Mortgage Terms & Definitions

Amortization

 

A term used to describe the period of time over which the entire mortgage is to be paid assuming regular payments.

 

Capped rate

 

An interest rate with a pre-determined ceiling - usually associated with a variable-rate mortgage.

 

Closed mortgage

 

A mortgage that cannot be prepaid, renegotiated or refinanced prior to maturity, unless stated in the agreed terms.

 

Closing costs

 

Costs that are in addition to the purchase price of a property and which must be paid on the closing date. Examples include legal fees, land transfer taxes, and disbursements.

Closing date

 

The date on which the sale becomes final, the new owner takes possession of the property and funds are transferred from the purchaser to the vendor.

 

Conventional mortgage

 

A mortgage where the borrower is contributing more than 20% or more of the value of the property as the down payment.

 

Convertible mortgage

 

A mortgage that you can change from short-term to long-term, depending on your financial needs.

 

Debt service ratio

 

The percentage of the borrower's income used for monthly payments of principal, interest, taxes, heating costs and condo fees (if applicable).

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Down payment

 

The money that you pay up-front for a house. Down payments typically range from 5%-20% of the total value of the home

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Equity

 

The difference between the market value of a property and the amount owed on the property. This difference is the amount a homeowner actually owns outright.

 

High ratio mortgage

 

A mortgage where the borrower is contributing less than 20% of the value of the property as the down payment.

 

Interest adjustment

 

The amount of interest due between the date your mortgage starts and the date the first mortgage payment is calculated from. Sometimes there is a gap between the closing date of your home purchase and the first payment date of your mortgage.

 

Land transfer tax

 

A tax that is levied (in some provinces) on any property that changes hands.

 

Legal fees and disbursements

 

Some of the legal costs associated with the sale or purchase of a property. It is in your best interest to engage the services of a real estate lawyer (or a notary in Quebec).

 

Mortgage

 

A loan that you take out in order to buy property. The collateral is the property itself.

 

Mortgagee/mortgagor

 

Mortgagee is the lender; mortgagor is the borrower.

 

Mortgage broker

 

A company or individual who helps the homeowner find the right financing to buy a property. A broker does not actually lend money but seeks out a lender and arranges the mortgage terms. This may include negotiating with the lender for the best possible deal for the homebuyer.

 

Mortgage default insurance

 

Required if you are contributing between 5% and 20% of the value of the property as the down payment.

 

Mortgage rate

 

The percentage interest that you pay on top of the loan principal.

 

Mortgage term

 

The length of time the interest rate is guaranteed for a mortgage. Mortgage terms normally rate from six months to five years or more, after which you can repay the balance of the principal owning or re-negotiate the mortgage at current rates.

 

Offer to purchase/conditional offer

 

A written contract outlining the terms under which the buyer agrees to purchase the property. There may be conditions attached to the offer, for example: offer being subject to arranging the mortgage or selling a home.

 

Open mortgage

 

A mortgage which you can pay off, renew or refinance at any time. The interest rate for an open mortgage is usually higher than a closed mortgage rate.

 

Porting

 

Transferring an existing mortgage from one home to a new home when you move. This is known as a "portable" mortgage.

 

Pre-approved mortgage certificate

 

A written agreement that you will get a mortgage for a set amount of money at a set interest rate. Getting a pre-approved mortgage lets you shop for a home without worrying how you'll pay for it.

 

Pre-paid property tax and utility adjustments

 

The amount you will owe if the person selling you the home has pre-paid any property taxes or utility bills. The amount to reimburse them will be calculated based on the closing date.

 

Pre-payment

 

Repaying part of your mortgage ahead of schedule. Depending on your mortgage agreement, there may be a penalty for pre-paying.

Property survey

 

A legal description of your property and its location and dimensions. An up-to-date survey is usually required by your mortgage lender. If not available from the vendor, your lawyer can obtain the property survey for a fee.

 

Refinancing

 

Increasing the amount of your current mortgage, at a new interest rate. The term of the new mortgage must be equal to or greater than the term remaining on your current mortgage.

 

Renewal/renewing

 

Once the original term of your mortgage expires, you have the option of renewing it with the original lender or paying off all of the outstanding balance.

 

Variable rate mortgage

 

A mortgage with an interest rate that changes with the market. The rate changes each month, so the portion of your monthly payment that goes towards interest may go up or down each month. But your total monthly payment will probably stay the same.