Mortgage Glossary

Amortization Period

The number of years it takes to repay the entire amount of the financing based on a set of fixed payments.

Appraisal

The process of determining the market value of a property.

Assets

What you own or can call upon. Often used in determining net worth or in securing financing.

Assumption Agreement

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.

Blended Payments

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.

Closed Mortgage

A mortgage that cannot be prepaid or renegotiated for a set period of time without penalties.

Closing Date

The date on which the new owner takes possession of the property and the sale becomes final.

Co-Borrower

A person with an established credit rating and sufficient earnings who guarantees to repay the loan for the borrower if the borrower does not.

Collateral

An asset, such as term deposit, Canada Savings Bond, or automobile, that you offer as security for a loan.

Contract

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.

Conventional Mortgage

A conventional mortgage is provided by the Government’s Sponsored Enterprises (GSE); Fannie Mae or Freddie Mac.

Credit Scoring

A system that assesses a borrower on a number of items, assigning points that are used to determine the borrower's credit worthiness.

Debt-to-Income Ratio

The total of your mortgage expense, including association or condo fees + all of your minimum monthly payments reported on your credit report divided by your gross income.

Demand Loan

A loan where the balance must be repaid upon request.

Earnest Money Deposit

A sum of money deposited in trust by the purchaser on making an offer to purchase. When the offer is accepted by the 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 seller. 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 seller as compensation for the breaking of the contract (the offer).

Equity

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.

First Mortgage

A debt registered against a property that has first call on that property.

Fixed-Rate Mortgage

A mortgage for which the interest is set for the term of the mortgage.

Home Equity Line of Credit

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.

Interest-Only Mortgage

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

Mortgage

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.

Mortgagee

The financial institution or person (lender) who is lending the money using a mortgage.

Mortgagor

The person who borrows the money using a mortgage.

PITI

Principal, Interest, Taxes and Ind Insurance 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.

Prepayment Penalty

A fee charged by the lender when a mortgage is paid off early – we don’t have any loans with a pre-payment penalty!

Prime Rate

The lowest rate of interest at which money can be borrowed commercially.

Principal

The original amount of a loan, before interest.

Rate Commitment

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.

Refinance

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).

Second Mortgage

A debt registered against a property that is secured by a second charge on the property.

Term

The period of time the financing agreement covers. The terms available are: 5, 10, 15, 20 ,25 or 30 years terms, and the interest rates will be fixed for whatever term once chooses.

Variable Rate Mortgage

A mortgage for which the interest rate fluctuates based on changes in prime.