Mortgage Terms
- Additional interest:
Extra interest rate charged by the lender when you prepay principal or renegotiate the terms of your mortgage. It is not charged in all cases.
- Amortization:
It is a method of reducing a loan over a period of time.
- Amortization period:
The period over which the full principle in a mortgage has to be paid off, is amortization. It should not be confused with mortgage term. As an example, a 5 year fixed mortgage has a five-year term and amortization period can be 10 years, 15 years or even 30 years (not in Canada at present).
- Appraised value:
An estimate of present market value of the property which a borrower pledges as security against the mortgage.
- Assets:
The things of value one owns, it can be a home, car etc.
- Assumable Mortgage:
A type of mortgage which can be transferred to another borrower. There can be certain restrictions on it.
- Bankers Acceptances:
These are usually zero interest-paying drafts sold at a discount and cashed by the accepting bank at maturity for it's full face value..
- Blended rate mortgage:
If in case a borrower wants to move from existing property but does not wants to cancel the existing mortgage and the new property requires more money, then sometimes the existing mortgage amount gets combined with additional mortgage money required by the borrower. The interest rate for the new extra amount borrowed and the interest rate of the old mortgage amount are blended or calculated together.
- Blended mortgage payment:
A mortgage payment includes part interest and part principle. This is usually the case.
- Bridge financing:
A short term loan to "bridge" (or cover) the time gap between completing the purchase of one property and finalizing a mortgage for it. One ends up needing a bridge loan when the closing date is before mortgage fund advance date.
- CMHC:
Canada Mortgage and Housing Corporation or CMHC is a federal Crown corporation that oversees the Canadian National Housing Act. CMHC is well known for providing mortgage default insurance for high ratio mortgages. They also have many other mandates.
- Carrying costs:
The monthly expenses of living in and maintaining a home and property. A Carrying cost includes but not limited to mortgage payments, taxes, heating, maintenance, etc.
- Closed mortgage:
The mortgage which cannot be prepaid or renewed before it's term expires. A partially closed mortgage allows the borrower to prepay the mortgage if the borrower is willing to pay an additional interest and penalty.
- Closing date:
The date property purchase is finalized, funds exchange hands and the new owner takes possession.
- Collateral mortgage:
A loan secured by a collateral security of a mortgage on a property. The money borrowed may be used for various purpose apart from the purchase of a home.
- Conventional mortgage:
A first mortgage with a lower than 80% loan to (lower of purchase of appraised) value ratio.
- Convertible mortgage:
A mortgage that can be changed to another term at any time.
- Deed:
A legal document that records and transfers the ownership of a property to another person.
- Default:
Failure to pay the mortgage on time or failure to respect standard charge terms.
- Deposit:
A refundable or non-refundable Cash that must be given to the seller by the buyer. This money is to show the commitment to buy. When the offer is accepted, the deposit is applied to the down payment.
- Down payment:
The sum given by the buyer toward the purchase price of a home.
- Equity:
The difference between the present market value of a property and the total amount owing on it.
- First mortgage:
A mortgage that is registered first (in terms of date or time) on the property. The first mortgage has to be paid first in the event of sale or default.
- Fixed rate mortgage:
A mortgage which has the interest rate fixed throughout the term.
- Floating rate mortgage:
Also known as variable rate mortgage.
- Gross debt service ratio GDS:
The percentage ratio of a borrower's housing costs, which includes the monthly mortgage payment (principal and interest), heating costs, property taxes and half of condominium fees (if applicable) and his gross monthly income (before taxes). The total ratio should not be more than 32% of monthly gross income.
- High ratio mortgage:
A mortgage amount which is more than 80% of a property's value.
- Interest:
A percentage rate a lender charges against the loan or mortgage.
- Interest Adjustment Date:
The date shown in the Registered Mortgage as the date to which a lender calculates accrued interest on money advanced to a borrower. This date will be before the first regular payment period. This is the date the Term starts.
- Liabilities:
Total owing, includes taxes, mortgage, car loan, credit card balances, etc.
- Maturity date:
The date when the term expires.
- Mortgage:
A mortgage is a type of loan, secured by a real asset.
- Mortgage disability insurance:
Insurance to pay the mortgage incase of illness or disability which renders the borrower unable to work.
- Mortgage default insurance:
Government-backed or privately backed insurance protecting the lender against the borrower's default. Default insurance can be for high or low ratio mortgage.
- Mortgage life insurance:
Insurance that pays off mortgage debt in the event of borrowers death.
- Mortgagee:
The lender.
- Mortgagor:
The borrower.
- MLS:
An internet based system which electronically provides information to public and real-estate agents about properties for sale.
- No-frills Mortgage:
This is a very low rate mortgage where prepayment option is very limited and full repayment before maturity can only occur if the property is sold to an arms-length (not related) purchaser.
- Open mortgage:
A mortgage that can be prepaid or re-negotiated at any time without any penalty. There may be other charges imposed by the lender like service charges.
- Open variable mortgage:
A variable rate mortgage which can be repaid at any time without penalty.
- Pre-approval:
A written conditional agreement provided by a lender to provide a perspective home buyer with a mortgage within a certain time period. It is very hard to get now a days as lenders are reluctant to give an interest rate.
- Pre-qualification:
Which confirm that a person qualifies for a mortgage loan with existing conditions.
- Prepayment:
Extra payment in the mortgage which lowers the principle. This enables a borrower to save money on interest rate over time.
- 25% 25% Prepayment Option:
Normally it means that 25% of the principle can be paid in one calendar year as a lump-sum or parts. Regular mortgage payment can be increased up to 25% of the total monthly amount.
- Principal:
The amount initially borrowed.
- Rate:
The annual percentage amount charged against the loan.
- Realtor:
A member of a local real estate board and the Canadian Real Estate Association.
- Second mortgage:
A mortgage which is registered after an existing first mortgage registered against a property.
- Security:
Property, or assets, which backs a loan.
- Standard Charge Term:
This sets out important terms which apply to the Mortgage and are actually part of the Mortgage. It is recomended that a borrower reads the terms carefully and may want to discuss the terms of the Mortgage with a lawyer.
- Survey:
A document or sketch showing details of a property's boundaries, lengths and structures. It also sometimes spells out any existing easements, rights-of-way or encroachments.
- Term:
The length of the period for which mortgage fund is given to a borrower. Most mortgage terms run from six months to ten years. After this period, the borrower must repay the remaining principle. The principle then can be borrowed from the same bank or another institution.
- Title:
The legal evidence of ownership to a property.
- Title search:
A detailed search of the registered title documents to ensure there are no liens or other lien, encumbrances, or claims, on the property, and no question regarding the seller's statement of ownership.
- Total debt service (TDS) ratio:
The percentage ratio of a borrower's housing costs, including principal, interest, taxes, heating costs and 50% condominium fees (if applicable), and all other debts, such as loans and credit cards and his gross (before tax) monthly income. The total should not be more than 40% of gross monthly income.
- Vendor:
The seller in a real estate transaction.
Last updated: April, 2011.