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Glossary of Mortgage Terms:

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 - Number of fixed payments or years it takes to repay the entire mortgage loan.

Amortization Period - The time over which all regular payments would pay off the mortgage. This is usually 25 years for a new mortgage, however can be greater, up to a maximum of 35 years.

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 market value of the property.

Assets - An item of value that you own. Often used in determining net worth or in securing financing.

Beacon score - A credit rating, also referred to as a credit score, used by banks and other lenders, indicating a person's credit worthiness (poor, fair, good, excellent, etc.) in comparison to others.

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.

Closed Mortgage - A mortgage agreement that cannot be prepaid, renegotiated or refinanced before maturity, except according to its terms.

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 a property becomes final and the new owner usually takes possession.

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).

Credit Bureau - An agency that maintains individual credit files on consumers. There are three credit bureaus in Canada.

Credit Check - A process where a person has his or her credit history reviewed before credit is extended.

Credit File - A detailed history of money you have borrowed, credit you have used and whether you make bill and debt repayments on time. A credit file may list employment history as well as present and residences.

Credit Rating / Credit Score - A numerical score calculated using the information in your credit file. The credit rating is often used to determine a borrower's credit worthiness and is sometimes referred to as a credit score.

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.

Default - Non-payment of instalments due under the terms of a mortgage.

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, broker, lawyer or notary until the closing of the transaction.

Discharge - Removal of all mortgages and financial encumbrances on a property.

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.

Equity Take Out - When the owner takes out a mortgage on an existing property to use for other purposes such as investments or for renovations.

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.

First Mortgage - A debt registered against a property that has first call on that property.

Fixed-Rate Mortgage - A mortgage for which the rate of interest is fixed for a specific period of time (the term).

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

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.

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.

Guarantor - A person with an established credit rating and sufficient earnings who guarantees to repay the loan for the borrower if the borrower does not.

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.

Home Equity - The difference between the price for which a home could be sold (market value) and the total debts registered against it.

Home Equity Line of Credit - A personal line of credit secured against the borrower's property. Generally, up to 75% of the purchase price or appraised value of the property is allowed to be borrowed with this product.

Inspection - The examination of the house by a building inspector selected by the purchaser.

Interest Only Mortgage - A mortgage on which only the monthly interest cost is paid each month. The full principal remains outstanding. The payment is lower than an amortized mortgage since once is not paying any principal.

Interest Rate Differential Amount (IRD) - An IRD amount is a compensation 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 calculated on the amount being prepaid using an interest rate equal to the difference between your existing mortgage interest rate and the interest rate that we can now charge when re-lending the funds for the remaining term of the mortgage.

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.

Maturity Date - Last day of the term of the mortgage agreement.

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

Mortgage Insurance Premium - A premium added to the mortgage and paid by the borrower over the life of the mortgage. The mortgage insurance insures the lender against loss in case of default by the borrower.

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 Rate - The rate of interest charged by a bank on funds that are used for the purchase of real estate.

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.

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 - A fee charged by the lender when the borrower prepays all or part of a closed mortgage more quickly than is set out 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.

Prime (or Prime Rate) - The Prime Rate is the interest rate charged by banks to their most creditworthy customers (i.e. the most prominent or stable). The rate is usually consistent amongst the major banks.

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.

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 - A debt registered against a property that is secured by a second charge on the property.

Switch - To transfer an existing mortgage from one financial institution to another. We can have this arranged for you at no cost to you.

Term - The length of the current mortgage agreement. A mortgage may be amortized over a long period (such as 35 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.

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.

Variable Rate Mortgage - A mortgage for which the rate of interest may change if other market conditions change. This is sometimes referred to as a floating rate mortgage or a adjustable rate mortgage (ARM).