GLOSSARY

A

Acceleration Clause

A provision in a mortgage that gives the lender the right to demand payment of the entire principal balance if a monthly payment is missed.

Acceptance

An offeree's consent to enter into a contract and be bound by the terms of the offer.

Adjustable-rate Mortgage (ARM)

A mortgage that permits the lender to adjust its interest rate periodically on the basis of changes in a specified index.

Adjustment Date

The date on which the interest rate changes for an adjustable-rate mortgage.

Adjustment Period

The period that elapses between the adjustment dates for an adjustable-rate mortgage.

Agreement of Purchase and Sale

An agreement of purchase and sale is a legally binding contract between the buyer and the seller. It includes price, deposit, closing date and other important information about a real estate deal. It sets out the terms on which the buyer must buy, and the seller must sell, the home on the specified date. An offer to purchase, when accepted by a vendor, becomes an agreement of purchase and sale.

Amortization period

Amortization period is the length of time it takes to pay off a mortgage, including interest. It may be between 5 and 30 years. For a new mortgage, the amortization period is usually 25 years.

If you want to pay down your mortgage faster, you can shorten your amortization period and make higher mortgage payments. You can negotiate an amortization as short as 5 years.

If you want smaller mortgage payments, you can increase the amortization period to 30 years maximum. But for high-ratio mortgages, the amortization period is 25 years maximum.

Amortization period differs from mortgage term, which is the length of the contract with your lender. When a term ends, you either pay off your mortgage or renew it if your lender agrees. Terms range from 1 to 10 years, although 4- to 5-year terms are most common.

See term.

Amortization Schedule

A timetable for payment of a mortgage loan. An amortization schedule shows the amount of each payment applied to interest and principal and shows the remaining balance after each payment is made.

Appraisal

An appraisal is a report that indicates the estimated value of a property. It's written by a professional appraiser. You might need an appraisal for financing purposes. As the buyer, you pay the appraisal cost.

Appraised Value

An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property.

Appreciation

An increase in the value of a property due to changes in market conditions or other causes. The opposite of depreciation.

Assessed Value

The valuation placed on property by a public tax assessor for purposes of taxation.

Asset

Anything of monetary value that is owned by a person. Assets include real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, and so on).

Assignment

The transfer of a mortgage from one person to another.

Assumable Mortgage

A mortgage that can be taken over ("assumed") by the buyer when a home is sold.

Assumption Agreement

A legal document signed by a home buyer which requires the buyer to assume responsibility for the obligations of a mortgage made by a former owner.

B

Bi-weekly Accelerated Payments

Payments are exactly half of a monthly payment amount, collected every two weeks, on the same day of the week. More aggressive than semi-monthly.

Bi-weekly Payments

A mortgage that requires payments to reduce the debt every two weeks (instead of the standard monthly payment schedule). The 26 (or possibly 27) biweekly payments are each equal to one-half of the monthly payment that would be required if the loan were a standard 25-year fixed-rate mortgage. The result for the borrower is a substantial savings in interest.

Blended Payments

Equal payments consisting of both a principal and an interest component, paid each month during the term of the mortgage. The principal portion increases each month, while the interest portion decreases, but the total monthly payment does not change.

Bridge loan

A bridge loan is a short-term loan. You may need a bridge loan if you own a home, but need funds from the value of your existing home to close a deal on a new one. This loan is usually only available if you already have a signed, unconditional sale offer on your current home.

Building Code

Local regulations that control design, construction, and materials used in construction. Building codes are based on safety and health standards.

C

Canada Mortgage and Housing Corporation (CMHC)

Canada Mortgage and Housing Corporation (CMHC) provides mortgage default insurance for high-ratio mortgages. A mortgage is high ratio when your down payment is less than 20% of the property value. This insurance is mandatory for federally regulated lenders, like banks. CMHC is a Crown corporation and a leading authority on the Canadian housing market

Cap

A provision of an adjustable-rate mortgage that limits how much the interest rate or mortgage payments may increase or decrease.

Capital Expenditure

The cost of an improvement made to extend the useful life of a property or to add to its value.

Capital Improvement

Any structure or component erected as a permanent improvement to real property that adds to its value and useful life.

Cash-back mortgage

With a cash-back mortgage, you get the mortgage principal and a percentage of the mortgage amount in cash. The interest rates on these mortgages are higher than on some other mortgages. You may want a cash-back mortgage if you need money for expenses such as new furniture or repaying loans to cover closing costs.

Certificate of Title

A statement provided by an abstract company, title company, or attorney stating that the title to real estate is legally held by the current owner.

Chattel

Another name for personal property.

Closed mortgage

With a closed mortgage, the borrower may only prepay a limited amount of the principal without paying a prepayment charge. If you have a fixed rate closed mortgage, the prepayment charge is usually 3 months' interest or the interest rate differential (IRD), whichever is greater. The interest rate for a closed mortgage is generally lower than the interest rate for a comparable open mortgage.

Closing

A meeting at which a sale of a property is finalized by the buyer signing the mortgage documents and paying closing costs. Also called "settlement."

Closing costs

Closing costs are expenses you pay to close a property purchase and sale. As the buyer, your closing costs include land transfer tax, legal fees and any costs the lawyer pays on your behalf, such as title insurance, survey costs, courier charges, among others. The seller's closing costs include real estate commission (if applicable), legal fees and any costs their lawyer pays on the seller's behalf.
See title insurance, survey.

Closing date (or closing day)

On the closing date, you pay the balance of the home purchase price to the seller, and the seller transfers title or ownership of the property to you.

See title.

Co-applicant

See co-borrower.

 
Co-borrower

If 2 or more people are borrowers on a mortgage, they are co-borrowers.

See title.

Collateral charge

A charge, or mortgage, is the document registered on title to secure a loan. A collateral charge may secure more than one loan or line of credit

Commercial mortgage

In a commercial mortgage, the mortgaged property is an income-producing commercial building rather than a residence. Commercial mortgages are usually much larger than residential mortgages. Lenders secure these loans with mortgages registered on title against multi-unit residential buildings, retail plazas, shopping centres, office and industrial buildings. Lenders review the commercial property’s appraised value and monthly income generation to determine how much the owner, often a business or corporation, may be approved for.

See mortgage.

Commission

The fee charged by a broker or agent for negotiating a real estate or loan transaction. A commission is generally a percentage of the price of the property or loan.

Compound Interest

Interest paid on the original principal balance and on the accrued and unpaid interest.

Conditional offer

A conditional offer is an offer to buy a property only if certain conditions are met. For example, an offer could be conditional on the property passing a home inspection, or on the buyer selling their current home by a certain date.

Condominium

A real estate project in which each unit owner has title to a unit in a building, an undivided interest in the common areas of the project, and sometimes the exclusive use of certain limited common areas.

Construction mortgage

A construction mortgage is a mortgage that finances the construction of a new home or other building on a property.

Contingency

A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.

Conventional mortgage

A conventional mortgage is a mortgage that isn't insured by CMHC or another mortgage default insurer.

Convertible mortgage

A convertible mortgage is a type of short-term mortgage that can be converted to a longer-term mortgage without paying a prepayment charge. If you have a convertible mortgage, you might choose to convert it to a longer-term mortgage when interest rates fall.

Credit report

A credit report is a record of your credit history. Data includes current and past financial debts, up to 7 years, and a record of debt payment. A lender uses a credit report, among other details, to decide whether to accept or deny your mortgage application. Lenders get credit reports from credit bureaus, like Equifax and TransUnion

Creditor insurance (also called mortgage critical illness insurance, mortgage disability insurance or mortgage life insurance)

Creditor insurance can cover your mortgage payments, or reduce or pay off your mortgage in the event of death, critical illness, disability or job loss.

D

Debt ratios (also called debt service ratios)

Debt ratios measure your ability to repay a mortgage by ensuring debt doesn't exceed a certain percentage of your income. Lenders and mortgage insurers use 2 debt-service ratios to determine if you qualify for a mortgage: gross debt service ratio (GDS) and total debt service ratio (TDS).

See Canada Mortgage and Housing Corporation (CMHC), gross debt service ratio (GDS), total debt service ratio (TDS).

Deed

A deed is a legal document written and signed by the seller. It transfers property ownership from the seller to the buyer.

Default

Non-payment of the installments due under the terms of the mortgage(s).

Deposit

A deposit is the amount of money you give a seller when you submit a signed agreement of purchase and sale to buy a property. The deposit is written into the agreement of purchase and sale. When the sale closes, the deposit goes towards part of the total purchase price.

Depreciation

A decline in the value of property; the opposite of appreciation.

Discharge

The removal of all mortgages and financial encumbrances on a property.

Down Payment

The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.

Down payment

A down payment is the amount of money, including deposit, you put towards the purchase price of a property. Minimum down payments vary from 5% to 20%, depending on location. If your down payment is less than 20% of the property value, your mortgage is high-ratio and you need to buy mortgage default insurance.

See Canada Mortgage and Housing Corporation (CMHC), high-ratio mortgage, mortgage default insurance

E

Easement

A right of way giving persons other than the owner access to or over a property.

Effective Interest Rate

The real rate of interest after the effects of compounding are included. More frequent compounding adds up to a higher effective rate.

Encroachment

An improvement that intrudes illegally on another's property.

Encumbrance

Anything that affects or limits the free simple title to a property, such as mortgages, leases, easements, or restrictions.

Equity

A homeowner's financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage.

Escrow

An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit by a borrower with the lender of funds to pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate.

Examination of Title

The report on the title of a property from the public records or an abstract of the title.

Exclusive Listing

A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time, but reserving the owner's right to sell the property alone without the payment of a commission.

F

Fair Market Value

The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.

Firm Commitment

A lender's agreement to make a loan to a specific borrower on a specific property.

Firm offer

A firm offer is an unconditional offer to buy a property. Often, sellers prefer firm offers because the home sale is more likely to go through without major holdups.

See agreement of purchase and sale, conditional offer, home inspection.

First Mortgage

A mortgage that is the primary lien against a property.

Fixed Installment

The monthly payment due on a mortgage loan. The fixed installment includes payment of both principal and interest.

Fixed-rate mortgage

If you have a fixed-rate mortgage, your interest rate and monthly payments stay the same for the entire mortgage term. If mortgage interest rates go up during the term, you're protected because your rate stays the same 

Fixture

Personal property that becomes real property when attached in a permanent manner to real estate.

Flood Insurance

Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.

Foreclosure

If you default on your mortgage payments, your lender takes a legal action called foreclosure. Your lender takes over your property under a legal process called power of sale. You receive notice and have the chance to bring the mortgage back into good standing. If not, the lender can sell your property to recover money you owe them, including principal, interest, legal fees and charges.

Mortgage broker

A mortgage broker works on your behalf and searches for the best mortgage deal among various lenders. When you accept a mortgage, the broker completes the application and applies for the loan on your behalf.

Mortgage critical illness insurance

Mortgage critical illness insurance is optional creditor’s group insurance that can reduce or pay off your mortgage — up to a maximum benefit amount — if you’re diagnosed with cancer, acute heart attack or stroke

Mortgage default insurance

Mortgage default insurance protects lenders when borrowers can't repay their mortgage. You need this insurance if you have a high-ratio mortgage.

See Canada Mortgage and Housing Corporation (CMHC), high-ratio mortgage.

 Mortgage disability insurance

Mortgage disability insurance is optional creditor’s group insurance that can pay up to a maximum benefit amount toward your mortgage if you can no longer work due to a disability.

Mortgage discharge

When you pay off your mortgage in full, your lender issues a mortgage discharge document that's registered on title to your property. It certifies the property is completely free from that mortgage debt

Mortgage Insurance Premium

A premium which is 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

Mortgage life insurance is optional creditor’s group insurance that can reduce or pay off your mortgage — up to a maximum benefit amount — in the event of your death

Mortgage Loan Insurance

For high-ratio mortgages, lenders require mortgage loan insurance. The insurance premium will generally cost between 0.5% and 3.75% of the amount of the mortgage (additional charges may apply).

Mortgage payment (also called regular payment amount)

Mortgage payments are the regular payments you make to repay your loan. Payments can be monthly, semi-monthly, biweekly or weekly. They include principal and interest.

Find out what your mortgage payments will be with our mortgage payment calculator.

Mortgage pre-approval

With mortgage pre-approval, you're asked questions that closely match those of a full mortgage application. The lender does a credit check. The lender pre-approves you for a maximum amount and gives you a mortgage pre-approval certificate, which is subject to several conditions. This lets you know how much money your lender may lend you, but it doesn't guarantee final approval.

Mortgage pre-qualification

Mortgage pre-qualification is a quick assessment process. The lender assesses your financial information, including debt, income and assets. You get an estimate on the mortgage amount you may be approved for. If you're pre-qualified, your lender has only done a basic review of your finances. You must still provide documents and more financial details before getting pre-approved for a mortgage

Mortgage principal

Mortgage principal is the amount of money you borrow from a lender. If a mortgage is for $250,000, then the mortgage principal is $250,000. You pay the principal, with interest, back to the lender over time through mortgage payments

Mortgage statement

You get a written record of your mortgage status, often on an annual basis, from your lender. The statement includes how much you paid in principal and interest to date, plus the remaining principal on the mortgage.

Mortgagee

A mortgagee is the lender.

Mortgagor

A mortgagor is the borrower.

Multiple Listing Service (MLS)

Multiple Listing Service (MLS) is a database of real estate listings where realtors advertise and search for properties for sale on behalf of clients.

N

Negative Amortization

A gradual increase in mortgage debt that occurs when the monthly payment is not large enough to cover the entire principal and interest due. The amount of the shortfall is added to the remaining balance to create "negative" amortization.

Notice of Default

A formal written notice to a borrower that a default has occurred and that legal action may be taken.

O

Offer to purchase

See agreement of purchase and sale.

Open mortgage

You can prepay open mortgages, in part or in full, without a prepayment charge. Open mortgages usually have higher interest rates than closed mortgages. But open mortgages are also flexible. If rates start to increase, you can easily pay off an open mortgage and switch to a closed one.

Original Principal Balance

The total amount of principal owed on a mortgage before any payments are made.
Origination Fee

A fee paid to a lender for processing a loan application. The origination fee is stated in the form of points. One point is 1 percent of the mortgage amount.

Owner Financing

A property purchase transaction in which the property seller provides all or part of the financing.

P

P.I. (Principal & Interest)

Principal and interest due on a mortgage.

P.I.T. (Principal, Interest, & Taxes)

Principal, interest and taxes due on a mortgage.

Payment Change Date

The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM). Generally, the payment change date occurs in the month immediately after the adjustment date.

Penalty

A sum of money paid to a lender for the privilege of prepaying a mortgage in part or in full.

Porting a mortgage (also called mortgage portability)

Mortgage portability lets you move, or transfer, an existing mortgage to a new property. The mortgage term, outstanding balance and interest rate stay the same. Not all mortgages are portable, and the lender's approval is required.

Posted rate

The posted rate is a lender's standard advertised interest rate for a mortgage product. You may be able to negotiate with your lender for a lower interest rate.

See also interest, qualifying rate.

Pre-approved mortgage certificate (also called mortgage pre-approval certificate)

A pre-approved mortgage certificate confirms you're pre-approved by a lender to borrow a maximum amount at a guaranteed interest rate. The pre-approval certificate is subject to several conditions and expires after a limited time, usually up to 120 days. If the conditions are satisfied and your closing date is within that 120-day period, your guaranteed interest rate won't change. With a mortgage pre-approval certificate, you can shop for your new home with confidence.

Pre-qualification

The process of determining how much money a prospective home buyer will be eligible to borrow before he or she applies for a loan.

Prepaid property tax and utility adjustments

You reimburse the seller for any property taxes or utilities they paid before the closing date.

Example: If a property closes on June 1 and the seller paid taxes and utilities to June 30, you pay the seller those expenses from June 1 to June 30.

Your lawyer makes these adjustments on a document called the statement of adjustments.

Prepayment (also called lump sum payment)

A prepayment is when you pay off some or all of the mortgage before the term ends. You can pay off most open mortgages without paying a prepayment charge. When you prepay a closed mortgage, you usually pay a prepayment charge to your lender. But most closed mortgages let you make an annual prepayment of 10% to 20% without a charge.

Prepayment charge

When you pay all or part of a closed mortgage before the term ends, you may need to pay a prepayment charge to the lender. The terms for prepayment charges are defined in the mortgage agreement. Prepayment privileges are part of open and closed mortgages.

Prepayment Option

The right to prepay specified amounts of the principal balance. Penalty interest may be incurred on prepayment options.

Prepayment Penalty

A fee that may be charged to a borrower who pays off a loan before it is due.

Prime rate (also called prime interest rate or prime lending rate)

A lender's prime rate is usually based on the interest rate the Bank of Canada sets each night. It can change at any time. Lenders usually base the interest charge for their variable-rate mortgages on their prime rate

Principal

The amount you still owe the lender at any time.

Property insurance (also called home insurance)

During your mortgage term, you need property insurance on your home. The lender must be named on the policy. Property insurance covers the replacement cost of the home in case of fire, windstorms or other disasters. The lender needs proof of property insurance before releasing the mortgage funds.

Property tax

You pay property tax to your municipality for services like garbage collection, policing and fire protection. The property tax amount depends in part on your property's value. You can add the tax to your regular mortgage payments. In this case, your lender pays your taxes to the municipality.