Amortization Period
The number of years it takes to repay the entire amount of the financing based on a set of fixed payments, basically the life of the mortgage.

Appraisal
The process of determining the market value of a property by a professional outside 3rd party or Appraisal Company.

Assets
What you own. Often used in determining net worth or in securing financing.

Assumption Agreement
A legal document signed by a buyer that requires the buyer assume responsibility for the obligations of an existing mortgage. If someone assumes your mortgage, make sure that you get a release from the mortgage company to ensure that you are no longer liable for that debt.

Bench Mark Rate
According to the Federal Government’s predetermined rate of interest for qualifying.  This rate is higher than the actual mortgage contract rate. It is used to determine the homeowners affordability in the case of rising mortgage rates.

Blended Payments
Equal payments consisting of both an interest and a principal component. Typically, while the payment amount does not change, the principal portion increases, while the interest portion decreases.

Canada Mortgage and Housing Corporation (CMHC)
CMHC is a federal Crown corporation that administers the National Housing Act (NHA). Among other services, they also insure mortgages for lenders that are greater than 80% of the purchase price or value of the home. The cost of that insurance is normally paid for by the borrower and is generally added to the mortgage amount. These mortgages are often referred to as “Hi-Ratio” mortgages.

There are two other Mortgage Insurance Companies at the lender’s choosing for these Hi-Ratio or insured mortgages, Genworth Canada and Canada Guaranty.

Closed Mortgage
A mortgage that cannot be prepaid or renegotiated for a set period of time without penalties.

Closing Date
The date on which the new owner takes possession of the property and the sale becomes final.

Collateral
An asset that is offered and taken as security for a mortgage or loan.

Conventional Mortgage
A mortgage up to 80% of the purchase price or the value of the property, whichever is the lower value.  Mortgages exceeding 80% are referred to as “Hi-Ratio” and it is the Law, under our Federal Government Regulations, that the lender will require mortgage insurance for that mortgage. (Borrower pays and typically the cost of the Mortgage Insurance Premium is added to the borrowed mortgage amount.)

Credit Scoring
A system that assesses a borrower on a number of items, assigning points that are used to determine the borrower’s credit worthiness.

Demand Loan
A loan where the balance must be repaid upon request.

Deposit
A sum of money deposited in trust by the purchaser on making an offer to purchase. When the offer is accepted by the vendor (seller), the deposit is held in trust by the listing real estate broker, lawyer, or notary until the closing of the sale.  It then becomes part of the payment toward the purchase of that property.

Deposit – forfeited – if all conditions are met and the buyer agrees to remove final conditions of the contract of purchase the sale is now FIRM.  If the buyer for any reason fails to complete the purchase as agreed upon, then the deposit is forfeited to the seller as compensation for not following thru with the agreed upon terms of the contract.

Deposit – returned – if the buyer decides in the initial purchase stages not to proceed to the end and does Not remove the conditions as set out in the Offer to Purchase in the time line required, the buyer not being satisfied that one or more these conditions have not been met, then upon collapsing that Offer to Purchase, the deposit is refunded back to the buyer.

Equity
The difference between the market value of the property and any outstanding mortgages registered against the property. This difference belongs to the owner of that property.

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

Fixed-Rate Mortgage
A mortgage for which the interest is set for the term of the mortgage.

Gross Debt Service Ratio (GDS)
It is one of the mathematical calculations used by lenders to determine a borrower’s capacity to repay a mortgage. It takes into account the mortgage payments, property taxes, approximate heating costs, and 50% of any home owner maintenance /condo fees.

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
A mortgage that exceeds 80% of the purchase price or appraised value of the property. This type of mortgage must be insured.

Home Equity Line of Credit (HELOC)
A personal line of credit secured against the borrower’s property. Federal law dictates that the maximum amount of a HELOC cannot exceed 65%  of the purchase price or appraised value of the property. Lenders will allow a further 15% to be borrowed by way of a fixed rate term, however, when there is a HELOC involved, the maximum of the 2 types of loans combined cannot exceed 80% of value.  High Ratio HELOC/fixed rate mortgage combinations are not allowed.

Interest Adjustment Date (IAD)
The date on which the mortgage term will begin. This date is usually the first day of the month following the closing. The interest cost for those days from the closing date to the first of the month are usually paid at closing. That is why it is always better to close your deal towards the end of the month.

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 one is not paying any principal down.

Mortgage
A mortgage is a loan that uses a piece of real estate as a security. Once that loan is paid-off, the lender provides a discharge for that mortgage.

Mortgagee
The financial institution or person (lender) who is lending the money using a registered mortgage interest as collateral for that loan.

Mortgagor
The person who borrows the money using a mortgage.

Offer to Purchase
The legal contract between a purchaser and a seller.  We recommend that you have your offer prepared by a professional realtor that has the knowledge and experience to satisfactorily protect you with the most suitable clauses and conditions.  When participating in a private sale at the least you should hire a lawyer to assist with the legal contract of purchase. Remember, this is a legal contract and you do not want to enter into something you do not understand.

Open Mortgage
A mortgage that can be repaid at any time during the term without any penalty. For this convenience, the interest rate is typically 1% to 3% higher than a closed mortgage. A good option if you are planning to sell your property or pay-off the mortgage entirely in a short period of time.

P.I.T.
A mortgage payment that includes the Principal, Interest, and Property Tax payment.  The lender will then pay the Property Taxes to the Municipality once per year on behalf of the borrower.  This is a normal arrangement for High Ratio Mortgages (less than 20% down payment). Typically a lender will allow the client to pay their Property Taxes directly to the Municipality if there is a monthly payment program such as TIPPS.

Portable Mortgage
An existing mortgage that can be transferred to a new property. One would want to port their mortgage in order to avoid any early payout penalties, or if the interest rate is much lower than the current rates.

Prepayment Penalty
A fee charged a borrower by the lender when the borrower prepays all or part of a mortgage over and above the amount agreed upon. Although there is no law as to how a lender can charge you the penalty, typically it is the greater of the Interest Rate Differential (IRD) or 3 months interest or 3% of the outstanding balance, or a combination of these.

Prime Rate or Prime Lending Rate
Typically, this is the interest rate used by banks at which they lend to favoured customers, ie: those with good credit.  Some variable interest rates may be expressed as a percentage above or below prime rate.

Principal
The original amount of a loan or a loan balance that does not include the interest/repayment costs.

Rate Commitment
The number of days the lender will guarantee the mortgage rate on a mortgage approval. This can vary from lender to lender anywhere from 30 to 120 days.

Refinance
This involves a process of paying out the existing mortgage/s and /or possibly other debt by using the existing equity of a property up to a maximum of 80% of the current value of the property.  Typically there are new costs involved to do this, as it is a new mortgage.

Renewal
When the mortgage term has concluded, your mortgage is up for renewal. It is open at this time for prepayment in part or in full without penalty.  Options are to then renew with same lender or transfer to another lender.

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

Switch/Transfer
To transfer an existing mortgage from one financial institution to another.  Typically this can be done at low or no cost to the borrower.

Term
The period of time the financing agreement guarantees the rate/terms of the mortgage prior to renewal. The terms available are: 6 month, 1,2,3,4,5,6,7,10 year terms; these interest rates will be fixed for whatever term one chooses and the pricing is normally different for each term.

Total Debt Service (TDS) Ratio
It is the other mathematical calculation used by lenders to determine a borrower’s capacity to repay a mortgage. It takes into account the mortgage payments, property taxes, approximate heating costs, and 50% of any maintenance/condo fees, and any other monthly obligations (i.e. personal loans, car payments, lines of credit, credit card debts, other mortgages, etc.), and this sum is then divided by the gross income of the applicants.

Variable Rate Mortgage
A mortgage for which the interest rate fluctuates based on changes in prime.

Vendor Take Back (VTB) Mortgage
A mortgage provided by the vendor (seller) to the buyer.