Glossary

Amortization: Number of years it takes to repay the entire amount of the mortgage. Generally up to 30 years is available.

Appraisal: A process undertaken by an independent appraiser hired by the lender to determine the value of property and whether it meets the lending criteria.

Blended Rate: A mortgage that combines the amount you owe under an existing mortgage with additional money that you require. The rate for the new amount is blended between the rate of the old mortgage and the rate for the additional amount.

Closed Mortgage: A mortgage agreement which does not provide for prepayment prior to maturity without some form of penalty. 

CMHC: The Canadian Mortgage and Housing Corporation is a federal Crown corporation that administers the National Housing Act. It provides mortgage default insurance for high ratio mortgages. It allows people to quality for mortgage with less that 25% down payment or equity.

Closing Costs: Costs which are payable when the sale is closed. Standard closing costs include adjustments for prepayment of taxes made by the vendor, land transfer taxes, property insurance and legal fees.

Conventional Mortgage: A mortgage loan which does not exceed 75% of the purchase price or appraised value, whichever is the lesser.

Discharge: The removal of all mortgages and encumbrances from a property.

Equity: The interest the owner holds in a property over and above all claims. It is generally the difference between any outstanding mortgage amount(s) and the market value of the property.

Fixed Rate Mortgage: The interest rate on a fixed rate mortgage is for a pre-determined term generally between 6 months and 10 years and cannot be renegotiated, except upon payment of penalty. 

Gross Debt Service Ratio: The percentage of the borrower’s gross income that will be used for monthly payments of principal, interest, taxes, heating and condominium fees.

Interest Rate: The rate of return the lender receives for permitting the borrower to use mortgage funds for a specified term. The interest generally is expressed as an annual percentage rate.

Loan to Value Ratio: The percentage of the value of the property for which a mortgage is required. The ratio is important in determining whether or not default insurance is required. 

Mortgagee: The lender.
Mortgagor: The borrower.

Offer to Purchase: A formal legal document which offers a specific price for a specified real property. The offer may be firm (with no conditions) or conditional (conditions yet to be fulfilled.)

Open Mortgage: A mortgage that permits prepayment, in whole or in part, of the principal balance without notice or bonus.

P.I.T.: An acronym representing the principal, interest and taxes due on a mortgage.

Prepayment Option: The right to repay specified amounts of the principal balance. Penalty interest may be incurred on prepayment options.

Principal: The amount of the loan owed to the lender at any specified time.

Second Mortgage: This is usually at a higher rate and represents the difference between the price of the house and first mortgage plus the down payment. 

Survey: The legal written or mapped description of the location and dimension of your land. The survey should also show the dimensions and placement on your lot of any structure, including additions such as pools, sheds and fences. An up to date survey is often required by a lender as part of the mortgage transaction.

Term: The length of time during which the specific mortgage agreement is effective. When the term expires, the balance of the principal is either prepaid in full or the mortgage is renegotiated at the current market rates and conditions.

Total Debt Service Ratio: The percentage of the borrower’s gross income that will be used for monthly payments of principal, interest, taxes, heating and other outstanding loans and debts.

Variable Rate Mortgage: A mortgage loan for which the rate of interest fluctuates with the prime rate of interest.