Mortgage Glossary

A

Acceleration

This is an expression that is usually used when a person chooses to pay a mortgage on a weekly or a bi-weekly basis although it can apply to any repayment program. All mortgages are drawn with a requirement that you make payments monthly, however, the bank will usually agree to administer one half of the required monthly payment each bi-weekly period, you are paying the equivalent to one extra monthly payment per year and therefore paying off your mortgage more quickly. If you chose to pay weekly and pay one quarter of a monthly payment each weekly period you get the same benefit. Be sure to arrange that your mortgage payment dates match your pay days!

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 period of time it takes to pay off your mortgage in full. Typically you would choose the longest amortization available which is 25 years.

Appraisal

A process which determines the market value of property. This will usually be performed by a professional appraiser who will prepare a comprehensive report complete with photographs of the home.

Appraisal Value

An estimate of the market value of the property.

Assumable

When a mortgage is assumable, a buyer may take over the responsibilities and benefits of the sellers’ existing mortgage. This may be advantageous to a buyer if the interest rate on the mortgage is below the current market rates. Before assuming a mortgage, approval must be obtained from the lender.

B

Blended Payment

A mortgage payment that includes both interest and principal repayment. The amount of interest taken from each payment reduces while the amount applied to principal reduction increases over time, but the payment remains constant.

C

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.

Closing Costs

Expenses, in addition to the purchase price of the home, that are payable on completion date.

CMHC or GENWORTH 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 GENWORTH and the premium is paid by the borrower.

Commitment Letter

Written notification from the lender to the borrower that approves the mortgage request and which should include the amount of the mortgage, interest rate, payment and all terms and conditions.

Completion Date

The date on which your purchase will complete and money will change hands between you and the sellers.

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.

D

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, lawyer or notary until the closing of the transaction.

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.

Foreclosure

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

Gross Debt Service Ratio (GDS)

The percentage of your gross income which you will be using to pay for the mortgage payment including property taxes. See also Total Debt Service Ratio. (TDS).

H

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 Adjustment Date

The date that the lender will start collecting interest. Your regular payments will commence one payment period after this date. For example, if you have chosen to make bi-weekly payments, your first payment will come due two weeks after the Interest Adjustment Date. When you sign your mortgage papers the bank will collect from you an “Interest Adjustment” which is a calculation of interest from the Completion Date to the Adjustment Date.

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

The last day of the term of your mortgage agreement. On the Maturity Date the mortgage must be paid in full, renewed with the same lender or transferred to a new lender.

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.

Mortgagee

The lender who provides a loan secured by a mortgage.

Mortgagor

A person who takes out a loan which is secured by a mortgage.

N

Net Worth

The difference between what you own (assets) and what you owe (liabilities) is called your net worth.

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.

Portable

A portable mortgage is a mortgage that can be transferred from one property to another. This is particularly useful if you sell one home and buy another.

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 Option

The ability to prepay all or a portion of the principal balance. Prepayment charges may be incurred on the exercise of prepayment options.

Prepayment Penalty

Unless it is open, the mortgage may not be paid off before the Maturity Date without paying a Prepayment Penalty. Be very careful when negotiating a mortgage as some mortgages cannot be paid off at all before the Maturity Date. See also Closed Mortgages and Maturity Date.

Prepayment Privilege

When you negotiate a closed mortgage, you are entering into an agreement with the lender that you will not pay off the mortgage during the term. In return, the lender agrees to maintain the same interest rate throughout the term. However, most mortgages allow certain prepayment privileges such as an annual prepayment of a certain percentage of the mortgage amount or an annual increase in the mortgage amount. An open mortgage will usually cost more but allows you to repay the mortgage in full or in part at any time without penalty.

Principal

The amount of money actually borrowed.

S

Security

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

Survey

A certificate showing the home and other buildings relative to the property boundary.

T

Term

The length of time that the lender guarantees the interest rate. At the end of the term, the mortgage comes up for re-negotiation. See also Maturity Date.

Total Debt Service Ratio

The percentage of your gross income which you will be using to pay for the mortgage payment including property taxes and all other debt payment such as credit cards and bank loans. See also Gross Debt Service Ratio (GDS).

 

 

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