Add-on option:

This allows you to borrow up to 70% of appraised value of your home minus your outstanding mortgage balance.

Amortization period:

The actual number of years it will take to repay a mortgage loan in full. This can be well in excess of the loan's term. For example. Mortgages often have five-year terms but 25- year amortization periods.

Appraised value:

An estimate of the value of the property offered as security for a mortgage loan. This appraisal is done for mortgage lending purposes and may not reflect the market value of the property.

Assets:

What you own or can call upon.

Assumption:

The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. Assuming a loan can usually save the buyer money since this is an existing mortgage debt, unlike a new mortgage where closing cost and new, probably higher, market-rate interest charges will apply.

Balloon (payment) mortgage:

Usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract.

Better Business Bureau (BBB):

A private non-profit organization which offers services to its members (businesses) and to consumers. The main service to consumers is a rating on a member business which reflects the number of customer complaints received (if any) and how the complaints were settled.

Blended Payment:

A mortgage payment that contains both the interest and principal. The payment stays the same throughout the term, although the interest portion decreases as the principal portion increases.

Broker:

An individual in the business of assisting in arranging funding or negotiating contracts for a client but who does not loan the money himself. Brokers usually charge a fee or receive a commission for their services.

Buy-down:

When the lender and/or the home builder subsidize the mortgage by lowering the interest rate during the first few years of the loan. While the payments are initially low, they will increase when the subsidy expires.

Cash Flow:

The amount of cash derived over a certain period of time from an income-producing property. The cash flow should be large enough to pay the expenses of the income producing property (mortgage payment, maintenance, utilities, etc.)

Canada Mortgage and Housing Corporation (CMHC):

The federal Crown corporation which administers the National Housing Act. CMHC services include providing housing information and assistance to consumers and insuring home purchase loans for lenders.

Caps (interest):

Consumer safeguards which limit the amount the interest rate on an adjustable rate mortgage may change per year and/or the life of the loan.

Caps (payment):

Consumer safeguards which limit the amount monthly payments on an adjustable rate mortgage may change.

Closed mortgage:

A mortgage agreement which does not provide for prepayment prior to maturity. A lender may permit prepayment under certain circumstances but will levy a prepayment charge for doing so.

Closing date:

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

Collateral mortgage:

A loan backed up by a promissory note and the security of a mortgage on a property. The money borrowed may be used for the purchase of the property itself or for another purpose, such as home renovations or a vacation.

Conventional mortgage:

A mortgage loan which does not exceed 75% of the appraised value or purchase price of the property, whichever is the lesser of the two. Mortgages that exceed this limit must be insured.

Construction loan (interim loan):

A loan to provide the funds necessary to pay for the construction of buildings or homes. These are usually designed to provide periodic disbursements to the builder as he progresses.

Construction Loan:

A short-term interim loan for financing the cost of construction. The lender advance funds to the builder at periodic intervals as the work progresses.

Co-operative:

A form of ownership in which the owner has a share in the Co-operative which actually owns the property. The individual owner has the right to live in a housing unit but does not own the actual unit.

Default:

Failure to repay as agreed. To fail to pay an outstanding debt.

Discharge:

Pay off. To repay a debt in full.

Double-up payment:

You can Double-up your interest and principle payments any month or every month.

Down payment:

The amount of money (in the form of cash) put forward by the purchaser. Usually, it represents the difference between the purchase price and the amount of the mortgage loan.

Effective interest rate:

A variable interest rate translated into the rate that would be paid if the interest was compounded on a semi- annual basis.

Equity:

Equity is the difference between the price for which a property could be sold and the total debts registered against it.

Escrow:

Funds that are set aside and held in trust, usually for payment of taxes and insurance on real property. Also deposits held pending loan closing.

First mortgage:

The mortgage agreement which has first claim on the asset in the event of default.

Fixed-rate mortgage:

A mortgage loan for which the rate of interest is fixed for a specific period of time (the term)

Floating-rate mortgage:

Another term for variable- rate mortgage.

Foreclosure:

A legal process by which the lender or the seller forces a sale of a mortgaged property because the borrower has not met the terms of the mortgage. Also known as a repossession of property.

Gross Debt Service Ratio (GDS):

The percentage of gross annual income required to cover Payments associated with housing (mortgage principal and interest, taxes. Secondary financing. Space heating, and 50% of condominium fees, if applicable). Most lenders prefer that the GDS be no more than 30%.

Interest.

The fee charged for the use of money supplied by a lender.

Interest Adjustment Date (I.A.D.):

A date, usually one month before regular mortgage payments begin, when interest on moines advanced before that time is calculated and must be paid by the borrower.

Leasehold mortgage:

A mortgage loan for the purchase of a home or improvements to a home where the building is on land which is leased (rented).

Liabilities:

What you owe.

Lien:

A claim upon a piece of property for the payment or satisfaction of a debt or obligation.

Maturity date:

The last day of the term of the mortgage agreement. The mortgage loan must then be paid in full or the agreement renewed.

Margin:

The amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate.

Market Value:

The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.

Mortgagee:

The lender.

Mortgage loan:

A loan used primarily for the purchase of real property. The property being purchased becomes the security for the loan.

Mortgagor:

The borrower.

National Housing Act (NHA) loan:

A mortgage loan which is backed by (insured by) CMHC to certain maximums.

Nominal rate:

The quoted interest rate for a mortgage loan.

Offer to purchase:

A formal, legal agreement which offers a certain price for a specified real property. The offer may be firm (no conditions attached) or conditional (certain conditions must be fulfilled)

Overdraft rate:

If the mortgage goes into default the mortgagee is obliged to pay the tax bill, and add, with interest to the outstanding debt the monies paid.

P.I.T:

Principal. Interest, and taxes.

Power of Attorney:

A legal document authorizing one person to act on behalf of another.

Portable Mortgage:

If you're buying a new home and you like the terms and conditions of your existing mortgage, you can use this option and carry them over to your new mortgage on the new house.

Pre-approved mortgage:

This product offers you the security of knowing how much mortgage financing is available, and protect your rate for up to 60 to 90 days depending on the lender.

Prepayment charge:

A fee charged by the lender when the borrower prepays all or a portion of a mortgage loan, more quickly than provided for in the mortgage agreement.

Prepayment options:

A clause in a mortgage agreement which specifies when and how prepayments may be made.

Principal:

The amount actually borrowed.

Propriety Tax Account:

An option or mandatory, depending on the conditions of the mortgage agreement, provides for the automatic payment of property taxes, the amount is added to the regular monthly payment.

Refinance(ing):

If you're selling your home, you choose to increase its appeal by using this program to buy down the mortgage rates by as much as 3 or 4%, or to pay off a mortgage and arrange for a new mortgage with a different lender

Rate-capper/stopper mortgage option:

An option that can lock in the term up to 5 years and protection from increased interest rates while offering the flexibility of a variable-rate loan.

Refinance:

To pay off (discharge) a mortgage and any other registered encumbrances and arrange for a new mortgage with the same lender.

Registered encumbrances:

Legal claims against real property. Debts for which the property was pledged as security.

Renegotiate:

To change the terms and conditions of a mortgage agreement prior to maturity. Renegotiation occurs with the lender who presently holds the mortgage.

Renew:

To extend a mortgage agreement with the same lender for another term. The length of the term and the conditions (such as the rate of interest) may be changed.

Reserve fund:

A fund set up by a condominium corporation for major repair and replacement of such things as roofs. Plumbing, heating systems. Etc.

Security:

Property offered as backing for a loan. In the case of mortgages, the property being purchased with the loan usually forms the security for the loan.

Servicing agent:

A person or firm that take all the steps and operations a lender performs to keep a loan in good standing, such as collection of payments, payment of taxes, insurance, property inspections and the like.

Simple Interest:

Interest which is computed only on the principle balance.

Skip-A-payment:

If you are short of the mortgage payment you may skip a payment, If you have used the double-up option you may reverse the payments.

Survey:

A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to know points, its dimensions, and the location and dimensions of any buildings.

Sweat Equity:

Equity created by a purchaser performing work on a property being purchased.

Transfer fee:

A administration fee is levied by the financial institution when the mortgage is transferred in, a discharge fee may also apply on the transfer out.

Title Search:

An examination of municipal records to determine the legal ownership of property.

Title:

The document that gives evidence of an individual's ownership of property.

Total Debt Service Ratio (TDS):

The percentage of gross annual income required to cover payments associated with housing and all other debts and obligations, such as payments on a car loan.

Variable-rate mortgage:

A mortgage loan for which the rate of interest changes as money market conditions change, usually not more than once a month. The monthly payment stays the same for a specified period. However, the amount applied towards the principal changes according to the change (if any) in the rate of interest.

Vendor take back:

Where the seller (vendor) of a property provides some or all of the mortgage financing in order to sell the property.

This Glossary of financial terms was created by Fiscal Agents Financial Information Services, Research Department. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, mechanical, electronic, photocopying, recording, or otherwise, without the prior written permission of Fiscal Agents. Copyright Fiscal Agents © 2000. All Worldwide Rights Reserved. Click to contact the glossary editor or see permissions page.