Mortgage Glossary

A
A term contained in mortgage contracts. This clause says that if the borrower defaults, all the money owed will become due immediately.
The legal contract a purchaser and a seller go into. 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.
Paying off the principal balance of the mortgage, usually by a combination of equal periodic payments and extra payments of principal at irregular intervals. Usually associated with a target period (the standard being 25 years) over which the initial blended payment is calculated. The maximum amortization available in Canada is 40 years.
These are the property taxes due each year for the subject property.
This is an estimate of the current value of the property (the "subject property"), using one or both of the following techniques. Comparable sales of like property is one technique. A supporting measurement of value used by many appraisers is the "depreciated cost" approach, whereby the land value is estimated and added to an estimate of the depreciated building value. Where there are few comparable available, relatively more weight might be given to this method.
The "assessed" value of a property is a historical, static estimate of the value of your property used by a municipal (local) government as a basis for calculating annual property taxes. An "assessment notice" from the municipality contains the "assessed value" and, when multiplied by the current "mill rate," the property taxes for the year can be calculated. In some municipalities, the mill rate is provided on the assessment notice. In others, it is provided separately.
What you own or can call upon. Often used in determining net worth or in securing financing.
Most Provinces allow a legal assignment of interest in a mortgage to have full legal effect without having to discharge and re-register the existing one. This is particularly useful in: switch situations, where the costs of transferring lenders would otherwise be very high; and second mortgage situations where a postponement may be difficult to obtain.
A mortgage which a qualified buyer can take over from the current owner of a property upon its sale. Assuming a mortgage can provide a buyer with a below market interest rate (if rates are now higher), as well as save money on the legal costs of creating and registering a whole new mortgage. "Assumption" entails a simple amendment to the mortgage document registered on the title (see Switch).
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 the debt.
B
A closed mortgage can often be "opened" for the purpose of extending the term. Most lenders will blend the penalty for breaking (usually an Interest Rate Differential) with the rate for the new extended term. The idea is to get a lower rate and protect against rate increases in the future.
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.
"Paying Down" the mortgage rate by paying the lender a premium at time funding. This is often used as a marketing feature by new home builders, particularly on high ratio second mortgages.
Realtor who acts contractually on behalf of the buyer. Traditionally, and still in most cases, the Realtor is the Agent of the Sellers and is paid by them out of the proceeds of the sale. A Buyer's Agency Agreement allows a Realtor (with full disclosure to the sellers or their agent) to negotiate on behalf of the buyer, with no legal conflict of interest. The seller still pays the Buyer's Agent fees, but this is always spelled out and acknowledged in the Offer to Purchase.
C
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 paid for by the borrower and is generally added to the mortgage amount. These mortgages are often referred to as 'Hi-Ratio' mortgages.
The highest rate that a borrower will pay within a defined time period. Examples are: the rate committed on a commitment letter or a mortgage pre-qualification (also known as a "rate hold"); or the maximum rate that will be paid by the borrower during the term of a "protected variable rate mortgage." A lender will usually have to incur a cost to insure against rate increases during the capping period. This insurance is called a "hedge".
A warning or notice that someone other than the owner of property has a money or title interest in that property. A caveat is registered on the title to property.
A document, kept in a Land Titles Office, that describes the property, states who owns it and lists certain claims, charges and liabilities against that property.
A mortgage that cannot be prepaid or renegotiated for a set period of time without penalties.
The final exchange of consideration and legal completion of a transaction, involving either a house purchase, a mortgage registration or both.
Closing costs are expenses over and above the price of the property in a real estate transaction. Costs incurred include loan origination fees, discount points, appraisal fees, title searches, title insurance, surveys, taxes, deed-recording fees and credit report charges.
The date on which the new owner takes possession of the property and the sale becomes final.
A mortgage whose terms state that it cannot be paid out, even with a penalty, unless the lender agrees. In some cases, a closed mortgage may be discharged at a defined cost, usually Interest Rate Differential (IRD), but sometimes with a punitive penalty such as full interest to maturity.
An asset, such as term deposit, Canada Savings Bond, or automobile, that you offer as security for a loan.
A written commitment from a lender to lend mortgage funds to specific borrowers as long as certain conditions are met within a specified time period before closing. A key component of the commitment, particularly in a period of volatile interest rates, is the "rate hold," where a lender may "cap" a rate for defined period, such as 60 days or 90 days. Commitments on financing for new homes, which usually have longer closing dates, can be negotiated between the lender and the builder and be held for as long as 6 months, and even a year.
Requires in many municipalities throughout Canada before a property transfer can take place. This is an acknowledgement from the building department that the property either has, or is clear of, outstanding work-orders. Work-orders are specific clean-up or fix up requirements that the owner must complete, particularly before a transfer of ownership.
Things stated in an offer, counter offer or acceptance which must be done before there will be a binding contract for purchase and sale. For example: an offer made "subject to financing" means there will be no contract until the buyer obtains suitable financing.
Some local utility companies (hydro, gas, oil) charge a fee on closing to connect new buyers up to their service. More normal, however, is an extra charge on the first billing
The contract outlining the terms, sale and conditions applicable to the purchase and sale of the property. A contract is formed when an offer or counter offer is accepted and has been signed by both the buyer and seller.
A mortgage usually amounting to 75% (Loan to Value ratio) or less of the value of the property.
This allows you to convert your mortgage to a new one of longer term while it is still in effect.
A statement of willingness to sell or buy property on different terms than were proposed in a prior offer. For example: Robin offers to buy a house from Pat for $60,000. Pat counter offers to sell for $63,000. A counter offer ends the original offer and, if accepted, will form the basis of the contract.
A mortgage up to 80% of the purchase price or the value of the property. A mortgage exceeding 80% is referred to as a 'Hi-Ratio' mortgage and the lender will require insurance for that mortgage.
The total costs of obtaining your mortgage. These costs typically include your appraisal fees as well as any other charges required to close your mortgage. These costs are included in your Annual Percentage Rate.
A report of an individual's payment history available at a credit bureau. Individuals can order a copy of their own report by contacting their local bureau.
A system that assesses a borrower on a number of items, assigning points that are used to determine the borrower's credit worthiness.
D
A deed is a document confirming the ownership of a particular property.
Not living up to a contractual obligation. A borrower will have defaulted on a mortgage if payments are not made or are late, the property is uninsured or the taxes are not paid.
A loan where the balance must be repaid upon request.
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, at which point it is given to the vendor. If a house does not close because of the purchaser's failure to comply with the terms set out in the offer, the purchaser forgoes the deposit, and it is given to the vendor as compensation for the breaking of the contract (the offer).
The removal of mortgage registration from the title after the mortgage has been fully repaid; the lender no longer has any claim against the property.
This feature (not offered by all lenders) allows you to double-up your mortgage payments anytime without penalty. This feature if often associated with the ability to "skip" an equivalent number of payments. This can be used either to accelerate the pay-off of a mortgage (as it is an enhanced prepayment privilege) or to manage a volatile cash flow.
Very few home buyers have the cash available to buy a home outright. Most of us will turn to a financial institution for a mortgage the first step in a potentially long-standing relationship. But even with a mortgage, you will need to raise the money for a down payment. The down payment is that portion of the purchase price you furnish yourself. The amount of the down payment (which represents your financial stake, or the equity in your new home) should be determined well before you start house hunting. The minimum down payment required to get a mortgage is 5% of the purchase price.
E
Some lenders allow home-owners to renew their mortgage up to 120 days before their maturity date (the end of their term). However; be sure to find out what's available to you on the market before agreeing to an early renewal.
A right which someone, other than the owner of the property, has to use the property in a particular way. For example, the right of the city to run a sewer line across your land.
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. For example: if a house is worth $70,000 and $30,000 is still owed on a mortgage, the equity would be $40,000.
This is the estimated value of your home. You may use the value of comparable homes in your area or your municipalities annual property tax assessment to.
An estoppel certificate is a legal document that shows the various finances and legal status of a condominium corporation. It is important that your lawyer reviews this document to help advise you on the financial health of any condominium you might plan on moving into.
F
Gives the lender a primary lien/charge against you house and property which has precedence over all other mortgages. Priority is determined by the date and time registered, so a first mortgage was literally and legally registered "first".
This allows buyers to obtain up to 95% financing on properties up to certain value. The loan must be insured against default by CMHC (Canada Mortgage and Housing Corporation) or GE Capital Mortgage Insurance Corporation. The maximum home value will vary according to location (local Realtors should know the applicable limit) and eligibility can vary with personal circumstances.
A mortgage for which the interest is set for the term of the mortgage. It is usually between 6 months to 25 years. This offers the security of knowing what you will be paying for the term selected.
An action taken by the lender to collect all the money owed under the mortgage or to get title to the mortgaged property. The lender has the right to foreclose when the borrower defaults. A court order for foreclosure entitles the lender to sell the property and keep the proceeds.
When a contract, through no fault of either party, becomes impossible to perform. Frustration ends the legal obligations of the parties under the contract.
G
Canada's only private default mortgage insurer. For more details, see Mortgage Insurance.
A private mortgage insurance company. One potential source of mortgage insurance for high-ratio mortgages.
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 maintenance fees, and this sum is then divided by the gross income of the applicants. Ratios up to 32 % are acceptable.
The total amount of money earned before deductions.
A person with an established credit rating and sufficient earnings who guarantees to repay the loan for the borrower if the borrower does not.
H
A fairly complex money market instrument. Its simple purpose is essentially to insure a mortgage lender (or borrower, through a protected or split-term mortgage) against interest rate movements. In the lender's case, the price of this insurance will vary depending upon many political and economic factors, but will generally be lower when interest rates and the economy are less volatile. The buyer, on the other hand, can hedge at no cost, or at a reasonable rate premium by using specifically designed products.
A mortgage that exceeds 80% of the purchase price or appraised value of the property. This type of mortgage must be insured. To avoid the cost of the insurance, a 1st mortgage up to 80% is arranged and a 2nd mortgage for the balance (up to 90% of the purchase price).
A loan available when less than a 25% down payment is made. A minimum 5% down payment is required. This type of mortgage must be insured to protect the lender.
The equity in your home, is the difference between the value of your home and what you owe on it.
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.
A report commissioned by a property owner or purchaser, usually to verify the condition of a property prior to the "firming up" of a Real Estate transaction. The scope and detail may vary, but most reports indicate the specific problem and the cost to repair. Unfortunately, no licensing is required, and this service is not specifically regulated other than by general consumer protection legislation. The best safeguard against inadequate work is to ask for the resume of the inspector, and, if possible, check references from previous customers.
A house and its adjoining land in the city or a quarter section of land in the country that has been owned at any time during the marriage by both spouses as the family home. There can be more than one homestead. When buying, or selling real estate, there must be compliance with The Homesteads Act. This Act protects the interest each spouse has in a homestead.
Insurance to cover both your home and its contents (also referred to as property insurance). This is different from mortgage life insurance, which pays the outstanding balance of your mortgage in full if you die.
I
The process of having a qualified home inspector identify potential repairs to the property you are interested in and their estimated cost.
A penalty for early prepayment of all or part of a mortgage outside of its normal prepayment terms. This is usually calculated as "the difference between the existing rate and the rate for the term remaining, multiplied by the principal outstanding and the balance of the term."
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.
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
J
A court ordered sale of the property that permits any money left over, after the debts and court costs have been fully repaid, to be paid to the property owner. Application for judicial sale must be made before there is a final order for foreclosure.
L
A tax payable to the Provincial Government by the purchaser upon the transfer of title from a seller.
An encumbrance registered against property. This registration puts everyone on notice that the property owner has failed to fulfill certain obligations towards the lienholder. Anyone who subsequently buys the property still has to satisfy the claims of the lienholder.
The legally binding contract between a seller and a real estate agent which authorizes the agency to list and sell the property. It provides for payment of a commission to the agency in the event of a sale. There are two common types: multiple and exclusive listing.
The percentage of the value of the property for which a mortgage is required. This ratio is important in determining whether or not default insurance is required, and if so, what the cost of that insurance will be (see Mortgage Insurance).
The best mortgages allow home-owners to pay off their mortgage faster using prepayment options. Each mortgage year, home-owners can make one-time or on-going lump sum prepayments equal to a certain of their original mortgage balance without penalty.
M
The maturity date is the last day of the term of your mortgage. Any outstanding balance is due on this date. However, if you have an outstanding balance you will usually have the opportunity to renew your mortgage with a new principal amount, interest rate, term and amortization.
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.
A registered agent who negotiates with lenders on behalf of a borrower to obtain the best overall mortgage for that borrower's circumstances. Mortgage Brokers are particularly useful in financing "nonstandard" situations which cannot be funded by a major national lender. This is possible because a Mortgage Broker has access to lenders who do not advertise nationally or operate retail locations.
Mortgage Default Insurance pays the lender if the borrower defaults on making payments. This insurance is required by law for high ratio mortgages (those for an amount greater than 80% of the value of the property) and may be required under other circumstances.
A mortgage discharge fee is just what it sounds to be: A fee you pay for the mortgage discharge, which is a legal document releasing the collateral hold on your home. With the Discharge of Mortgage document, you are legally released from all mortgage obligations.
The financial institution or person (lender) who is lending the money using a mortgage.
Insurance guaranteeing the lender will be repaid the money loaned if the borrower defaults. The borrower is required to purchase this insurance if making less than a 25% down payment.
Insurance that can be purchased from a lender to ensure the balance owing on the mortgage will be paid out in the event the property owner dies.
Mortgage Loan Insurance pays the lender in the event the mortgage borrower defaults on making payments. Such insurance is required by law for high ratio mortgages (those for an amount greater than 80% of the value of the property) and may be required under other circumstances. For more information about Mortgage Loan Insurance or to calculate the premium, you can visit CMHC or Genworth websites at: www.cmhc.ca or www.genworth.ca or www.canadaguaranty.ca.
At funding or when renewed, a mortgage is set for a pre-determined amount of time or term. If the mortgage is terminated before its maturity date, either through sale of the home, early renewal or discharge, there may be penalties. The applicable penalties would be equal to the greater of the interest rate differential or 3 months interest plus any applicable fees related to the discharge request.
The percentage interest that you pay on top of the loan principal. For example, you may take out a mortgage of $100,000 at a rate of 12%. Your monthly payments will consist of a portion of the original $100,000, plus 12% interest.
Mortgage registration: standard or collateral charges. When setting up your mortgage, your lender will secure the loan by registering a "charge" against your property. There are two types of charges that can be registered against land: standard and collateral.
The person who borrows the money using a mortgage.
A service of a local Real Estate Board which publishes and exchanges details of properties registered with them. While this used to be for the exclusive use of registered Realtors, it is now possible for a private individual to "list" a property without committing to pay a Realtor a "listing commission" if the property sells. The majority of properties sold in Canada are sold through the local MLS.
Special levies can be charged by municipalities to recover the cost of special services, if these services cannot, for some reason, be funded out of general revenues, or apply primarily to homebuyers. Examples: Water meter installation; road improvements; sewer improvements.
O
A statement of a prospective buyer's willingness to purchase property on the terms and conditions stipulated in the offer.
A mortgage that can be repaid at any time during the term without any penalty. For this convenience, the interest rate is between 0.75-1.00% higher than a closed mortgage. A good option if you are planning to sell your property or pay-off the mortgage entirely. *some conditions may apply
P
Principal, interest, and property tax due on a mortgage. If your down payment is greater than 25% of the purchase price or appraised value, the lender will allow you to make your own property tax payments.
Principal, Interest, Taxes, Heating and half of Condo Fees, if applicable. Otherwise know as your "shelter expenses." This is a basic component of the ratios used to determine whether or not you quality.
An existing mortgage that can be transferred to a new property. One would want to port their mortgage in order to avoid any penalties, or if the interest rate is much lower than the current rates.
The day on which the buyer can enter and occupy the property purchased. The date by which property insurance must be in place.
A pre-approved mortgage provides an interest rate guarantee from a lender for a specified period of time (usually up to 120 days) and for a set amount of money. The pre-approval is calculated based on information provided by you and is generally subject to certain conditions being met before the mortgage is finalized. Conditions would usually be things like 'written employment and income confirmation' and 'down payment from your own resources', for example. Most successful real estate professionals will want to ensure you have a pre-approved mortgage in place before they take you out looking for a home. This is to ensure that they are showing you property within your affordable price range.
The right to prepay periodically more than the scheduled principal payment. Historically this was limited to a single annual payment on the anniversary date of no more than 10% of the original principal. In recent years, however, prepayment privileges have become more lenient, reflecting a growing number of people who desire to pay their mortgages off on an accelerated basis/ See also Double-Up.
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, a usual charge is the greater of the Interest Rate Differential (IRD) or 3 months' interest.
The amount you will owe if the person selling you the home has prepaid any property taxes or utility bills. The amount to reimburse them will be calculated based on the closing date.
The lowest rate a financial institution charges its best customers.
The original amount of a loan, before interest.
A purchase of unlisted property directly from the seller.
A sale of property conducted by the seller without using the services of a real estate agent.
The purchase price is the actual price you've agreed upon for the purchase of your new home. This price doesn't include any closing fees, transfer taxes or interest costs.
R
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.
Payment of all arrears and related costs to a lender by a borrower in default; must be done before a final order for foreclosure is granted.
Refers to the replacement of an existing debt obligation with a debt obligation under different terms. The most common consumer refinancing is for a home mortgage. If the replacement of debt occurs under financial distress, it is also referred to as debt restructuring. A loan (debt) can be refinanced for various reasons: 1. to take advantage of a better interest rate (which will result in either a reduced monthly payment or a reduced term); 2. to consolidate other debt(s) into one loan (this will result in a longer term); 3. to reduce the monthly repayment amount (this will result in a longer term) 4. to reduce or alter risk (e.g. changing from a variable-rate to a fixed-rate loan) 5. to free up cash (this will result in a longer term). Breaking your mortgage contract to renew at a new rate and a new term, may include a prepayment charge to reimburse your financial institution for the lost interest income. As a rule, the prepayment charge is based on three months' interest or the interest rate differential (the difference between your current mortgage rate for the balance of your term and the new rate you want to refinance at), whichever is greater. This amount will tell you if you should refinance the mortgage. The shorter the remaining term less than a year is best the smaller the penalty. The longer the term left on your mortgage, the greater the prepayment penalties. I am able to calculate your information to determine if you should break your mortgage and take advantage of current lower rates. Mortgages insured by the Canadian Mortgage and Housing Corporation, has a maximum penalty of three months' interest after the third anniversary date of the interest adjustment period, or after the third anniversary date from your most recent renewal.
Fees paid to the provincial government for recording a title transfer, mortgage registration or other instrument, such as an Assignment or Lien with the local authories.
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, then renew with same lender or transfer to another lender at no cost (we can arrange). When renewing your mortgage, the banks often only offer the posted rates. You have to push a little harder for them to give you a break. They know that most homeowners don't want to have to shop around, so, they offer you a higher rate and hope that you will take it.
S
Taxes applied to the purchase cost of a property. Some properties are sales tax exempt (GST and/or PST), and some are not. For instance, residential resale properties are usually GST exempt, while new properties require GST. Always ask before signing an offer.
A loan of money from a lender which uses the owner's equity in the property as security for the loan. A second (or third) mortgage gives the lender a claim to proceeds from a sale left over after prior mortgages have been paid.
This is an asset that is used as collateral for the sake of a loan. In the case of your mortgage, your home is the asset used as security.
Interest which is computed only on the principal balance. It is not compounded by calculating interest payable on accrued interest.
A pre-printed form containing the basic terms of contract.
The legal written and/or mapped description of the location and dimensions of your land. The survey should also show the dimensions and placement on the lot of any structure, including additions such as pools, sheds, fences. An up-to-date survey is often required by a lender as part of the mortgage transaction.
To transfer an existing mortgage from one financial institution to another. We can have this arranged for you at no cost to you.
T
At the time of a sale, the lawyer for the buyer must confirm that local taxes have been paid up to date. If they are, a Tax Certificate is issued, from which any adjustments can be made usually requiring the buyer to compensate the seller for any prepaid taxes. If they are not up to date, the municipality requires that the seller pay them off from the proceeds of the sale. If there are insufficient proceeds, then it may fall upon the buyer to pay them.
The period of time the financing agreement covers. The terms available are: 6 month, 1,2,3,4,5,6,7,10 year terms, and the interest rates will be fixed for whatever term once chooses. The term is the length of time a mortgage runs before it is due and must be renewed; a part of the total time it will take to repay the full amount of mortgage money borrowed.
The title designates the ownership of a particular property.
Insurance offered by Title Companies to protect a landowner, and thus the mortgage lender, against any "clouds" or legal questions on the title to the real estate, or of legal priority of the mortgagee. This is usually considerably less expensive than the labor-intensive and liability-fraught process of having to have a lawyer search title, and certify it as "clear" a process known as "certifying title" or giving an "opinion of title."
It is the other 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 maintenance 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. Ratios up to 40 % are acceptable.
U
This is a promise by a lawyer to ensure that certain conditions (usually of the lender) are met (usually after closing, due to time constraints). The best example is the undertaking to register a discharge of an old first mortgage after the new one has been registered, because there is simply not enough time to do so at closing. It also governs such closing dynamics as releasing funds before a new mortgage document is officially registered.
The process of deciding whether or not to lend you money (or how much to lend you) based on all the information you have given the lender. Every lender has a different underwriting process and lending criteria which differ to some (usually small) extent from other lenders.
V
A fee charged by your mortgage lender for commissioning a mortgage valuation. A mortgage valuation is quite a basic inspection of your property, and its purpose is limited to whether your home is suitable security to lend on.
A mortgage in which payments are fixed for a period of one to two years although interest rates may fluctuate from month to month depending on market conditions. If interest rates go down, more of the payment goes towards reducing the principal. If rates go up, a larger portion of the monthly payment goes towards covering the interest. Open variable rate mortgages allow prepayment of any amount (with certain minimums) on any payment date.
A mortgage provided by the vendor (seller) to the buyer.
The lender will sometimes contact an applicant's employer in order to verify information provided in a mortgage application of job letter (your income structure, length of employment, position, and so on).
W
Municipal by-laws ("zoning" by-laws) require, among other things, that residential property be maintained in a safe and habitable condition, and that a property's use conform to specific requirements (no illegal basement apartments, satellite antenna, etc.).
A court order which can be registered against a property owner, requiring payment of a judgment ordered by the court.
Z
Zoning refers to the geographic zone designations allotted by municipalities.