Glossary of common mortgage industry terms.
ACCELERATED BI-WEEKLY MORTGAGE PAYMENTS
Mortgage payments that are made every two weeks (the date of which won’t always fall on the first day of a month). If you choose accelerated bi-weekly payments, you will make 26 payments a year.
ACCREDITED MORTGAGE PROFESSIONAL
Accredited Mortgage Professional (or AMP) is a professional designation created the by Canadian Association of Accredited Mortgage Professionals. It essentially a designation that demonstrates commitment to ongoing education and ethical behavior in the mortgage industry.
ADJUSTABLE RATE MORTGAGE
Also known as an ARM, this is a mortgage where the payments change and the interest rate is periodically adjusted based on an index (in Canada, the index is the prime lending rate).
An adjustment date, or interest adjustment date, is the date in which the interest will begin to accrue on your mortgage, before payment is made on the mortgage.
Amortization period refers to the number of years it will take to pay down the principal balance of your mortgage in full. The most common amortization period is 25 years, however you can choose an amortization period of up to 35 years.
An amortization schedule is a table of periodic payments made to a mortgage, showing the amount paid, the amount applied to interest, the amount applied to principal and the remaining balance after the payment is made.
Appraised value is the fair market value of a piece of property as determined by a licensed and qualified appraiser.
ARTICLES OF INCORPORATION
A document filed with the Government by a corporation’s founders describing the purpose, name, place of business, and other details of the corporation. These will frequently include a certificate of incorporation as well.
Something that you own that has value or use. Example: RRSPs, vehicle, savings, home, etc.
An assumable mortgage is a mortgage that may be transferred without changing the terms of the original mortgage.
Also known as interim financing, a bridge loan is a second mortgage that is paid of immediately following the closing date of the buyer’s current home. Bridge financing is typically used when the sale of the buyer’s current home closes after the purchase of his or her new home closes.
A mortgage that, for a specified term, locks you into paying the mortgage for that period of time. It also locks in a mortgage rate, which doesn’t increase/decrease if rates do. Generally, if you break a closed mortgage, you will be required to pay three months’ interest payments as a penalty. The most common term for a closed mortgage is five years.
These are costs that are associated with completing the mortgage transaction. Some closing costs could be lawyer fees, title insurance, appraisal fees, fire insurance and home inspection fees.
The closing date represents the day ownership of a home transfers from the seller to the buyer and is stated and agreed to by all parties on the sale contract.
A security or guarantee pledged for the repayment of a loan if an individual does not have enough funds to repay. In respect to mortgage loans, the collateral is the property being mortgaged.
The number of times per year that the interest rate is compounded. In Canada, mortgage interest rates are compounded semi-annually, or twice per year.
Condo fees consist of the monthly payments collected that cover a resident’s shared expenses for the upkeep of all common areas.
A mortgage loan that is up to 80% of the home’s appraised value or purchase price (whichever is less).
A credit reporting agency that gathers credit information and compiles it into a credit report. The two credit bureaus in Canada are Equifax Canada and Trans Union of Canada.
A credit report is a report/history of an individual’s credit. To read more about credit reports and how to understand them, please click here.
A credit score is a grade given to your credit situation and credit history.
Debt consolidation is a means of combining several debts into one debt that has one monthly payment.
Failure to pay a debt as agreed. In respect to mortgages, failure to pay mortgage payments.
The amount of cash that the buyer can initially invest in the property. The down payment is the difference between the purchase price and the value of the mortgage loan.
The value of the property beyond any amounts being owed, therefore the difference between the price that a home could be sold for and the amount still owing on any mortgages.
An equity loan is a loan secured by real estate.
FAIR MARKET VALUE
Fair market value (FMV) is defined as the price a ready, willing and able buyer, with knowledge of all pertinent facts, is willing to pay for a certain piece of property.
The mortgage whose holder has the first place claim on assets in the event of default.
FIXED RATE MORTGAGE
A mortgage for which the interest rate has been fixed for a certain period of time (generally the length of a mortgage term).
The legal process in which the mortgage lender sells the mortgaged property because the borrower has defaulted on his or her mortgage loan.
GDS stands for Gross Debt Service. This is the percentage of annual gross income that is required to cover mortgage principal payments, mortgage interest payments, property taxes, and heat payments. If the property is a condominium, condo fees will also be worked into this ratio.
This is a letter stating that the gift giver (an immediate family member) in making a gift of a certain amount to the gift receiver for the down payment of a home. It also states that the gift is genuine and that the gift receiver (or home buyer) is not required to pay back the gift at any time.
A HELOC is an acronym standing for Home Equity Line of Credit.
A mortgage that is more than 80% of the home’s appraised value or purchase price (whichever is less). High-ratio mortgages must be insured to protect the lender against default.
Home insurance provides payment to the homeowner in the event of loss due to fire, theft, or damage through certain natural elements such as hail, tornado, lightning and flooding.
HOME INSURANCE POLICY
A home insurance policy is an insurance policy covering your physical home in the event of fire or other casualty, the contents of the home and other losses you may suffer due to destruction of the property, in whole or in part.
HIGH YIELD MORTGAGE
A high yield mortgage is a mortgage with a higher than average interest rate. The yield refers to the compound interest charged on the mortgage, also known as the Annual Percentage Rate (APR).
The percentage of the mortgage loan charged by the lender for use of the lender’s money. In Canada, this mortgage rate is compounded semi-annually, or twice per year.
Also known as a bridge, a interim financing is a second mortgage that is paid of immediately following the closing date of the buyer’s current home. Interim financing is typically used when the sale of the buyer’s current home closes after the purchase of his or her new home closes.
A letter from your employer stating your length of employment, guaranteed number of hours worked per week, and income amount.
A financial obligation of an individual, such as credit card debt, car payments, mortgage payments, etc.
LICENSED MORTGAGE ASSOCIATE
A Licensed Mortgage Associate is the most common person within a brokerage to deal with clients. A Mortgage Associate will take clients’ applications on behalf of the brokerage, and walk them through the mortgage process.
A claim against a property to secure the payment of a debt or other obligation.
A borrowed amount of money that is generally repaid in full as well as with a certain amount of interest.
LOAN TO VALUE RATIO (LTV)
The ratio of the value of the mortgage loan to the appraised value or purchase price of the property (whichever is less). For example, if someone purchased a home for $100,000 and had $20,000 as a down payment, the mortgage would be $80,000, or 80% of the value of the home (therefore an 80% LTV).
A loans officer is an employee of a lending institution that functions as the liaison between that lender and it’s customers that are applying for a loan.
The highest price a buyer would pay and the lowest price a seller would accept on a property. Market value could differ from the price that the property could be sold for at a given time.
The date that your mortgage term ends. At this point, you can either pay off your mortgage or renew it.
To pledge a property to a lender as security on a loan.
Mortgage affordability is the amount of money a mortgage borrower can make on a monthly basis towards a mortgage, based upon their income, expenses, and the proposed monthly payment.
Mortgage amortization is the process of repaying a mortgage loan.
First step in obtaining financing for a real estate purchase.
A mortgage balance is the full amount owed at any period of time during the duration of the mortgage, and is the sum of the remaining principal owing and accrued interest.
A mortgage brokerage must employ a mortgage Broker to oversee the brokerage employees. Generally Brokers are responsible for the management role within the brokerage. They are also responsible for ensuring that the brokerage complies with the Real Estate Act. An individual must be a Licensed Mortgage Associate for two years before being eligible to become a Broker.
A mortgage brokerage is a legal identity licensed to trade in mortgages. Mortgage Brokers and Licensed Mortgage Associates must be licensed under a brokerage.
A mortgage company is a business with the principal activity of providing or servicing mortgage loans. A mortgage company may be a chartered bank, a credit union, a trust company or other financial institution providing mortgage loans.
A mortgage deed is a document in which the mortgagor transfers an interest in real estate to a mortgagee for the purpose of providing a mortgage loan.
A mortgage holder is an individual or entity who owns the mortgage loan that was extended to a homeowner, and is the party entitled to enforce the terms of the mortgage.
This is insurance that is required for high-ratio mortgages. It protects the lender in the event that a borrower defaults on a mortgage. The three mortgage insurers in Canada are CMHC(Canadian Mortgage and Housing Corporation), Genworth, and AIG. Prior to the creation ofCMHC, Canadians could not purchase a home without a 25% down payment.
A mortgage lead is a generic term referring to a potential mortgage borrower or a potential mortgage customer for a mortgage lender or mortgage broker.
A mortgage lender is an entity that provides financing for the purchase of real estate.
MORTGAGE LIFE INSURANCE
This is insurance that pays off the mortgage in the event of death or disability. To read more about mortgage life insurance, please click here.
A mortgage loan is a loan secured by real estate owned by the borrower.
A mortgage payment is a periodic amount paid to a mortgage holder for repayment of a mortgage loan.
Mortgage principal is the outstanding balance of your mortgage.
Mortgage rate is the interest that a mortgage borrower will pay for money borrowed against a mortgage.
Mortgage refinancing is the process of replacing your mortgage or mortgages on your property with a new mortgage.
A mortgage renewal is a new agreement to extend or renew mortgage terms with your mortgage holder.
A statement received from your mortgage lender that includes such information as property address, outstanding principal balance, monthly payment, interest rate, mortgage term, etc.
A mortgage term is the length of time, usually in years, in which the parameters of a mortgage have legal effect.
Mortgage qualification is a standard set by a mortgage lender to approve a potential borrower a certain mortgage loan amount.
The party that advances the funds for a mortgage loan; the lender.
The party that uses their home as a security for a mortgage; the borrower.
NOTICE OF ASSESSMENT
This is also known as an NOA. It is the summary form that Revenue Canada sends you after your income tax has been filed. It specifies what you claimed on your taxes last year, as well as the amount of taxes you owe, or the amount of money that you will be received as a tax refund.
This is a mortgage with no term, which means that you can pay off your mortgage either fully or partially at any time with no penalty. Open mortgage rates are usually higher than closed mortgage rates.
The overnight rate is the interest rate at which large banks borrow money, short term, among themselves.
Usually a document you receive from your employer on your pay day stating, for that pay period, your gross earnings, the amount of CPP payments deducted, the amount of EI payments deducted, the amount of income income taxes deducted, net income, etc. Your pay stub should also state the year to date amounts of all the aforementioned income and payments.
A portable mortgage is a mortgage that permits the mortgage borrower to transfer their mortgage balance to a new property and with the same lender without penalties.
A feature of a mortgage that allows the borrower to “port” their mortgage to a new property if they move before his or her mortgage term is up (with no penalty).
A pre-approved mortgage qualifies you for a loan amount before you start looking for houses. It also acts as a rate hold, guaranteeing you today’s interest rates until up to 120 days in the future.
If you “break” (or pay off) your mortgage before your term is up, you’ll have to pay a prepayment penalty. The penalty is generally three months’ interest payments.
Some mortgages allow you prepayment privileges. Examples of these are doubling up payments, paying off a certain percentage of your mortgage principal a year, or increasing your monthly mortgage payments by a certain percentage.
The amount of money borrowed or still owing on a mortgage.
Prime rate or prime lending refers to the lowest commercial interest rate charged by a banks at a particular time.
PROPERTY TAX ASSESSMENT
A property tax assessment is a method of placing value on real estate for the purpose of taxation.
A legally binding document stating your (the buyer’s) intention to purchase a home from the seller provided that certain conditions be met (such as condition of financing, condition of a home inspection, etc.)
A rate lock refers to an agreement between a mortgage lender and a borrower to fix a certain interest rate for a number of days between the issuance of a mortgage approval and closing of the real estate purchase and mortgage loan.
A readvanceable mortgage is a feature of some mortgage lines of credit, including home equity lines of credit (HELOC).
REAL ESTATE AGENT
A person who is authorized to act as an agent for the sale of real estate on behalf of the property owner.
REAL ESTATE APPRAISAL
A report prepared by a real estate appraiser that estimates the value of a home and states features/properties of the home. Lenders generally require appraisals to verify that the buyer has purchased the home for a fair market price, to determine what the market rents are for the home, to ensure that the home meets the lender’s standards, to determine how much equity the home owner has in the home, etc.
A real estate agent who is a member of a local real estate board, the Canadian Real Estate Association and a provincial association.
Paying off the existing mortgage and arranging a new one with a different lender, or re-negotiating a new term, interest rate, etc. of an existing mortgage.
The re-negotiation of the terms, interest rates, etc. of a mortgage at the end of the term.
A reverse mortgage is a type of mortgage loan available in Canada that is designed for homeowners 60 years and older.
A sale contract is a written agreement between a buyer and seller of real estate, setting forth the terms of the sale, and specifying the rights and duties of the parties in the real estate transaction.
The mortgage whose holder has the second place claim on assets in the event of default.
The property that will be pledged as collateral for a loan.
SEMI-MONTHLY MORTGAGE PAYMENTS
Semi monthly mortgage payments are structured for the borrower to make payments 2 times per month, for instance, on the 1st and 15th of each month.
Equity created by a purchaser or homeowner by performing work on a property being purchased or refinanced.
TAKE OUT MORTGAGE
A take out mortgage is a mortgage loan used to “take out” equity for other purposes.
TDS stands for Total Debt Service. This is the percentage of annual gross income that is required to cover mortgage principal payments, mortgage interest payments, property taxes, and heat payments, plus monthly payments of any other debt the borrower holds. If the property is a condominium, condo fees will also be worked into this ratio.
The length of time the interest rate is fixed. The end of the term is also the time when the borrower must either pay the outstanding mortgage balance, or re-negotiate a new mortgage with the lender. If the borrower pays of his or her mortgage before the term is up, prepayment penalties may apply.
A third mortgage is a lien on property subordinate or junior to the first and second mortgages.
Legal ownership in a property.
Insurance that protects the owner or mortgagee of the property from any lawsuits or claims arising from a defective title.
The process of deciding whether or not to provide a mortgage loan to a home buyer based on credit, employment, assets and other factors. This is also the matching of the home buyer to a mortgage lender, mortgage product, interest rate, mortgage term, etc.
VARIABLE RATE MORTGAGE
A mortgage that has fixed payments, but whose principal portion of the payment fluctuates with interest rate changes. Variable rate mortgages generally fluctuate in respect to the prime lending rate. For example, Prime Rate minus 0.09%.
A personal, pre-printed cheque with “void” written across is. This is provided to the lender for the account your mortgage payments will be coming out of, as proof that the account is, indeed, yours.