Mortgage Glossary
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Acceleration
Acceleration is an expression that is usually used when a person chooses to pay a mortgage on a weekly or a bi-weekly basis although it can apply to any repayment program. All mortgages are drawn with a requirement that you make payments monthly, however, the bank will usually agree to administer one half of the required monthly payment each bi-weekly period. You are paying the equivalent to one extra monthly payment per year and therefore paying off your mortgage more quickly. If you choose to pay weekly and pay one quarter of a monthly payment each weekly period you get the same benefit. Be sure to arrange your mortgage payment dates match your pay days!
Agreement of Purchase and Sale
A legal agreement where the purchaser offers a certain price and the seller accepts this price for a home. The offer may be firm (no conditions attached), or conditional (certain conditions must be fulfilled before the deal can be closed).
Amortization
The period of time it takes to pay off your mortgage in full. Typically you may choose 25 year amortization period. Now lenders are offering longer amortization up to 40 years.
Appraisal
A process which determines the market value of property. This will usually be performed by a professional appraiser who will prepare a comprehensive report complete with photographs of the home.
Appraised Value
An estimate of the market value of the property.
Assumable
When a mortgage is assumable, a buyer may take over the responsibilities and benefits of the sellers' existing mortgage. This may be advantageous to a buyer if the interest rate on the mortgage is below the current market rates. Before assuming a mortgage, approval must be obtained from the lender.
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B
Blended Payment
A mortgage payment that includes both interest and principal repayment. The amount of interest taken from each payment declines while the amount applied to principal reduction increases over time, but the payment remains constant.
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F
Foreclosure
A legal procedure whereby the lender eventually obtains ownership of the property after the borrower has defaulted on payments.
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G
Gross Debt Service Ratio (GDS)
The percentage of your gross income which you will be using to pay for the mortgage payment including property taxes. See also Total Debt Service Ratio. (TDS).
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H
High Ratio Mortgage
A mortgage where you have a down payment of less that 20% of the purchase price. This type of mortgage must be insured against default. See also Conventional Mortgages.
Holdback
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 it.
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I
Inspection
The examination of the house by a home inspector selected by the purchaser.
Interest Adjustment Date
The date that the lender will start collecting interest. Your regular payments will commence one payment period after this date. For example, if you have chosen to make bi-weekly payments, your first payment will come due two weeks after the Interest Adjustment Date. When you sign your mortgage papers the bank will collect from you an "Interest Adjustment" which is a calculation of interest from the Completion Date to the Adjustment Date.
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.
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L
Loan to Value Ratio
The amount of the mortgage expressed as a percentage of the value of the home. For example, if you wish to borrow $190,000 on a home you are buying for $200,000, the Loan to Value Ratio is 95%.
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M
Maturity Date
The last day of the term of your mortgage agreement. On the Maturity Date the mortgage must be paid in full, renewed with the same lender or transferred to a new lender.
Mortgage
A mortgage is a document which is registered in the Land Titles Office and provides evidence that you have given your home as collateral to a lender to secure a loan. In practice, the loan itself is usually referred to as a mortgage.
Mortgage Life Insurance
A form of 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.
Mortgagee
The lender who provides a loan secured by a mortgage.
Mortgagor
A person who takes out a loan which is secured by a mortgage.
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N
Net Worth
The difference between what you own (assets) and what you owe (liabilities) is called your net worth.
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O
Open Mortgage
A mortgage which can be prepaid at any time, without penalty.
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P
P.I.T.
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.
Portable
A portable mortgage is a mortgage that can be transferred from one property to another. This is particularly useful if you sell one home and buy another.
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 Option
The ability to prepay all or a portion of the principal balance. Prepayment charges may be incurred on the exercise of prepayment options.
Prepayment Penalty
Unless it is open, the mortgage may not be paid off before the Maturity Date without paying a Prepayment Penalty. Be very careful when negotiating a mortgage as some mortgages cannot be paid off at all before the Maturity Date. See also Closed Mortgages and Maturity Date.
Prepayment Privilege
When you negotiate a closed mortgage, you are entering into an agreement with the lender that you will not pay off the mortgage during the term. In return, the lender agrees to maintain the same interest rate throughout the term. However, most mortgages allow certain prepayment privileges such as an annual prepayment of a certain percentage of the mortgage amount or an annual increase in the mortgage payment. An open mortgage will usually cost more but allows you to repay the mortgage in full or in part at any time without penalty.
Principal
The amount of money actually borrowed.
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R
Refinancing
Renegotiating your existing mortgage agreement. 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 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.
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S
Security
In the case of mortgages, real estate offered as collateral for the loan.
Survey
A certificate showing the home and other buildings relative to the property boundary.
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T
Term
The length of time that the lender guarantees the interest rate. At the end of the term, the mortgage comes up for re-negotiation. See also Maturity Date.
Total Debt Service Ratio
The percentage of your gross income which you will be using to pay for the mortgage payment including property taxes and all other debt payment such as credit cards and bank loans. See also Gross Debt Service Ratio (GDS).
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V
Variable Rate Mortgage
A mortgage for which the rate of interest may change if other market conditions change. This is sometimes referred to as a floating rate mortgage.
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