Common Mortgage & Home Financing Terms

A | B | C| D | E | F | G | H | I | L | M | N | O | P | R | S | T | W


A

Appraisal Value

An estimate of the market value of the property.
 

Appraisal fee

Your mortgage lender may require that the property be appraised at your expense.
 

Assumability

This allows the buyer to take over the seller's mortgage on the property.
 

Appraisal

The process of determining the value of property, usually for lending purposes. This appraised value may or may not be the same as the purchase price of the home.
 

Anniversary

Many mortgage products allow you to make payments against the principal on the anniversary of the mortgage.
 

Amortization Period

The actual number of years it will take to pay back your mortgage loan based on your loan payment amount. Usually a new mortgage is amortized over 25 years, however can be greater, up to a maximum of 35 years and it can be less.
 

Agreement of Purchase and Sale

A legal agreement that offers a certain price for a home. A Firm offer has no conditions attached. A Conditional offer has conditions which must be fulfilled.
 

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B

Builder Warranty

This is a guarantee on the quality of construction offered by the developer or building contractor.
 

Blended Payments

These payments consist of both a principal and an interest component, paid on a regular basis (e.g. weekly, biweekly, monthly) during the term of the mortgage. The principal portion of payment increases, while the interest portion decreases over the term of the mortgage, but the total regular payment usually does not change.
 

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C

Certificate of Ownership (Deed)

The document signed by the seller transferring ownership of the home to the purchaser. This document is then registered against the title to the property as evidence of the purchaser's ownership of the property.
 

Convertible Mortgage

A mortgage that you can change from short-term to long-term.
 

Conventional Mortgage

A mortgage that does not exceed 80% of the purchase price of the home. Mortgages that exceed this limit must be insured against default, and are referred to as high-ratio mortgages.
 

Condominium Fee

A fee paid by the condo owner that is allocated to pay building expenses.
 

Conditional Offer

An offer to purchase subject to conditions. The conditions could relate to financing, or the sale of an existing home. Often there is a specific time stipulated to satisfy the fullfillment of the conditions.
 

CMHC or Genworth Financial Canada Insurance Premium

Mortgage insurance insures the lender against loss in case of default by the borrower. Mortgage insurance is provided to the lender by CMHC or Genworth and the premium is paid by the borrower.
 

Closing Date

The date on which the sale of a property becomes final and the new owner usually takes possession.
 

Closing Costs

Various expenses associated with purchasing a home, payable on the closing date. These costs can include, but are not limited to, legal/notary fees and disbursements, property land transfer taxes, as well as adjustments for prepaid property taxes or condominium common expenses, if any.
 

Closed Mortgage

A mortgage agreement that cannot be prepaid, renegotiated or refinanced before maturity, except according to its terms. A closed mortgage 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.
 

Certificate of Location or Survey

A document specifying the exact location of the building on the property and describing the type and size of the building including additions, if any.
 

Capped Rate

An interest rate with a pre-determined ceiling, usually associated with a variable-rate mortgage.
 

Canada Mortgage and Housing Corporation (CMHC)

A Crown corporation that administers the National Housing Act for the federal government and encourages the improvement of housing and living conditions for Canadians. CMHC is one of two sources for high-ratio mortgage insurance. The National Housing Act (NHA) authorized Canada Mortgage and Housing Corporation (CMHC) to operate a Mortgage Insurance Fund which protects NHA Approved Lenders from losses resulting from borrower default.
 

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D

Down Payment

The buyer's cash payment toward the property; the difference between the purchase price and the mortgage loan.
 

Deposit

A sum of money deposited in trust by the purchaser when making an offer to be held in trust by the vendor's agent, broker, lawyer or notary until the closing of the transaction.
 

Default

Failure to abide by the terms of the mortgage; may result in legal action such as foreclosure.
 

Deed (Certificate of Ownership)

The document signed by the seller transferring ownership of the home to the purchaser. This document is then registered against the title to the property as evidence of the purchaser's ownership of the property.
 

Debt-Service Ratio

The percentage of the borrower's gross income that will be used for monthly payments of principal, interest, taxes, heating costs and condominium fees.
 

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E

Equity

This is the difference between the current market value of the property and the amount the owner still owes on the mortgage. It is the amount that the owner would receive after selling a property and paying off the mortgage.
 

Estoppel Certificate Fee

This applies if you are buying a condominium or strata unit and could cost up to $100. (This does not apply in Quebec.)
 

Encroachment

A physical intrusion from one property to an adjoining property.
 

Easement

The right to use another's property for a specific purpose (e.g. a shared driveway).
 

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F

Foreclosure

This is a legal proceeding in which the bank (lender) can take possession of and sell a mortgaged property when the borrower does not meet his or her contractual obligations.
 

Firm Offer

An offer to buy the property 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).
 

Fire Insurance

Before a mortgage can be advanced, the purchaser must have arranged fire insurance. A certificate or binder from the insurance company may be required on closing.
 

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G

Gross Household Income

Gross household income is the total salary, wages, commissions and other assured income, before deductions, by all household members who are co-applicants for the mortgage.
 

Gross Debt Service (GDS) Ratio

The percentage of gross income required to cover monthly payments associated with housing costs. Most lenders recommend that the GDS ratio be no more than 32% of your gross (before tax) monthly income.
 

GEMI

GE Capital Mortgage Insurance Company of Canada, a private mortgage insurance company; one of two sources of high-ratio mortgage insurance.
 

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H

Home Insurance

Insurance to cover both your home and its contents in the event of fire, theft, vandalism, etc. (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.
 

Home Inspector

The home inspector's role is to inform you on the property's condition. They will tell you if something is not functioning properly, needs to be changed or is unsafe. You will also be informed of repairs that need to be done and he/she may even be able to tell you where there may have been problems in the past.
 

Home Inspection

Is a report on the condition of the home. It is often recommended to have a reputable individual or agency perform a home inspection prior to purchasing a home.
 

Home Equity

The difference between the price for which a home could be sold (market value) and the total debts registered against it.
 

Holdback

An amount of money required to be withheld by the lender during the construction or renovation of a house to ensure that construction is satisfactorily completed at every stage.
 

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I

Interim Financing

This is the process of obtaining temporary, short term financng to close a real estate transaction.
 

Interest Rate

The value charged by the lender for the use of the lender's money, expressed as a percentage.
 

Interest Rate Differential Amount (IRD)

An IRD amount is a charge which may apply if you pay off your mortgage early or if you apply additional money to the principal of your mortgage than what is allowed.
 

Interest Adjustment

The amount of interest due between the date your mortgage starts and the date the first mortgage payment is calculated from. Avoid it by arranging to make your first mortgage payment exactly one payment period after your closing date.
 

Inspection -

The process of having a qualified home inspector identify potential strengths and weaknesses in the property you are interested in so that you may have a good idea of its functional condition.
 

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L

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.
 

Listing Agreement

A legal agreement between the listing broker and the seller describing the property for sale and stating the services to be provided and the terms of payment. A commission is generally payable to the broker upon closing.
 

Lien

A claim for money owed by a property owner to a supplier or contractor.
 

Legal Fees and Disbursements

Some of the legal costs associated with the sale or purchase of a property. It's in your best interest to engage the services of a real estate lawyer (or a notary in Quebec). These fees must be paid upon closing.
 

Lawyer / Notary

You need a lawyer/notary to protect your legal interests such as ensuring the property you are thinking of buying does not have any building or statutory liens or charges or work or clean-up orders associated with it. They will review all contracts before you sign them, especially the Offer (or Agreement) to Purchase.
 

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.
 

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M

Mortgagee and Mortgagor

The lender is the mortgagee and the borrower is the mortgagor.
 

Mortgage Life Insurance

A form of reducing term insurance recommended for all mortgagors. If you die, have a terminal illness, or suffer an accident, the insurance can pay the balance owing on the mortgage. The intent is to protect survivors from the loss of their homes.
 

Mortgage Rate

The rate of interest charged by a mortgage lender.
 

Mortgage Term

The number of years or months which you pay a specified interest rate.
 

Moving expenses

The cost of moving from hiring packers, movers, or renting a van.
 

Mortgage Insurance

Applies to high-ratio mortgages. It protects the lender against loss if the borrower is unable to repay the mortgage.
 

Mortgage Critical Illness Insurance

Mortgage Critical Illness Insurance is available as an enhancement to Mortgage Life Insurance. Mortgage Critical Illness Insurance is underwritten by the Canada Life Assurance Company. Complete details of benefits, exclusions and limitations are contained in the Certificate of Insurance. It is recommended for all mortgagors. It can pay off your mortgage if you are diagnosed with life-threatening cancer, heart attack or stroke.
 

Mortgage Broker

A person or company offering mortgage products from several financial institutions.
 

Mortgage

A loan that you take out in order to buy property. The collateral is the property itself.
 

MLS - Multiple Listing Service

Trademarks owned by the Canadian Real Estate Association. They are used in conjunction with a real estate database service, operated by local real estate boards, under which properties may be listed, purchased, or sold.
 

Maturity Date

Last day of the term of the mortgage agreement, at which time you can pay off the mortgage or renew it.
 

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N

Notary / Lawyer

You need a lawyer/notary to protect your legal interests such as ensuring the property you are thinking of buying does not have any building or statutory liens or charges or work or clean-up orders associated with it. They will review all contracts before you sign them, especially the Offer (or Agreement) to Purchase.
 

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O

Open Mortgage

A mortgage which can be prepaid at any time, without penalty.
 

Offer to Purchase

A legally binding agreement between you and the person who owns the property you want to buy. It includes the price you are offering, what you expect to be included with the house, and the financial conditions of sale (your financing arrangements, the closing date, etc.).
 

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P

Principal

The amount of money borrowed for a new mortgage.
 

Payment Frequency

The choice of making regular mortgage payments every week, every other week, twice a month or monthly.
 

Property Survey

A legal description of your property and its location and dimensions (usually required by your mortgage lender).
 

Prepayment Option

The ability to prepay all or a portion of the principal balance. Prepayment charges may be incurred on the exercise of prepayment options.
 

Prepayment Charge

A fee charged by the Lender when the borrower prepays all or part of a closed mortgage faster than is set out in the mortgage agreement.
 

Pre-Approved Mortgage Certificate

A written agreement stating that you will get a mortgage for a set amount of money at a set interest rate.
 

Prepaid Property Tax and Utility Adjustments

The amount you will owe if the person selling you the home has prepaid any property taxes or utility bills.
 

Pre-Approved Mortgage

Qualifies you for a mortgage amount before you start shopping.
 

Porting

This allows you to move to another property without having to lose your existing interest rate. You can keep your existing mortgage balance, term and interest rate plus save money by avoiding early discharge penalties.
 

P.I.T. - Principal, Interest and Taxes

Together, these make up the regular payment on a mortgage if you elect to include property taxes in your mortgage payments
 

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R

Roll over

Is what takes place if a new mortgage is renewed at the end of it's term that is acceptable to both the current lender and borrower.
 

Refinancing

Renegotiating your existing mortgage agreement. May include increasing the principal or paying out the mortgage in full.
 

Realtor

Trademark identifying real estate professionals in Canada who are members of the Canadian Real Estate Association, and as such, who subscribe to a high standard of professional service and to a strict code of ethics.
 

Renewal

At the end of a mortgage term, the mortgage may roll over on new terms and conditions acceptable to both the lender and the borrower. This is known as renewing a mortgage. Otherwise the borrower may seek alternative financing.
 

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S

Survey or Certificate of Location Cost

The mortgage lender may ask for an up-to-date survey or certificate of location prior to finalizing the mortgage loan.
 

Security

In the case of mortgages, real estate offered as collateral for the loan.
 

Second Mortgage

Additional financing, which usually has a shorter term and a higher interest rate than the first mortgage.
 

Sales Taxes

Taxes applied to the purchase cost of a property. Some properties are exempt from sales tax and some are not. For instance, residential resale properties are usually GST exempt, while new properties require GST.
 

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T

Term

The length of the current mortgage agreement. A mortgage may be amortized over a long period (such as 40 years) with a shorter term (six months to five years or more). After the term expires, the balance of the principal then owing on the mortgage can be repaid or a new mortgage agreement can be entered into at the then current interest rates.
 

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 37% of gross monthly income.
 

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V

Variable Rate Mortgage

A mortgage for which the rate of interest may change if other market conditions change. This is sometimes referred to as a floating rate mortgage.
 

Vendor Take-Back Mortgage

When the seller provides some or all of the mortgage financing in order to sell the property.
 

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W

Water Quality Inspection

If the home has a well, you will want to have the quality of the water tested to ensure the water supply is adequate and the water is potable.
 

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