Mortgage Glossary

You’ll find lending terms, mortgage definitions, ratios, all clearly explained with this mortgage glossary. Still have questions? Give me a call or send an email.

Agreement of Purchase and Sale
A legal agreement that offers a certain price for a home. This offer may be firm or conditional.

Amortization Period
The time which all regular payments would pay off the mortgage.

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.

Assumption Agreement
A legal document signed by a home buyer that requires the buyer to assume responsibility for the obligations of a former owner’s mortgage.

Blended Payments
Payments consisting of a principal and interest component, paid on a regular basis during the term of the mortgage. The principal portion increases while the interest portion decreases over the term of the mortgage, but the total regular payment usually does not change.

CMCH (Canada Mortgage and Housing Corp.)
The National Housing Act authorizes Canada Mortgage and Housing Corp. to operate a Mortgage Insurance Fund which protects NHA Approved Lenders from resulting from borrower debt.

Certificate of Location or Survey
A document specifying the exact location of the building on the property and describing the type and size including additions.

Certificate of Search or Abstract Title
A document setting out instruments registered against the title to the property.

Closed Mortgage
A mortgage agreement that cannot be prepaid renegotiated or refinanced before maturity, except according to its terms.

Closing Costs
Expenses associated with purchasing a home. Costs include land transfer taxes and legal fees.

Conventional Mortgage
A mortgage loan which does not exceed 80% of the appraised value of purchase price of the property, whichever is less. Mortgages that exceed this limit must be insured.

Debt Service Ratio
The percentage of a borrower’s income that will be used for monthly payments of principal, interest, taxes, heating costs and condominium fees.

Default
Non-payment of installments due under the terms of a mortgage.

Discharge
Removal of all mortgages and financial encumbrances on a property.

Foreclosure
A legal procedure whereby the lender obtain ownership of the property following default by the borrower.

Gross Debt Service Ratio
The percentage of gross annual income required to cover payments associated with housing. Most lenders recommend that the GDS Ratio be no more that 32% of you gross (before tax) monthly income.

High Ratio Mortgage
If you don’t have 20% of the lesser of the purchase price or appraised value of the property, your mortgage must be insured against payment default by a mortgage insurer such as CMHC.

Home Equity
The difference between the price for which a home could be sold (market value) and the total debts registered against it.

Inspection
Examination of the house by a building inspector selected by the purchaser.

Maturity Date
Last day of the term on the mortgage agreement.

Mortgage Insurance Premium
A premium added to the mortgage 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
A form of reducing term insurance recommended for the borrower. In the event of the death of an owner, the insurance pays out the balance of the mortgage. The intent is to protect the survivors from losing the home.

Mortgagee
The lender

Mortgagor
The borrower

Open Mortgage
A mortgage that can be prepaid at any time, without requiring any additional fees.

P.I.T.
Principal, interest, and taxes. These together make up the regular payment on a mortgage if you elected to include property taxes in your mortgage.

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

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

Principal
The amount you owe the lender at any given time.

Rate
The return the lender receives for loaning you the money for the mortgage.

Second Mortgage
This is usually at a higher rate and represents the difference between the price of the home and the first mortgage plus the downpayment. This may be obtained from the lenders and finance companies or through lawyers or notaries.

Term
The length of time for which money is loaned at a specified rate of interest. When the term expires you can either repay the balance of the principal or renegotiate the mortgage at current rates and conditions.

Variable Rate Mortgage
A mortgage for which the rate of interest may change if market conditions change.