Mortgage Glossary
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A
- Amortization
The length of time it will take to pay your mortgage in full, which can be longer than the term of your original mortgage contract. The total length of a mortgage is usually made up of several terms. Take a look at a sample amortization table. - Appraised
value
The estimated market value of your home and/or property. It can be more or less than the purchase price. - Assets
Items you own that have economic value and can help establish your net worth—like a home or a car.
B
- Blended
rate mortgage
A mortgage rate that blends together two different rates and applies against a single property. For example, if you refinance your mortgage and your old rate is higher or lower than your new rate, your mortgage specialist will calculate the average of the two rates—this is called a blended rate mortgage. For example, if you have a $50,000 mortgage at a 5% interest rate and get a second $50,000 mortgage at a 10% interest rate, the total blended rate would be calculated as: (50,000 x 0.05 + 50,000 x 0.10) / (50,000 + 50,000) = 7.5%. - Blended mortgage payment
A mortgage payment where a portion of the payment is applied toward the principal of your loan and the rest of the payment is put toward your loan interest. - Bridge
financing
A short-term loan that helps you "bridge" (or cover) the gap of time between buying your new home and selling your existing home. You’ll probably need this type of financing if your closing dates don’t match.
C
- CMHC/Canada Mortgage and Housing Corporation
A Crown corporation that administers the National Housing Act. It can provide mortgage default insurance. - Carrying
costs
The expenses that come with maintaining a home or property, including your mortgage payments, property taxes, heating, repairs, maintenance fees and so on. - Closed
mortgage
A type of mortgage that cannot be repaid in full during its term without paying prepayment penalties, except as permitted in the mortgage agreement. - Closing
date
The date the purchase of your property becomes final and you take possession as the owner. - Collateral
mortgage
A type of loan that’s registered against your property, in addition to your mortgage. This allows you to borrow more money using your property as the security without having to refinance your mortgage. - Conventional
mortgage
A type of mortgage covering up to 80% of your home’s purchase price. - Convertible
mortgage
A type of fixed-rate mortgage that allows you to switch from a short-term closed mortgage to a longer-term closed mortgage without prepayment charges.
D
- Deed
A legal document that demonstrates ownership of the property. - Default
The failure to pay mortgage payments (or other debts) in the agreed manner. - Deposit
The amount of cash you pay to the vendor (seller) to show your intent to buy a home. If your offer is accepted, the deposit is applied to your down payment. If you decide not to buy the property, your deposit is usually not returned. - Down
payment
The part of the purchase price of a property that you pay up-front and do not finance with a mortgage.
E
- Equity
The current market value of your home or property minus any outstanding mortgages or other encumbrances.
F
- First
mortgage
The mortgage registered in first position against the property you want to buy. This mortgage has priority over other liens or claims in the event of a sale or default, meaning it would be paid first. - Fixed rate
mortgage
This is a type of mortgage where your interest rate stays the same for a period of time. - Floating rate mortgage
Also known as a variable rate mortgage. Your interest rate changes along with the market.
G
- Gross debt service (GDS) ratio
The percentage of your gross monthly income that is used to pay your housing costs, including your monthly mortgage payment (principal and interest), heating costs, property taxes and condominium fees (if you have them). Based on BMO guidelines, the GDS ratio shouldn’t be more than 32% of your monthly gross income.
H
- High ratio
mortgage
A mortgage valued at 80% or more of your property's appraised value or purchase price (i.e. where the down payment less than 20% of the purchase price).
I
- Interest
The amount paid on the money borrowed, typically calculated as an annual percentage of the mortgage principal.
L
- Liabilities
The total debt you owe, including taxes, mortgage, car loan and credit card balances. - Land
transfer tax
A municipal or provincial tax you pay when you buy land or a share in land. - Legal fees and disbursements
Also known as closing costs, these fees are paid to your lawyer, paralegal or notary when the sale of your property closes.
M
- Maturity
date
This is the last day of your mortgage term. At maturity, you’ll either need to pay your mortgage in full or renew it. - Mortgage
A secured loan used to purchase or refinance your property where the security is your property. - Mortgage disability insurance
A type of insurance that can help you cover your mortgage payments if you become ill or disabled and are unable to work. - Mortgage default insurance
A type of insurance that can cover the remaining balance of your mortgage if you can’t make your payments. Mortgage default insurance is mandatory in Canada for high-ratio mortgages where the down payment is between 5% and 19.99%. - Mortgage life insurance
A type of insurance that can help pay off the balance of your mortgage if you pass away. - Mortgage
payment
Your regular payment covering your mortgage principal and interest. Mortgage payments can be made monthly, bi-monthly or weekly, depending on how quickly you want to pay down your mortgage. - Mortgage
renewal
Before your mortgage reaches maturity, you can negotiate the terms of the mortgage, including the interest rate. If you don’t renew your mortgage by the original maturity date, you’ll have to pay it in full. - Mortgage
refinancing
This is the process of replacing your mortgage with a new mortgage, generally with different terms than the original mortgage. - Mortgagee
The bank or company that lends you money for your mortgage. - Mortgagor
The person who borrows money for a mortgage. - Multiple Listing Service (MLS):
A website and service that allows you to search for homes or properties by location, price and property type.
O
- Open
mortgage
A type of mortgage that lets you prepay or re-negotiate at any time without having to pay additional fees, including prepayment fees. - Open variable mortgage
A type of variable rate mortgage where the amount of interest and principal you pay depends on market conditions. Note that this is different from an open mortgage.
P
- Payment
frequency
How often you make your mortgage payments— e.g. monthly, semi-monthly (usually on the 1st and 15th of the month), bi-weekly or weekly (usually on Fridays). If you have extra cash on hand, you can accelerate your payments to pay down your mortgage faster. See the difference two extra payments can make. - Portability
A feature of the mortgage that permits you to transfer your mortgage balance to a new property with the same lender without penalties. - Pre-approved
mortgage
Getting pre-approved means going through an evaluation to determine whether you qualify for a loan. If you are pre-approved for a mortgage, you’ll have an estimate of how much you’ll be able to borrow and have a better idea of the interest you’ll be charged and the amount you’ll be paying each month if you’re locked in at that interest rate. An approval is typically good for 90 days. - Prepayment
Paying some, or all, of your mortgage principal before the term is up. While you can save money by reducing the amount of interest you’ll pay, prepayments may be subject to restrictions or fees, so it’s best to speak with your mortgage specialist for details. - Principal
This is the amount you borrow to buy your property. It doesn’t include interest, which is added to the principal. - Property
insurance
You need property insurance (also known as home insurance) when you have a mortgage so you’re covered if you experience certain types of damage to your property, your home or its contents. - 10+10 Prepayment Options
You have a prepayment privilege to pay up to 10% of the original mortgage balance per year as well as the annual option to increase the monthly payment by 10% without penalty. In exercising a combination of the two options, your prepayment cannot exceed 10% of the original mortgage amount. There is no additional interest or fee when you exercise either or both of the "10+10" privileges. - 20+20 Prepayment Options
You have a prepayment privilege to pay up to 20% per year of the original mortgage balance as well as the annual option to increase the monthly payment by 20% without penalty. In exercising a combination of the two options, your prepayment cannot exceed 20% of the original mortgage amount. There is no additional interest or fee when you exercise either or both of the "20+20" privileges.
R
- Rate
(interest)
The amount you pay to borrow money for your mortgage, typically calculated as an annual percentage. - Real estate
agent
A professional that can help you search for a home and is registered under relevant laws. - Realtor
A real estate professional who is a member of a local real estate board and the Canadian Real Estate Association.
S
- Second
mortgage
A mortgage ranking in priority immediately below a first mortgage. It`s an additional mortgage you can get. If the borrower defaults and the property is sold, the second mortgage is paid after the first mortgage is paid off. - Security
Property, or assets, offered as backing for a loan. In the case of mortgages, the property being purchased or refinanced forms the security for the loan. - Survey
A document detailing your property's boundaries, measurements and structures. It can also describe any easements, rights-of-way or encroachments made by either your property or by neighbouring properties.
T
- Term
The period of time that your mortgage agreement (including your interest rate) is in effect. Most mortgage terms are between six months and five years, although there are also terms of six, seven, or 10 years. At the end of your term, you can either repay the balance of your mortgage (made up of the remaining principal amount plus interest), or renew your mortgage for another term. Most mortgages are made up of several terms. - Title
A legal document showing the legal owner of your property. - Title
search
A search of registered documents to make sure there are no liens, encumbrances or claims on the property you want to buy. A title search also confirms who owns the property and has the right to sell it. - Title
insurance
A type of insurance that can help you pay for losses due to title defects such as fraud, municipal work orders, zoning violations, encroachments and other issues which may impact your title to the property or result in costs to you. - Total debt service (TDS) ratio
The total percentage of your gross annual income needed to cover all of your debts and loans, including mortgage payments, interest, taxes, utilities, and any consumer debt like credit cards and car payments. Based on BMO guidelines, the TDS ratio shouldn’t be more than 40% of your gross annual income.
V
- Variable Rate Mortgage
With a variable rate mortgage, the amount of the mortgage payment is usually locked in, but the amount of interest and principal comprising the mortgage payment fluctuates depending on market conditions. When the prime lending rate drops, you pay less toward interest and more toward the principal. When the prime rate increases, you pay more toward interest and less to the principal. - Vendor
The person or company who sells you your property.
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