Glossary of Mortgage Terms

Amortization Period:
The time over which all regular payments would pay off the mortgage. This is usually 25 years for a new mortgage, however, it can be greater depending on 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.
Appraisal Value:
An estimate of the market value of the property.
Blended Payments:
Mortgage 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 the payment increases, while the interest portion decreases over the term of the mortgage. The total regular payment usually does not change.
Closing Date:
The date on which the sale of a property becomes final and the new owner usually takes possession.
CMHC Insurance
Premium:
Mortgage insurance insures the lender against loss in case of default by the borrower. Mortgage insurance is provided to the lender by CMHC and the premium is paid by the borrower.
Conditional Offer:
An offer to purchase, subject to conditions. These conditions may relate to financing, or the sale of an existing home. Usually a time limit in which the specified conditions must be satisfied is stipulated.
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.
Deed (Certificate
of Ownership):
The document signed by the seller transferring ownership of the home to the purchaser. This document is then registered against the title to the property as evidence of the purchaser's ownership of the property.
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.
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.
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.
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
(GOS) 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.
High-Ratio Mortgage:
A mortgage that exceeds 80% of the purchase price of the home. If your down payment is less than 20% of the purchase price of the home your mortgage must be insured against payment default by a Mortgage Insurer, such as CMHC.
Hold Back:
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 the home.
Inspection:
The examination of the house by a building inspector, selected by the purchaser.
Interest Rate
Differential
Amount (IRD):
A compensation charge that may apply if you pay off your mortgage principal prior to the maturity date, or if you 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 interest rate and the mortgage 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:
The lender in a mortgage agreement.
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 Term:
The number of years or months over which you pay a specified interest rate. Terms usually range from six months to 10 years.
Mortgagor:
The borrower in a mortgage agreement.
Open Mortgage:
A mortgage which can be prepaid at any time, without requiring the payment of additional fees.
Payment Frequency:
The choice of making regular mortgage payments every week, every other week, twice a month or monthly.
P.I.T.:
Stands for 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.
Principal:
The amount of money borrowed for a new mortgage.
Refinancing:
Renegotiating your existing mortgage agreement. This 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 that are 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.
Security:
In the case of mortgages, real estate offered as collateral for the loan.
Term:
The length of the current mortgage agreement. A mortgage may be amortized over a long period (such as 25 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, as well as all other debts and financing obligations. The total should generally not exceed 40% of your gross monthly income.
Variable Rate
Mortgage:
A mortgage where the rate of interest may change if other market conditions change. This is sometimes referred to as a floating rate mortgage.