A complete glossary of every mortgage-related term that you need to know.
ACCELERATED BI-WEEKLY MORTGAGE PAYMENTS: Mortgage payments that are made every two weeks for a total of 26 payments per year. Not to be confused with semi-monthly mortgage payments, which are twice a month, or 24 times over the course of the year.
ADJUSTABLE RATE MORTGAGE (ARM): A mortgage in which the interest rate and monthly payments can be adjusted to rise and fall with market conditions.
AMORTIZATION: The period over which a debt, such as a mortgage, is paid off in instalments. The conventional amortization period for a mortgage is anywhere between 15 and 25 years. Generally speaking, the shorter the amortization period, the less interest you have to pay.
APPRAISAL: The examination process that determines the value of your property. A number of factors determine the outcome of an appraisal, including construction, neighbourhood, and finishes. An appraisal is done as part of the mortgage approval process, but a home buyer can also hire an independent appraiser.
BLENDED PAYMENTS: Payments consisting of both principal and interest components, paid during the amortization period of a mortgage.
BUYER’S AGENT: A person or firm representing the buyer. A buyer’s agent’s primary allegiance is to his client, the buyer. Also known as a buyer’s broker or a purchaser’s agent.
BUYER BROKERAGE AGREEMENT: A written agreement between the buyer and the buyer’s agent, outlining the agency relationship between the two parties and the manner in which the buyer’s agent will be compensated. In some provinces, a buyer agency relationship evolves automatically, without a written agreement.
CLOSED MORTGAGE: A mortgage that locks you into a specific payment schedule. A penalty usually applies if you repay the loan in full before the end of a closed term.
CLOSING COSTS: Costs incurred in the transfer of property, such as legal fees, appraisal fees, taxes and insurance.
CLOSING DATE: The day the legal title to the property changes hands.
COMMISSION: An amount agreed to by the seller and the real estate broker/agent and stated in the listing agreement. It is payable to the broker/agent on closing and shared, if applicable, among those salespeople involved in the sale.
COMPOUND PERIOD: The number of times per year in which the interest rate is compounded. In Canada, mortgages are generally compounded semi-annually, which is twice per year.
CONDITIONS: Clauses added to an Offer to Purchase which specify that certain circumstances must be met in order for the offer to proceed, such as financing, inspection, legal review, land survey, appraisal or review of condominium documents.
CONDOMINIUM: A type of ownership in which owners own their private unit, as well as a share of the common areas as a member of the condominium corporation. Also known as a strata unit.
CONDOMINIUM FEE: A common payment among condo owners which is allocated to pay expenses associated with maintenance and operation of the development.
CONVENTIONAL MORTGAGE: A mortgage loan issued for up to 80 per cent of the property’s appraised value or purchase price, whichever is less.
COUNTER-OFFER: When one party in the sale amends the Offer to Purchase and signs it back for acceptance by the other party, usually within a specific time frame.
DEBT-SERVICE RATIO: The measurement of debt payments to gross household income which may include, in addition to the main wage earner’s salary, salaries of other wage earners, commissions, bonuses and overtime.
DOWN PAYMENT: The buyer’s cash payment toward the property, and the difference between the purchase price and the amount of the mortgage loan.
DUAL AGENT: A real estate broker or salesperson who acts as agent for both the seller and the buyer in the same transaction. Both buyer and seller are the agent’s clients.
EFFECTIVE INTEREST RATE: This is the actual interest rate paid on a loan or mortgage. In Canada, mortgages typically have a higher effective interest rate than other loans because mortgage interest rates are compounded semi-annually or twice per year.
ESTOPPEL CERTIFICATE: A document stating the condominium corporation’s financial and legal status, and specifying the common fees for a unit, and whether the seller’s payments are up to date. Also known as a mandate or a certificate of status.
EQUITY: The difference between the value of a property and the total debt registered against the property.
FIXED RATE MORTGAGE: A mortgage in which the rate of interest has been fixed for a specific period of time, generally known as the term.
GROSS DEBT SERVICE: The amount of money needed to pay principal, interest, taxes and sometimes energy costs. If the dwelling is a condominium, all or a portion of common fees are included, depending on what expenses are covered.
GDS RATIO (Gross Debt Service Ratio): The percentage of gross annual income required to cover payments associated with housing. Payments include mortgage principal, interest, property taxes and sometimes include secondary financing, heating, condominium fees or pad rent.
HIGH-RATIO MORTGAGE: A mortgage that exceeds 80 per cent of the home’s appraised value or purchase price, whichever is lower. These mortgages must be insured for payment.
HOME BUYER’S PLAN: Federal plan which allows potential homebuyers to withdraw up to $25,000 tax-free from an RRSP, provided the amount is repaid over a 15-year period.
INTEREST RATE: The fee charged by the lender for the use of their money, expressed as a percentage.
LAND TRANSFER TAX, DEED TAX OR PROPERTY PURCHASE TAX: A fee paid to the municipal and/or provincial government for the transferring of property from seller to buyer.
LISTING AGREEMENT: The legal agreement between the listing broker and seller, specifying services to be rendered, describing the property for sale and stating the terms of payment. A commission is generally payable to the broker upon closing.
LOAN TO VALUE RATIO: The ratio of the loan to the appraised value or purchase price of the property, whichever is lower.
MLS NETWORK: Multiple Listing Service, a national database operated by the Canadian Real Estate Association, listing houses for sale and sorted by area, price and type of home.
MATURITY DATE: The end of the term, at which time you can pay off the mortgage or renew it.
MORTGAGE BROKER: A person or company who arranges mortgages between borrowers and financial institutions or individuals wishing to invest in mortgages. Fees for broker services are most often paid by the lender, in exchange for the business. Sometimes the borrower pays the fees, but the broker is obligated by law to declare the fee in advance of any deal being signed.
MORTGAGE DEFAULT INSURANCE: High-ratio mortgages (those with a down payment of less than 20 per cent) must be insured against default by either CMHC or private insurers. The borrower must arrange and pay for the insurance, which protects the lender against default by the borrower.
MORTGAGE DISABILITY INSURANCE: Insurance that covers a borrower’s mortgage payments if they are unable to work due to severe injury or illness.
MORTGAGE LIFE INSURANCE: Insurance that pays the balance of a mortgage in full if the borrower passes away.
NOMINAL INTEREST RATE: An interest rate which does not necessarily correspond to the effective interest rate. In Canada, these two rates do not correspond.
OPEN MORTGAGE: Allows partial or full payment of the principal at any time, without penalty.
OFFER OF PURCHASE AND SALE: The document through which the prospective buyer sets out the price and conditions under which he or she will buy the property.
PORTABILITY: A mortgage option that enables borrowers to take their current mortgage with them to another property, without penalty.
PRE-APPROVED MORTGAGE: Qualifies a borrower for a mortgage before shopping for a home. It gives the buyer a better idea of how much money a lender will loan them, and the interest rate is guaranteed for a certain period of time.
PREPAYMENT PRIVILEGES: Voluntary payments in addition to regular mortgage payments.
PRINCIPAL: The amount borrowed or still owing on a mortgage loan. Interest is paid on the principal amount.
REAL ESTATE BROKER: A person licensed by the provincial or territorial government to trade in real estate. Real estate brokers may form companies or offices which appoint sales representatives to provide services to the seller or buyer, or they may provide the same services themselves. In parts of Canada, brokers are referred to as agents.
REFINANCING: Paying off the existing mortgage and arranging a new one, or re-negotiating the terms and conditions of an existing mortgage.
RENEWAL: Renegotiation of a mortgage loan at the end of a term for a new term.
SEMI-MONTHLY MORTGAGE PAYMENTS: Mortgage payments which are made twice per month, 24 payments per year. Not to be confused with bi-weekly mortgage payments (26 payments per year).
SECOND MORTGAGE: Additional financing. Usually has a shorter term and higher interest rate than the first mortgage.
TDS RATIO (Total debt service ratio): The percentage of gross annual income required to cover payments associated with housing and all other debts and obligations, such as car loans and credit cards.
TERM: The actual life of a mortgage contract that ranges from six months to 10 years, at the end of which the mortgage becomes due and payable unless the lender renews the mortgage for another term (See Amortization).
SELLER’S AGENT: The seller’s agent represents the seller, either as a listing agent under the listing agreement with the seller or by cooperating as a sub-agent, typically through the MLS system. In dealing with prospective buyers, the seller’s agent can provide a variety of information and services to assist the buyer in his/her decision-making. The seller’s agent does not represent the buyer.
VARIABLE RATE MORTGAGE: A mortgage in which payments are fixed, but the interest rate moves in response to market conditions. If interest rates go up, a larger portion of your payment goes to the interest; if rates go down, more goes to cover the principal.
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