC) - The Corporation of the Federal Government that provides mortgage insurance to lenders against borrower default, under the National Housing Act (NHA).

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.

Closed Mortgage - A mortgage agreement that cannot be prepaid, renegotiated or refinanced before maturity, except according to its terms. A lender may permit early payout of a closed mortgage under certain circumstances but will charge a penalty for doing so.

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 the property becomes final and the new owner takes possession.

CMHC - Mortgage insurance insures the lender against loss in case of default by the borrower. Mortgage insurance is provided to the lender by CMHC and the premium is paid by the borrower.

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.

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).

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.

Down Payment - The amount of money (usually in the form of cash) put forward by the purchaser. It represents the difference between the purchase price and the amount of the mortgage loan.

Equity - Equity is the difference between the price for which a property could be sold and the total debts registered against it.

Fixed Rate Mortgages - A fixed rate mortgage is where the rate of interest and payment amount are fixed for a specific term.

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

Genworth - Genworth Financial Canada, a private mortgage default insurance provider.

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.

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. The application fee and the insurance premium may be added to your mortgage.

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.

Interest Adjustment Date (I.A.D.) - The date the term of the mortgage starts and is usually the first of the month. An interest-only payment on mortgage funds advanced prior to the IAD will be due on this date. The first regular monthly principal and interest payment is due one month after the IAD.

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.

Loan-to-Value Ratio - The ratio of the mortgage loan to the appraised value or purchase price of the property, whichever is less, expressed as a percentage.

Maturity Date - The last day of the term of the mortgage agreement. The mortgage agreement must then be renewed or the mortgage balance paid in full.

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

Mortgage Critical Illness Insurance - Mortgage Critical Illness Insurance is available as an enhancement to Mortgage Life Insurance. Complete details of benefits, exclusions and limitations are contained in the Certificate of Insurance.

Mortgage Insurance - Distinct from mortgage life insurance or home, property, fire and casualty insurance; mortgage insurance provides protection to the lender in the event of a default by the borrower.

Mortgage Life Insurance -Mortgage Life Insurance pays off your outstanding mortgage balance in the event of your death. 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.

National Housing Act (NHA) Loan - A mortgage loan insured by Canadian Mortgage and Housing Corporation (CMHC).

Offer to Purchase - A formal, legal agreement between buyer and seller that offers a certain price for a specified real property. The offer may be firm (no conditions attached) or conditional (certain conditions must be fulfilled).

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

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

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 Charge/Penalty - A fee charged by the lender when the borrower pays off all or a portion of a mortgage more quickly than provided for in the mortgage agreement.

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.

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

Refinancing - Renegotiating your existing mortgage agreement. May include increasing the principal or paying out the mortgage in full.

Renew - To extend a mortgage agreement with the same lender for another term. The length of the term and the conditions (such as the rate of interest) may be changed.

Secondary Homes - A secondary home is a property other than the owner’s principal residence. It may be purchased to meet special family circumstances or work demands, or as a cottage or leisure residence, and is intended for occupancy by the owner or a relative (on a rent free basis) at some time during the year. It does not include rental properties, part-time rentals, timeshares or rental pools.

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

Term - The period of time over which the interest rate, payment and other mortgage conditions are set. At the end of the term the mortgage is due and payable unless renewed.

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.

Type A or Type B Vacation Properties - Generally speaking, Type A vacation properties are the same as standard residential properties in terms of quality of construction and materials used. They have year-round road access, and generally meet standard residential property lending requirements. Type B vacation properties must meet all Type A property requirements except for the following:

  • A standard heating system is not required.
  • Year-round road access is not required (e.g. unplowed road in the winter is acceptable)

Variable Rate Mortgages - A variable rate mortgage is where the rate of interest changes when the lender’s Prime lending rate changes, usually not more than once a month. This is sometimes referred to as a floating rate mortgage

Further details link: http://www.bcrealestatelawyers.com/faqs/terminology.htm