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Glossary
To help you understand the home buying process better, here is a list of common home buying and mortgage terms.
A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z |
A
Additional Interest
The amount sometimes charged by the Bank when you prepay principal or renegotiate the terms of your mortgage. The amount compensates the Bank for loss of revenue. See also Prepayment Charge..
Adjustments
Property taxes and/or utility bills and condominium common expenses, if any, that have been prepaid by the vendor are pro-rated and paid by the purchaser to the vendor on closing.
Amortization
A term used to describe the period of time over which the entire mortgage is to be paid assuming regular payments.
Amortization Period
The actual number of years it will take to repay a mortgage in full.
Anniversary Period
Your anniversary period is the 12 month period that starts each year on your mortgage interest adjustment date or, if you have renewed or amended your mortgage, the effective date of your renewal or amendment.
Appraisal
A process for estimating the market value of a particular property. It can help the purchaser determine what price to offer. It can also be used by the lender for mortgage purposes. The appraised value seldom matches the actual purchase price exactly as other factors influence price.
Appraised Value
An estimate of the market value of a property.
Appraiser
The individual who completes an appraisal (market value assessment) of a property.
Approved Lender
A lending institution authorized by the Government of Canada through CMHC to make loans under the terms of the National Housing Act. Only Approved Lenders can negotiate mortgages which require mortgage loan insurance.
Assets
The things of value that you own.
Assignment
The transfer of a mortgage from one lender to another lender. This is either done at the request of the borrower or when two financial institutions merge.
Assuming a mortgage
Taking over the previous owner's (or builder's) mortgage when you buy a property.
Assumption Agreement
A legal document signed by a home buyer that requires the buyer to assume responsibility for the obligations of a mortgage by the builder or the original owner.
B
Beacon Score
A credit score that is given by the credit bureau that looks at an individual’s repayment history on their loans, credit cards, and other debts. Most lenders and mortgage insurers will use this score to rate the creditworthiness of a borrower.
Blanket Mortgage
A mortgage that takes more than one property as security.
Blended Rate Mortgage
A mortgage that combines the amount the borrower owes under an existing mortgage with additional mortgage money required by the borrower. The interest rate for the new amount borrowed is a "blend" (or weighted average) of the interest rate of the "old mortgage" and the interest rate for the additional amount to be borrowed.
Blended Mortgage Payment
A mortgage payment consisting of both a principal and an interest component, paid regularly during the term of the mortgage. The principal portion increases each month, while the interest portion decreases, but the total monthly payment doesn’t change.
Breakage Costs
A sum of money paid to compensate the lender for the prepayment of a closed mortgage in part or in full prior to maturity of the term. See also Prepayment Costs.
Bridge Financing
A loan made for a short term, to "bridge" (or cover) the time gap between completing the purchase of one property and finalizing arrangements to pay for it. The need for this type of financing often results from mismatched closing dates.
Building Permit
A certificate that must be obtained from the municipality by the property owner or contractor before a building can be erected or repaired. It must be posted in a conspicuous place until the job is completed and passed as satisfactory by a municipal building inspector.
Buy down rate
This is the portion of the interest rate on a buyer's mortgage that you assume when they buy your home. If you're selling your home and the prospective buyer doesn't like the interest rate on their mortgage, you can offer to add a certain percentage of it onto your existing mortgage.
C
Canada Mortgage and Housing Corporation (CMHC)
Crown corporation that administers the National Housing Act for the federal government and creates and sells mortgage loan insurance products.
Capped rate
An interest rate with a pre-determined ceiling - usually associated with a variable-rate mortgage.
Carrying Costs
The expenses of living in, and maintaining a home (and property). This includes mortgage payments, property taxes, heating, repairs and so on.
Cash Back
Is an amount of cash that is provided as an incentive or inducement to a mortgage customer. The money is usually paid on or shortly after the closing or funding date of the mortgage.
Certificate of Location
A document prepared by a qualified surveyor specifying the exact size and location of the property and describing the type and size of the building(s), including additions, and the exact location of the building(s) on the property. See also Survey
Closed Mortgage:
A mortgage agreement that cannot be prepaid, renegotiated or refinanced before maturity, except with compensation or breakage costs.
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 of property becomes final and the new owner takes possession.
Collateral Mortgage
A loan backed by a promissory note and the security of a mortgage on a property. The money borrowed may be used for any reasonable purpose, such as home renovations or a vacation.
Completion Certificate
A document signed by you acknowledging that the work has been completed to your satisfaction and releasing the contractor from any further responsibility.
Condition Date
The date by which a purchaser of a property must satisfy a condition in the offer to purchase a property. Usually all offers will contain a condition that allows the purchaser a certain amount of time to arrange financing.
Conditional Offer
An offer to buy a property if certain conditions are met.
Condominium
A form of ownership in which the owner has title to a dwelling unit and owns a share of the common elements (such as elevators, hallways and the land).
Contractor
An individual responsible for having all the work described in the contract carried out. The contractor is responsible for having the appropriate insurance, for paying the suppliers and workers, and for supervising the quality of all work performed.
Conventional Mortgage
A mortgage that does not exceed 75% of the appraised value or purchase price of the property, whichever is less. Mortgage loan insurance is usually not required for this type of mortgage.
Convertible mortgage
A mortgage that you can change from short-term to long-term, depending on your financial needs.
D
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).
Deed:
A legal document which is signed by both the vendor and purchaser, transferring ownership. This document is registered as evidence of ownership.
Default:
Failure to abide by the terms of a mortgage loan agreement. A failure to make mortgage payments (defaulting on the loan) may give cause to the mortgage holder to take legal action to possess (foreclose) the mortgaged property.
Deposit:
Money placed in trust by the purchaser when an Offer to Purchase is made. The sum is held by the real estate representative or lawyer until the sale is closed, and then paid to the vendor.
Discharge of Mortgage:
A document signed by the lender and given to the borrower when a mortgage loan has been repaid in full.
Down Payment:
The portion of the house price the buyer must pay up front from personal resources, before securing a mortgage. It generally ranges from 5%-25% of the purchase price.
E
Easement
A right acquired for access to or over, or for use of, another person’s land for a specific purpose, such as a driveway or public utilities.
Effective Interest Rate
The real rate of interest after the effects of compounding are included. More frequent compounding adds up to a higher effective rate.
Encumbrance
A registered claim for debt against a property, such as a mortgage.
Equity
The difference between the price for which a home could be sold and the total debts registered against it. Equity usually increases as the outstanding principal of the mortgage is reduced through regular payments. Market values and improvements to the property also affect equity.
Estimate
A statement of what a job will cost, made by a person or company willing and able to perform the work. A proper estimate should be made in writing and may outline some or all of the terms and conditions that apply. An estimate is less detailed and therefore less reliable than a quote or bid.
F
Fire and Property Insurance
Before closing date, the purchaser must have fire and property insurance arranged and in effect. Evidence of the insurance is required by the mortgage lender prior to advancing mortgage funds.
First Mortgage
A mortgage which is registered first against the property. This mortgage has to be paid first in the event of sale or default.
Firm Offer
An offer to buy the property as outlined in the offer to purchase and with no conditions attached.
Fixed Rate Mortgage
A mortgage for which the rate of interest is fixed for a specific period of time (the term).
Floating Rate Mortgage
See Variable rate mortgage.
Foreclosure
A legal procedure where the lender obtains ownership of the property after the borrower has defaulted on payment.
Freehold Ownership
When the land and the building are both owned by the same person.
G
GEMI
GE Capital Mortgage Insurance Company of Canada, a private mortgage insurer.
Gross Debt Service (GDS) Ratio
The percentage of gross income required to cover monthly payments associated with housing: your mortgage payments, property taxes, heat, and 50% of townhouse/condo maintenance fees (if applicable). Most lenders recommend that the GDS ratio be no more than 32% of your gross (before tax) monthly income.
H
High ratio mortgage
A mortgage where the borrower is contributing less than 20% of the value of the property as the down payment.
Holdback
An amount of money withheld by the lender during the progress of construction of a house to ensure that construction is satisfactory at every stage. A standard holdback amount is 10% of the total cost of the building project.
Home inspection
A visual inspection of the major components of a home by a qualified individual, who will give the home buyer a true and unbiased picture of the home's condition.
Home insurance
Insurance to cover both your home and its contents (also referred to as property insurance). This is different from mortgage life insurance, which pays the outstanding balance of your mortgage in full if you die.
I
Inspection
The examination of the house for structural and other defects by an expert selected by the buyer.
Interest
The cost of borrowing money. Interest is usually paid to the lender in installments along with repayment of the principal loan amount.
Interest Adjustment Date (IAD)
The date from which interest on the mortgage will start to accumulate for your first payment. This date will usually be one payment period before regular mortgage payments begin. Interest due from the date your mortgage is advanced to the IAD is the Interest Adjustment Amount.
Interest Adjustment Amount
Is the amount of interest that accumulates on your mortgage from your closing date until the Interest Adjustment Date(IAD). This amount is either deducted from the advance of your mortgage or from your account on the IAD.
L
Land transfer tax
A tax that is levied (in some provinces) on any property that changes hands.
Leasehold Mortgage
A mortgage loan on a home where the building is on leased (rented) land. The lender takes an interest in the lease.
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).
Lending Value
The purchase price or market value of a property, whichever is less.
Liabilities
What you owe. For example: taxes, mortgages, car loans and credit card balances.
Lien
The mortgage lender’s legal claim to the borrower’s property.
Loan-to-value Ratio
The ratio of the loan to the lending value of a property expressed as a percentage. For example, the loan-to- value ratio of a loan for $90,000 on a home which costs $100,000 is 90%.
Lump sum payment
An extra payment that you make to reduce the amount of your mortgage. This is the same as pre-paying, which you cannot do if you have a closed mortgage.
M
Maturity Date
Last day of the term of the mortgage agreement.
Mortgage
A mortgage is security for a loan on the property that you own. It is your personal guarantee to repay the loan as well as a pledge of the property as security for the loan.
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 0% and 20% of the value of the property as the down payment.
Mortgage Life Insurance
Insurance under which the benefits are used to pay off the balance due on a mortgage upon the death of the insured borrower. The purpose is to protect survivors from losing their home or to provide a debt-free inheritance.
Mortgage Loan Insurance
For high-ratio mortgages, lenders require mortgage loan insurance. The insurance premium will cost between 0.5% and 3.75% of the amount of the mortgage (additional charges may apply).
Mortgage Payment
A regularly scheduled payment that is blended to include both principal and interest.
Mortgage rate
The percentage interest that you pay on top of the loan principal. For example, you may take out a mortgage of $100,000 at a rate of 12%. Your monthly payments will consist of a portion of the original $100,000, plus 12% interest.
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.
Mortgagee
The lender who provides the mortgage loan.
Mortgagor
The borrower who pledges the property as security for the loan.
Moving expenses
The cost hiring of packers, movers or renting a van.
Multiple Listing Service (MLS)
A computerized listing of the properties available in your area, including information and pictures of each property.
N
Net Worth
Your total financial worth, calculated by subtracting your total liabilities from your total assets.
O
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.
Open Variable
A variable rate mortgage in which the interest rate varies with money market conditions. You may prepay or renegotiate an Open Variable mortgage at anytime without additional interest.
Option Agreement
A document stipulating that, in exchange for a deposit, a specified individual is to be given the first chance of buying a property at or within a specified period of time. An option holder who does not buy at or within the specified period loses the deposit and the agreement is cancelled.
P
P.I.T.
Principal, interest and taxes - payments due on a regular basis under the terms of the mortgage agreement. Generally, payments are made monthly and include one-twelfth of the estimated annual municipal and school taxes. Since these taxes change from year to year, this section of the mortgage will change accordingly.
P.I.T.H.
Principal, interest, taxes and heating - costs used to calculate the Gross Debt Service ratio (GDS).
Permits
Formal authorization, usually from your municipality, that allows you to proceed with your renovations.
Port(able)
The term used to describe whether a mortgage can be transferred to another property without penalty. A borrower may want to port their mortgage to a new property if they have sold their current home prior to the maturity date of their mortgage. This may keep them from having to pay additional interest to the lender.
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.
Prepayment Options
Allows the borrower to prepay a portion, or all of the principal balance, with or without penalty. These options are typically restricted to specific amounts and times.
Pre-payment Charge
A fee charged by the lender when the borrower prepays all or part of a closed mortgage more quickly than stated in the mortgage agreement.
Principal
The mortgage amount actually borrowed.
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.
R
Realtor
A real estate representative who is a member of an organization of persons engaged in the business of buying and selling real estate, such as the Canadian Real Estate Association.
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.
S
Sales taxes
Taxes applied to the purchase cost of a property. Some properties are sales tax exempt (GST and/or PST), and some are not. For instance, residential resale properties are usually GST exempt, while new properties require GST. Always ask before signing an offer.
Second Mortgage
A mortgage granted when there is already a mortgage registered against the property. In the event of default, the first mortgage holder has priority over the second mortgage holder.
Security
In the case of mortgages, property offered as backing for the loan.
Service charges
The extra costs payable for hooking up hydro, gas, phone, etc. to a new address.
Survey
A document providing details of a property's boundaries, measurements and structures. It will also describe any easements, rights-of-way, or encroachments made by either your property or by adjoining properties onto your property.
T
Tax Holdback
When property taxes are included with the mortgage payments, this is an amount held back by a lender on closing to ensure that there are enough funds on hand to pay the first property tax bill after closing.
Term
The length of time a mortgage agreement covers. Payments made may not fully repay the outstanding principal by the end of the term because the amortization period is generally longer.
Title
A freehold title gives the holder full and exclusive ownership of land and buildings for an indefinite period of time. In condominium ownership, land and common elements of buildings are owned collectively by all unit owners, while the residential units belong exclusively to the individual owners. A leasehold title gives the holder a right to use and occupy land and buildings for a defined period of time.
Total Debt Service (TDS) Ratio
The percentage of gross income needed to cover monthly payments for housing and all other debts and financing obligations. The total should generally not exceed 40% of gross monthly income.
V
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.
Vendor
The seller in a real estate transaction.
Vendor-Take-Back
Where the vendor (seller) of a property provides some or all of the mortgage financing in order to sell the property.
Z
Zoning Bylaws
Municipal or regional laws that specify or restrict land use. Easement
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