Mortgage Glossary

Amortization - the length of time over which your mortgage is financed. 25 years being the traditional amortization.  Note that amortization is different than "term" which is the length of your agreement with the lender. 


Assumable - this means that your mortgage MAY be taken over by another party if, for example, you sold your house and the buyer wanted to take over your mortgage payments.  This may be of an advantage to a buyer if the rate on your mortgage is lower than current rates.  Even though the mortgage is assumable, the borrower MUST qualify to the satisfaction of the lender.


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.  A qualified appraiser physically inspects the property making note of condition, special features and then assesses the value including assessment of comparable properties.

 

Blend and Extend - Taking your existing mortgage and adding to the term and combining the old and new rate into a blended rate on a weighted basis.  It can be a good way of avoiding prepayment penalties if you are moving and increasing the size of your mortgage.

 

Blended payment - usually refers to a payment that includes principal and interest.

 

Closing Costs - What you pay for closing the deal of buying a home. Usually, add  on 1.5% to the purchase price of the property. This will include legal fees(Title search,investigating title, and drafting documents), inspections, land title registry fee, property transfer tax, mortgage costs and Fire insurance. Sometimes there maybe Survey certificate, appraisal, and/or Sales tax required.

 

CMHC - Canada Mortgage and Housing Corporation (CMHC) operates a Mortgage Insurance Fund which protects approved lenders from losses resulting from borrower default.  CMHC insurance can insure for loans where the mortgage amount is greater than 80% of the value of the property, and insures for a variety of other specialty lending situations.  A premium is charged for the insurance.

 

Credit Bureau - Your credit score. History on how well you maintain your loans and credit. 

 

Commitment - a mortgage commitment is a document where the lender agrees to lend the borrow money under a set of specified conditions.  The conditions usually include things like receiving income verification (employment letter, pay stubs, tax information), appraisal, copies of MLS listing, proof of down payment etc.

 

Conventional Mortgage - A mortgage amount is not greater than 80% of the appraisal value of the property. To qualify you must put down at least 20% of your own capital. Does not require to be insured.

 

Discharge - Process where lawyer removes mortgage from title registered at Land Titles.

 

Debt-Service Ratio (GDS) - The percentage of the borrower's gross income that will be used for monthly payments of principal, interest, taxes, heating costs and any strata fees.

 

Deposit- A sum of money paid 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.

 

Equity - The value the owner has in a property over and above all mortgages against the property. It is usually the difference between the market value of the property and any outstanding encumbrances.

 

High Ratio Mortgage - A mortgage that exceeds 80% of the appraised value of the property or purchase price, whichever is less. The mortgage is then required to be insured by default either by CMHC or Genworth Financial.

 

Interest Adjustment Date - is a date from which interest is calculated when mortgage funds are advanced before a regular payment cycle.  For example if a mortgage is advanced March 29th and regular monthly payments commence May 1st, there will be an interest adjustment for 3 extra days.

 

IRD - Interest Rate Differential  - is a common prepayment penalty method where the difference between current interest rates and the mortgage interest rate is charged for the remainder of the term.  IRD is generally only applicable if current interest rates are lower than that of the original mortgage and are intended to compensate the lender for the difference in interest income it will receive.

 

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 mortgage term.

 

Mortgage Insurance - Both mortgage life insurance and mortgage disability insurnace are available and should be considered by all buyers.  Many buyers are qualifying based on two incomes and they should consider how they would pay their mortgage payments if one income ceased due to disability or death.  If mortgage insurnace is declined, it it common practise to have a waiver signed to protect all parties.

 

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

 

Mortgage Term - The length of time the current mortgage agreement applies between mortgagee and mortgagor -usually range from six months to 10 years. 

 

Open Mortgage - A mortgage which can be prepaid at any time, without penalty.  Interest rates are usually  higher for open mortgages.

 

Payment Frequency - How often you want to make payments: every week, every other week, twice a month or monthly.

 

P.I.T.- Principal, interest and taxes. These make up the regular payment on a mortgage if the lender is including property taxes in your mortgage payments.

 

Porting- This means that you can take your mortgage with you to another qualifying property without having to lose your existing interest rate and avoid prepayment penalties. 

 

Prepayment Charge - A fee charged by the lender when the borrower prepays any part of a closed mortgage beyond what is allowed in prepayment privileges set out in the mortgage agreement. 

 

Prepayment Privileges - Lenders generally offer some prepayments without penalty like 20% per year lump sum plus 20% increase in regular payment but vary based on the mortgage agreement.

 

Principal - The amount of money borrowed for a new mortgage.

 

Refinancing - Renegotiating your existing mortgage agreement. You may be increasing the principal or paying out the mortgage in full and arranging a new mortgage.

 

Renewal - At the end of a mortgage term, a mortgage can  be renewed if the terms and conditions acceptable to both the lender and the borrower. Otherwise, the lender will be repaid in full and the borrower will arrange financing elsewhere.  It is never advisable to just renew without having your mortgage broker review available options. 

 

Term - The length of the current mortgage agreement. This is different than amortization which is the length of time it will take to pay off the mortgage in full.  The term is the length of time that the existing terms and conditions (like interest rate and prepayment privileges) apply.

 

Total Debt Service (TDS) Ratio - The percentage of gross income needed to cover monthly payments for housing and all other debts and financing obligations. 

 

Variable Rate Mortgage - A mortgage where interest rates float with the prime rate. 

NOTE: MLS® property information is provided under copyright© by the Victoria Real Estate Board. The information is from sources deemed reliable, but should not be relied upon without independent verification. This website may only be used by consumers for the purpose of locating and purchasing real estate.