Mortgage Glossary of Terms

Accelerated Payments

When you select an accelerated weekly or bi-weekly payment option, you are essentially making the equivalent of one additional monthly payment each year. You can save a significant amount in interest costs by increasing your mortgage payment frequency. This type of payment schedule also helps you pay down your mortgage faster.

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Alternative Lending

​Alternative lending (sometimes also referred to as B lending or subprime lending) provides more flexibility in qualifying requirements for borrowers who may not meet the lending requirements of prime lenders. These mortgages often come with a higher interest rate as a trade off for the extra flexibility.

 

Appraisal

An appraisal is a written document that shows an unbiased and professional opinion of how much a property is worth. It will include important information about the property that describes what makes it valuable, and it may also include information showing how it compares to other properties in the same neighbourhood.

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Amortization

The amortization period is the length of time you agree to take to pay off your mortgage (usually 25 years).

 

Annual Percentage Rate (APR)

​An APR represents the total annual cost of borrowing money, represented as a percentage. Essentially, an APR is your interest rate for an entire year, along with any costs or fees associated with your loan. It shows a complete picture of how much it costs to borrow money.

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Assets

Assets resources of value that may be utilized in accessing your net worth. An example would be investments, other properties that you own, vehicles, etc.

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Blanket Mortgage (also called an Inter Alia Mortgage)

A mortgage that is secured by more than one property. With these mortgages, clients borrow funds against their current house to purchase another property.

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Bona-fide Sales clause

Some lenders may include a restriction in which you can't switch lenders or pay off your mortgage early unless you sell your property. These are typically linked to those extremely low interest rate mortgages. Another reason not to think "lowest rate = best rate."

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Bridge loan

This is a short-term/temporary loan that can come in handy when you're in the middle of a sale and purchase and the dates don't line up. It's designed to bridge the gap between the sale of your existing property and the purchase of your new property.

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Canadian Mortgage Housing Corporation (CMHC)

A Canadian Crown Corporation that serves as the national housing agency of Canada. The goal of the agency is to make mortgage loans affordable for all Canadians through a housing development strategy and mortgage insurance, among other initiatives.

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Closed Mortgage

This option provides you rate consistency through the term of your mortgage. It's predictable and consistent and often comes with lower interest rates. Breaking this mortgage can mean the higher of 3 months interest or the current interest rate differential (IRD).

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Closing Date

The date when the sale of the property becomes final and the new owner takes possession of the home.

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Collateral Charge Mortgage

The Collateral Charge is the security that the bank has in exchange for lending you the money set out in the mortgage loan agreement. It is registered against the real estate you are either buying or refinancing. It lets you use your home as security for one or more loans. Because the lender may register the charge for an amount that's more than your initial loan, you may be able to borrow more money without registering a new charge, if the total amount owing is no more than the principal amount of the collateral charge.

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Conventional Mortgage

A loan that is equal to or less than 80% of the lending value of a home. This requires a down payment of at least 20%.

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Convertible Mortgage

With this mortgage, you can take advantage of lower rates and then switch to a closed rate. This mortgage offers lower interest rates than an open mortgage and three months of interest is added to the principal when converting to closed.

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Default

Failing to make a mortgage payment on time or to otherwise abide by the terms of a mortgage loan agreement. If borrowers’ default on their mortgage payments, their lender can charge them a penalty or even take legal action to take possession of their home.

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Default Insurance 

This insurance protects the lender in the event that the borrower defaults on their mortgage. Also known as Mortgage Loan Insurance. To purchase a home you must have a minimum 5% down payment. If your down payment is under 20% it is considered a high ratio mortgage and you must account for home loan insurance, provided by the Canadian Mortgage and Housing Company (CMHC), Sagen or Canada Guaranty. The cost for Mortgage Loan Insurance depends on the borrowing amount and percentage of down payment you make. Often this premium can be added to your mortgage principal and built into your payment, or, can be paid upon closing.

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Down Payment

The money that you pay up front for a house.

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Equity

The cash value that a homeowner has in their home after subtracting the amount of the mortgage or other debts owed on the property. Equity usually increases over time as the mortgage loan is paid. Changes in overall market values or improvements to a home can also affect the value of the equity.

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Fixed Rate

A fixed-rate mortgage gives you 100% confidence that your payments will not change for the entire length of your mortgage term. Your mortgage payments are an equal amount no matter what term you choose and fluctuations in the prime rate will not affect you. You do not have to worry about changing rates that can affect how much of the principal you’ll pay down over the term, however, if interest rates drop, you will be paying more interest than those with a variable rate. Fixed-rate mortgages offer you stability with your paymentsou will know exactly how much your mortgage balance is when it comes time to renew.

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Gross Debt Service Ratio (GDS)

A GDS considers the affordability of payments associated with your household. A percentage of less than 32% is typically what lenders will look for to ensure you are able to carry your mortgage.

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Home Equity Line of Credit (HELOC)

There are 2 main types of HELOCs: one that’s combined with a mortgage, and one that’s a stand-alone product.

• A HELOC combined with a mortgage is sometimes called a re-advanceable mortgage. It combines a revolving HELOC and a fixed-term mortgage. You usually have no fixed repayment amounts for a HELOC. Your lender will generally only require you to pay interest on the money you use. The credit limit on a HELOC combined with a mortgage can be a maximum of 65% of your home’s purchase price or market value. The amount of credit available in the HELOC will go up to that credit limit as you pay down the principal on your mortgage.

• A stand-alone HELOC is a revolving credit product guaranteed by your home. It’s not related to your mortgage. The maximum credit limit on a stand-alone HELOC can go up to 65% of your home’s purchase price or market value and won't increase as you pay down mortgage principal. You can apply for a stand-alone HELOC with any lender that offers it.

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High-Ratio Mortgage

A loan that is over 80% of the lending value of a home. This means the down payment is less than 20% and will likely require mortgage loan insurance.

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Home Inspection

A thorough examination and assessment of a home’s state and condition by a qualified professional. The examination includes the home’s structural, mechanical and electrical systems.

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Interest Adjustment

The interest adjustment is the amount of interest that has accrued between your closing day and the day your first mortgage payment comes out.

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Interest Rate Differential (IRD)

The IRD is the difference between your mortgage contract's interest rate (which was calculated from the posted rate at the time you signed your agreement, and the discount you received to end up with your current interest rate) and your lender's current posted rate for a mortgage with a term similar to the time remaining in your mortgage term. When breaking a mortgage mid term, banks will charge the higher of three months interest or the IRD. IRDs can be significantly higher than three months' interest

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Land Transfer Tax

A tax charged by many provinces and municipalities (usually a percentage of the purchase price) that the buyer must pay upon closing.

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Maturity Date

The last day of the term of a mortgage. The mortgage loan must either be paid in full, renegotiated or renewed on this day.

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Mortgage Disability Insurance

Protects your debt obligation by making mortgage payment for a specified time in the event you should become disabled.

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Mortgage Life Insurance

Protects the family of a borrower by paying off the mortgage if the borrower dies.

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Mortgage Term

Your mortgage term is the length of time that your mortgage contact is in effect. This includes all aspects of your contract; the lender, interest rate, and prepayment privileges, etc. At the end of your term, you can renew your mortgage, or pay off the remaining principal. Terms typically range from a few months to five years or longer.

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Open Mortgage

This mortgage gives you flexibility to pay off your mortgage whenever you want. This option comes with maximum flexibility, no penalty for lump sum payments, and a higher interest rate.

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Payment Schedule

How often you make your mortgage payments. It can be weekly, every two weeks or once a month.

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Portabililty

An option that lets you transfer or switch your mortgage to another home with little or no penalty when you sell your existing home. Mortgage loan insurance can also be transferred to the new home.

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Pre-approved Mortgage Certificate

A written agreement that you will get a mortgage at a set interest rate provided your financial circumstances don’t change. Getting a preapproved mortgage allows you to shop for a home with a good indication of what you’ll be able to borrow

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Prepayment Options

The ability to make extra payments, increase your payments or pay off your mortgage early without incurring a penalty.

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Prepayment Penalties

A prepayment penalty is a fee that your mortgage lender may charge if you pay more than the allowed additional amount toward your mortgage, break your mortgage contract, or transfer your mortgage to another lender before the end of your term.

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Prime Lending 

Also known as, "A" lending. These lenders have strict regulated lending requirements. Generally, only mortgage applicants with good credit scores, stable income and good employment history, as well as low debt to income ratios, are approved for this type of lending. Applicants also have to pass the mortgage stress test in order to qualify for this type of lending. However, with these strict guidelines, borrowers can expect to be compensated with lower interest rates. 

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Prime Rate

The prime rate (or prime lending rate) is what Canadian banks and financial institutions use to set the interest rate on their variable interest products, such as loans, lines of credit, or variable-rate mortgages. This is set by the Bank of Canada.

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Principal

The amount a person borrows for a loan (not including the interest).

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Private Lender

An alternative source of financing to borrowers who may not meet the criteria of institutional lenders. Borrowers will typically pay a higher interest rate and additional fees.

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Property Transfer Tax

These are taxes that are charged by the municipality based on the value of the home. In some cases the lender will collect property taxes as part of the borrower’s mortgage payments and then pay the taxes to the municipality on the borrower’s behalf.

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Refinancing

The process of paying out the existing mortgage for the purpose of establishing a new mortgage on the same property under new terms and conditions. Refinancing can sometimes be an option when you require additional funds. Refinancing will increase your mortgage principal at a specified interest rate yet can often be more affordable than other forms of borrowing. Refinancing your mortgage may also incur pre-payment penalties.

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Renewal

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 balance outstanding.

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Standard Charge Mortgage

A standard charge is a traditional or conventional charge. A standard charge is registered for the actual amount of the mortgage loan, securing only the one mortgage loan.

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Stress Test

The mortgage stress test is a rule set in place by the government that requires mortgage applicants to show they could afford higher payments in the case that mortgage rates increase in the future. Lenders perform a stress test as part of their standard mortgage application process. Mortgage applicants must pass this test in order to be approved for a mortgage.

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Title Insurance

Protects against losses or damages that could occur because of anything that affects the title to a property (for example, a defect in the title or any liens, encumbrances or servitudes registered against the legal title to a home).

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Total Debt Service Ratio (TDS)

A TDS is used to estimate how much you can afford to put toward your mortgage while considering other debts. A percentage of less than 43% is typically what lenders look for to ensure you are able to carry your mortgage.

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Variable Rate

The interest rate fluctuates with market rates. Historically, a variable mortgage typically has a lower interest rate than a fixed rate mortgage. When the prime rate goes down, generally your payment will stay the same but more will go towards paying down the principal. Conversely, when the prime rate goes up, more of your mortgage payment will go to pay down interest. If variable interest rates rise higher than what your mortgage payment will cover for interest, your bank may increase your mortgage payment or you could extend your amortization.