• Glossary of Terms

    • Acceleration Clause
      Provision in a mortgage that allows the lender to demand payment of the entire principal balance if a monthly payment is missed or some other default occurs.
    • Additional Principal Payment
      A way to reduce the remaining balance on the loan by paying more than the scheduled principal amount due.
    • Adjustable-Rate Mortgage (ARM)
      A mortgage with an interest rate that changes during the life of the loan according to movements in an index rate. Sometimes called AMLs (adjustable mortgage loans) or VRMs (variable-rate mortgages).
    • Adjusted Basis
      The cost of a property plus the value of any capital expenditures for improvements to the property minus any depreciation taken.
    • Adjustment Date
      The date that the interest rate changes on an adjustable-rate mortgage (ARM).
    • Adjustment Period
      The period elapsing between adjustment dates for an adjustable-rate mortgage (ARM).
    • Affordability Analysis
      An analysis of a buyers ability to afford the purchase of a home. Reviews income, liabilities, and available funds, and considers the type of mortgage you plan to use, the area where you want to purchase a home, and the closing costs that are likely.
    • Amortization
      The gradual repayment of a mortgage loan, both principle and interest, by installments.
    • Amortization Term
      The length of time required to amortize the mortgage loan expressed as a number of months. For example, 360 months is the amortization term for a 30-year fixed-rate mortgage.
    • Annual Percentage Rate (APR)
      The cost of credit, expressed as a yearly rate including interest, mortgage insurance, and loan origination fees. This allows the buyer to compare loans, however APR should not be confused with the actual note rate.
    • Appraisal
      A written analysis prepared by a qualified appraiser and estimating the value of a property.
    • Appraised Value
      An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property.
    • Asset
      Anything owned of monetary value including real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, etc.).
    • Assignment
      The transfer of a mortgage from one person to another.
    • Assumability
      An assumable mortgage can be transferred from the seller to the new buyer. Generally requires a credit review of the new borrower and lenders may charge a fee for the assumption. If a mortgage contains a due-on-sale clause, it may not be assumed by a new buyer.
    • Assumption Fee
      The fee paid to a lender (usually by the purchaser of real property) when an assumption takes place.
    • Balance Sheet
      A financial statement that shows assets, liabilities, and net worth as of a specific date.
    • Balloon Mortgage
      A mortgage with level monthly payments that amortizes over a stated term but also requires that a lump sum payment be paid at the end of an earlier specified term.
    • Balloon Payment
      The final lump sum paid at the maturity date of a balloon mortgage.
    • Before-tax Income
      Income before taxes are deducted.
    • Biweekly Payment Mortgage
      A plan to reduce the debt every two weeks (instead of the standard monthly payment schedule). The 26 (or possibly 27) biweekly payments are each equal to approx. one-half of the monthly payment required if the loan were a standard fixed-rate mortgage. The result for the borrower is a substantial savings in interest.
    • Bridge Loan
      A second trust that is collateralized by the borrower's present home allowing the proceeds to be used to close on a new house before the present home is sold. Also known as interim financing or "swing loan."
    • Broker
      An individual or company that brings borrowers and lenders together for the purpose of loan origination.
    • Buydown
      When the seller, builder or buyer pays an amount of money up front to the lender to reduce monthly payments during the first few years of a mortgage. Although uncommon, buydowns can occur in both fixed and adjustable rate mortgages.
    • Change Frequency
      The frequency of payment and/or interest rate changes in a mortgage. (weekly, bi-weekly, semi-monthly, monthly) 
    • Closing
      A meeting held to finalize the sale of a property. The buyer signs the mortgage documents and pays closing costs. Also called "settlement."
    • Closing Costs
      These are expenses - over and above the price of the property - that are incurred by buyers and sellers when transferring ownership of a property. Closing costs normally include an origination fee, property taxes, charges for title insurance and legal costs, appraisal fees, etc. Closing costs will vary according to the area country and the lenders used.
    • Compound Interest
      Interest paid on the original principal balance and on the accrued and unpaid interest.
    • Credit Report
      A report detailing an individual's credit history that is prepared by a credit bureau and used by a lender to determine a loan applicant's creditworthiness.
    • Credit Risk Score
      A credit score measures a consumer's credit risk relative to the rest of the Canadian population, based on the individual's credit usage history. The credit scores most widely used by lenders are the Equifax and TransUnion scores. This 3-digit number, ranging from 300 to 850, is calculated by a mathematical equation that evaluates information on your credit report. Higher scores represents lower credit risks, which typically equate to better loan terms. In general, credit scores are critical in the mortgage loan underwriting process.
    • Default
      Failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage.
    • Delinquency
      Failure to make mortgage payments on time.
    • Deposit
      This is a sum of money given to bind the sale of real estate, or a sum of money given to ensure payment or an advance of funds in the processing of a loan.
    • Down Payment
      Part of the purchase price of a property that is paid in cash and not financed with a mortgage.
    • Effective Gross Income
      A borrowers normal annual income, including overtime that is regular or guaranteed. Salary is usually the principal source, but other income may qualify if it is significant and stable.
    • Equity
      The amount of financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on the mortgage.
    • Escrow
      An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit of funds or documents into an escrow account to be disbursed upon the closing of a sale of real estate.
    • Escrow Disbursements
      The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.
    • Escrow Payment
      The part of a mortgagor’s monthly payment that is held by the servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due.
    • First Mortgage
      The primary lien against a property.
    • Fixed Installment
      The monthly payment due on a mortgage loan including payment of both principal and interest.
    • Fixed-Rate Mortgage (FRM)
      A mortgage interest that are fixed throughout the entire term of the loan.
    • Growing-Equity Mortgage (GEM)
      A fixed-rate mortgage that provides scheduled payment increases over an established period of time. The increased amount of the monthly payment is applied directly toward reducing the remaining balance of the mortgage.
    • Guarantee Mortgage
      A mortgage that is guaranteed by a third party.
    • Housing Expense Ratio
      The percentage of gross monthly income budgeted to pay housing expenses.
    • Index
      The index is the measure of interest rate changes a lender uses to decide the amount an interest rate on an ARM will change over time.The index is generally a published number or percentage, such as the average interest rate or yield on Treasury bills. Some index rates tend to be higher than others and some more volatile.
    • Initial Interest Rate
      This refers to the original interest rate of the mortgage at the time of closing. This rate changes for an adjustable-rate mortgage (ARM). It's also known as "start rate" or "teaser."
    • Installment
      The regular periodic payment that a borrower agrees to make to a lender.
    • Insured Mortgage
      A mortgage that is protected by the CMHC (or Genworth, or Canada Guaranty).
    • Interest
      The fee charged for borrowing money.
    • Interest Accrual Rate
      The percentage rate at which interest accrues on the mortgage. In most cases, it is also the rate used to calculate the monthly payments.
    • Interest Rate Ceiling
      The maximum interest rate, as specified in the mortgage note.
    • Interest Rate Floor
      The minimum interest rate, as specified in the mortgage note.
    • Late Charge
      The penalty a borrower must pay when a payment is made a stated number of days after the due date.
    • Lease-Purchase Mortgage Loan
      An alternative financing option that allows low- and moderate-income home buyers to lease a home with an option to buy. Each month's rent payment consists of principal, interest, taxes and insurance (PITI) payments on the first mortgage plus an extra amount that accumulates in a savings account for a downpayment.
    • Liabilities
      A person's financial obligations. Liabilities include long-term and short-term debt.
    • Lifetime Payment Cap
      A limit on the amount that payments can increase or decrease over the life of the mortgage.
    • Lifetime Rate Cap
      A limit on the amount that the interest rate can increase or decrease over the life of the loan.
    • Line of Credit
      An agreement by a bank or other financial institution to extend credit up to a certain amount for a certain time.
    • Liquid Asset
      A cash asset or an asset that is easily converted into cash.
    • Loan
      A sum of borrowed money (principal) that is generally repaid with interest.
    • Loan-to-Value (LTV) Percentage
      The relationship between the principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property. For example, a $100,000 home with an $80,000 mortgage has an LTV of 80 percent.
    • Maturity
      The date on which the principal balance of a loan becomes due and payable.
    • Mortgage
      A legal document that pledges a property to the lender as security for payment of a debt.
    • Monthly Fixed Installment
      That portion of the total monthly payment that is applied toward principal and interest.
    • Mortgage Banker
      A company that originates mortgages exclusively for resale in the secondary mortgage market.
    • Mortgage Broker
      An individual or company that brings borrowers and lenders together for the purpose of loan origination.
    • Mortgage Insurance
      A contract that insures the lender against loss caused by a mortgagor's default on a government mortgage or conventional mortgage. Mortgage insurance can be issued by a private company or by a government agency.
    • Mortgage Insurance Premium (MIP)
      The amount paid by a mortgagor for mortgage insurance.
    • Mortgage Life Insurance
      A type of term life insurance. In the event that the borrower dies while the policy is in force, the debt is automatically paid by insurance proceeds.
    • Mortgagor
      The borrower in a mortgage agreement.
    • Net Worth
      The value of all of a person's assets, including cash.
    • Non Liquid Asset
      An asset that cannot easily be converted into cash.
    • Note
      A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.
    • Origination Fee
      A fee paid to a lender for processing a loan application. The origination fee is stated in the form of points. One point is 1 percent of the mortgage amount.
    • Owner Financing
      A property purchase transaction in which the party selling the property provides all or part of the financing.
    • Points
      A point is equal to one percent of the principal amount of your mortgage. For example, if you get a mortgage for $165,000 one point means $1,650 to the lender.
    • Prepayment Penalty
      A fee that may be charged to a borrower who pays off a loan before it is due.
    • Pre-Approval
      The process of determining how much money you will be eligible to borrow before you apply for a loan.
    • Prime Rate
      The interest rate that banks charge to their preferred customers. Changes in the prime rate influence changes in other rates, including mortgage interest rates.
    • Principal
      The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.
    • Principal Balance
      The outstanding balance of principal on a mortgage not including interest or any other charges.
    • Principal, Interest, Taxes, and Insurance (PITI)
      The four components of a monthly mortgage payment. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the monthly cost of property taxes and homeowners insurance, whether these amounts that are paid into an escrow account each month or not.
    • Qualifying Ratios
      Calculations used to determine if a borrower can qualify for a mortgage. They consist of two separate calculations: a housing expense as a percent of income ratio and total debt obligations as a percent of income ratio.
    • Rate Lock
      A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate and lender costs for a specified period of time.
    • Real Estate Agent
      A person licensed to negotiate and transact the sale of real estate on behalf of the property owner.
    • Real Estate Agent®
      A real estate broker or an associate who is an active member in a local real estate board that is affiliated with the Canadian Real Estate Association.
    • Refinance
      Paying off one loan with the proceeds from a new loan using the same property as security.
    • Revolving Liability
      A credit arrangement, such as a credit card, that allows a customer to borrow against a pre-approved line of credit when purchasing goods and services.
    • Secondary Mortgage Market
      Where existing mortgages are bought and sold.
    • Security
      The property that will be pledged as collateral for a loan.
    • Seller Carry-back
      An agreement in which the owner of a property provides financing, often in combination with an assumable mortgage. See Owner Financing. Also known as a "vendor take back" mortgage, (VTB).
    • Servicer
      An organization that collects principle and interest payments from borrowers and manages borrowers’ escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.
    • Standard Payment Calculation
      The method used to determine the monthly payment required to repay the remaining balance of a mortgage in substantially equal installments over the remaining term of the mortgage at the current interest rate.
    • Total Expense Ratio
      Total obligations as a percentage of gross monthly income including monthly housing expenses plus other monthly debts.
    • Underwriting
      The process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower's creditworthiness and the quality of the property itself.