MORTGAGE GLOSSARY

Amortization – In simple terms, the number of years it will take to pay off the mortgage based on the regular payment. Common amortizations include 25-35 years.

Conventional Mortgage – With a 20% or greater down payment or equity a mortgage is considered “conventional”. These mortgages can sometimes be approved with greater ease and do not require default mortgage insurance (CMHC).

Fixed-Rate Mortgage - The interest rate on the mortgage is fixed for the entire term of the mortgage. It guarantees the rate and payment will not change for the number of years of your term.

High Ratio Mortgage – A mortgage with less than 20% down payment or equity in property. High ratio mortgages require CMHC/Genworth default insurance, with the cost built into the mortgage. Most first time buyers have high ratio mortgages.

Interest Adjustment Date (lAD) - The date from which interest is calculated, at the rate and compounded at the frequency, set out in the mortgage contract. It is normally the first day of the month following the closing of the mortgage transaction.

Interest Rate - The rate of return the lender gets for letting the borrower use of the mortgage money for a specified term. The interest rate is usually expressed as an annual percentage rate.

Lenders – Lenders can include major banks, non-bank financial institutions, credit unions, trust companies and more.

Loan to Value (LTV) - A calculation that expresses the amount of a first mortgage lien as a percentage of the total appraised value of the property. The resulting percentage is commonly called the loan to value ratio.

Mortgage Insurance– Mortgage Protection Plan (MPP) life and disability insurance is available and should be considered by all applicants. It is important to consider how the mortgage would be paid in the case of disability or death. 

Mortgagee and Mortgagor – Often confused, the lender is the mortgagee and the borrower is the mortgagor.

Penalty - A sum of money paid to a lender for the privilege of prepaying a mortgage in part, or in full, before the mortgage matures.

Porting – The ability to take your existing mortgage to another property while keeping your interest rate and avoiding penalties. Most lenders today offer this service to clients. 

Pre-Approval –The ability to get a secured interest rate and loan amount before you find a specific property to purchase. Typically a 120 day rate hold will be given if you are not buying immediately. This will protect you against rising interest rates. A fully underwritten approval is not possible until you have found a specific property and have entered into a purchase contract.

Prepayment Privileges – Most lenders will offer some additional prepayments without penalty. The most common privilege is 20% per year lump sum as well as a 20% increase in regular payment.

Principal - The amount of the loan owed to the lender at any specified time, not including interest.

Refinancing – To renegotiate your existing mortgage agreement with the current or a new lender. Many people choose to refinance to take advantage of lower rates, consolidate debt, or utilize home equity. Unless your existing mortgage is “open” penalties will usually apply.

Renewal – When your mortgage term ends a mortgage can be renewed with a new agreement between the lender and borrower. Quite often, lenders assume clients will renew without exploring other options, so it’s important to speak with a mortgage broker prior to renewal.

Subject to Financing (Purchase Contract) – When making an offer on a property it is normally “subject to financing”. This means that you will buy the property as long as you can obtain financing for it. By allowing 5-10 business days to set up your mortgage financing you minimize any potential risks.

Term – The length of current mortgage agreement. It is typically 3-5 years. This is different than amortization which is the number of years it will take to pay off the mortgage in full. The most popular term in Canada is 5 years. After your current mortgage term has matured you can switch the term to a new lender and rate.

Title - Right of ownership of property, including evidence of such ownership.

Title Insurance - A contract by which the insurer, a title insurance company, agrees to pay the insured a specific amount for any loss caused by insured defects to title of a property, for which the insured has an interest as purchaser. lender or otherwise.

Variable Rate Mortgage – Can be called a variable or adjustable rate mortgage (VRM/ARM). It is where the interest rates fluctuate with the bank prime rate. These can be a good option when prime rate is going down, but are not advisable for all people and all situations. Your mortgage broker will help to determine what is right for you.

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