MORTGAGE TERM GLOSSARY

Not sure what a mortgage term means? You’re not alone. Here’s a simple glossary of common mortgage terms so that you’ll understand the process, feel confident in your decisions, and know exactly what you’re signing.

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  • This is the legal contract between the buyer and seller outlining the price, conditions, and timelines of the purchase. We recommend having your offer prepared by an experienced realtor to ensure the right clauses and conditions are included to protect you.

  • The process of determining the market value of a property.

  • An assumption agreement allows you to take over the seller’s existing mortgage instead of applying for a brand-new one. This can be helpful if the current mortgage rate is lower than today’s rates, but it must be approved by the lender and may involve specific terms and fees.

  • CMHC is a federal Crown corporation that provides mortgage default insurance for high-ratio mortgages, meaning mortgages with less than 20% down. The insurance premium is paid by the borrower and is usually added to the mortgage amount.

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

  • A conventional mortgage is when you borrow 80% or less of the home’s value, meaning you have at least 20% down. If you borrow more than 80%, it’s considered a high-ratio mortgage and mortgage default insurance is required.

  • A loan where the balance must be repaid upon request.

  • Equity is the difference between your home’s current market value and what you still owe on your mortgage. It’s the portion of the home that you own.

  • A mortgage where the interest rate stays the same for the full term, giving you consistent, predictable payments.

  • A guarantor is someone with strong credit and income who agrees to repay the mortgage if the borrower is unable to make the payments.

  • A line of credit secured against your home that lets you borrow against your available equity. In most cases, you can access up to 65% of your home’s value as a HELOC (and up to 80% total when combined with your mortgage).

  • A mortgage where your payments cover only the interest each month, and the principal balance does not decrease. Payments are lower than an amortized mortgage because you’re not paying down the principal.

  • A mortgage that can be paid off at any time during the term without a penalty. The interest rate is usually higher than a closed mortgage, but it can be a good option if you plan to sell soon or pay off your mortgage early.

  • The lender on a mortgage, such as a bank, credit union, or private lender.

  • 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.

  • The person who borrows the money using a mortgage.

  • 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).

  • 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 original amount of a loan, before interest.

  • A mortgage that can be transferred from your current home to a new home. This can help you avoid penalties and keep your existing rate and terms if they’re better than current market rates.

  • Prime is the base interest rate lenders use for their best-qualified borrowers. Many variable-rate mortgages and lines of credit are priced as “prime plus” or “prime minus.”

  • The length of time a lender will hold or guarantee an approved mortgage rate, usually between 30 and 120 days depending on the lender.

  • A loan secured against your home that is registered behind your first mortgage. It uses the property as collateral and is often used to access home equity.

  • The length of time your mortgage rate and conditions are locked in before renewal. Common terms include 1, 2, 3, 4, 5, and 10 years (and sometimes shorter terms like 6 months).

  • A mortgage where the interest rate can change over time based on the lender’s prime rate.

  • The number of years it takes to repay the entire amount of the financing based on a set of fixed payments (commonly 25 or 30 years).

  • Anything you own that has value, such as savings, investments, real estate, or vehicles. Assets can help support a mortgage application and determine net worth.

  • Regular mortgage payments that include both interest and principal. Over time, more of each payment goes toward the principal and less goes toward interest, even if the payment amount stays the same.

  • A mortgage with restrictions on paying it off early or changing the terms before the end of the term. Prepaying or breaking it usually results in a penalty.

  • DEPOSIT

    A deposit is a sum of money paid by the purchaser in trust when an offer to purchase is made. Upon acceptance of the offer by the vendor (seller), the deposit is held in trust by the listing real estate brokerage, lawyer, or notary until closing, at which time it is credited to the vendor on completion of the sale. If the transaction does not close due to the purchaser’s failure to comply with the terms and conditions of the Agreement of Purchase and Sale, the purchaser may forfeit the deposit, and it may be released to the vendor as compensation for breach of contract.

  • A system lenders use to evaluate your creditworthiness based on factors like payment history, debts, credit usage, and length of credit history.

  • 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 1’st mortgage up to 80% is arranged and a 2’nd mortgage for the balance (up to 90% of the purchase price).

  • 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.

  • 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.

  • To transfer an existing mortgage from one financial institution to another. We can have this arranged for you at no cost to you.

  • 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.

  • Vendor Take Back (VTB) Mortgage

THE MORTGAGE PROCESS

With today’s ever-changing mortgage rules, having a clear understanding of where you stand financially is key to putting the right plan into action.

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