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Mortgage Basics

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50-50 mortgage
Also known as a hybrid mortgage, this product combines the features of fixed-rate and variable rate mortgages.

Accelerated bi-weekly mortgage payments
Payments are made every two weeks instead of monthly, adding up to 26 payments a year, which ends up being equivalent to 13 months worth of payments instead of 12. An extra couple of payments a year are a great way to pay off your mortgage faster and pay less interest.

  Accredited Mortgage Professional (AMP)
A professional designation created the by Canadian Association of Accredited Mortgage Professionals that demonstrates commitment to ongoing education and ethical behavior in the mortgage industry.

  Adjustable Rate Mortgage (ARM)
A mortgage where the payments change and the interest rate is periodically adjusted based on the Canadian prime lending rate.

Length of time over which the mortgage debt will be repaid.

Process for estimating the market value of a property.

Certified professional who carries out the appraisal.

The increase in value of your home over time.

Something that you own that has value, like an RRSP, your home, your savings, etc.

  Assumption agreement
A legal document signed by the homebuyer that requires them to assume responsibility for the obligations of a mortgage by the builder or the previous owner.

  Bridge loan
Also known as interim financing, a bridge loan is a second mortgage that is paid off immediately following the closing date of the buyer’s current home. Bridge financing is typically used when the sale of the buyer’s current home closes after the closing of their new home purchase.

  Blended payment
A mortgage payment that includes both principal and interest. The payment total remains the same, although the principal portion increases over time while the interest portion decreases.

  Certificate of status
Also called an Estoppel certificate, it outlines a condominium corporation's financial and legal state. Fees may vary and may be capped by law (does not apply in Quebec).

 Closed mortgage
A mortgage that locks you into payments for a specified period of time at a specified rate, which doesn't increase/decrease along with the prime rate. Generally, if you break a closed mortgage, you will be required to pay three months' interest payments as a penalty. The most common term for a closed mortgage is five years.

 Closing costs
Costs in addition to the purchase price of the home, such as legal fees, transfer fees and disbursements, that are payable on closing day. They can range from 1.5% to 4% of a home's selling price.

 Closing day
Date on which the sale of the property becomes final and the new owner takes title to the home.

 CMHC (The Canada Mortgage and Housing Corporation)
A Crown corporation that administers the National Housing Act for the federal government and encourages the improvement of housing and living conditions for all Canadians. CMHC also develops and sells mortgage loan insurance products.

  CMHC insurance premiums
When a home buyer takes out a mortgage with less than a 20% down payment, an insurance premium is paid to CMHC, and a mortgage loan insurance policy is issued to the lender. The CMHC Mortgage Loan Insurance premium is calculated as a percentage of the loan and is based on a number of factors such as the purpose of the property (owner occupied or rental), the type of loan (i.e. purchase/construction or refinance loan), the ability of a self-employed borrower to supply income verification, and the size of the down payment (i.e. the higher the percentage of the total house price/value that you borrow, the higher the percentage you will pay in insurance premiums).

  Compound period
The number of times per year that the interest rate is compounded. In Canada, mortgage interest rates are compounded semi-annually, or twice per year for a fixed mortgage and monthly for a variable mortgage.

  Commitment letter (or mortgage approval)
Written notification from the mortgage lender to the borrower that approves the advancement of a specified amount of mortgage funds under specified conditions.

  Compound interest
Interest calculated on both the principal and the accrued interest.

  Conditional offer
An Offer to Purchase that is subject to specified conditions, for example, the arrangement of a mortgage. There is usually a stipulated time limit within which the specified conditions must be met.

  Condominium (or strata)
You own the unit you live in (eg: high-rise, low-rise or townhouse) and share ownership rights for the common areas of the building along with the development's other owners.

A person responsible for overall construction of a home, including buying, scheduling, workmanship, and management of subcontractors and suppliers.

  Conventional mortgage
A mortgage loan up to a maximum of 80% of the lending value of the property. Typically, the lending value is the lesser of the purchase price and market value of the property. Mortgage insurance is usually not required for this type of mortgage.

  Counter offer
If your original offer to the vendor is not accepted, the vendor may counter offer by amending something from your original offer, such as the price or closing date. As this new offer varies the terms of the original offer, this rejects the original offer. If a counter offer is presented, the potential buyer has a specified amount of time to accept or reject.

  Credit bureau
A company that collects information from various sources and provides credit information on a person's borrowing and bill paying habits to help lenders assess whether or not to lend money to the person. The two credit bureaus in Canada are Equifax Canada and Trans Union of Canada.

  Credit history or credit report
The main report a lender uses to determine your credit worthiness. It includes information about your ability to handle your debt obligations and your current outstanding obligations.

  Curb appeal
How attractive a home looks from the street. A home with good curb appeal will have attractive landscaping and a well-maintained exterior.

A legal document that transfers ownership of the real property to the purchaser. Often simply called a transfer, it is registered as evidence of ownership.

  Default on payment
Failure to make a mortgage payment in accordance with the mortgage document.

Failing to make a mortgage payment on time.

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/notary until the sale is closed and is then paid to the vendor.

A decrease in value – when something is now worth less than when you bought it.

  Down payment
The portion of the home price that is not financed by the mortgage loan. The buyer must pay the down payment from his/her own funds or other eligible sources before securing a mortgage.

A duplex is a building containing two single-family homes, located one above the other.

An interest in land owned by another person that benefits the person who has the easement, for a specific limited purpose (i.e. right of way permitting passage over a particular strip of land) such as with public utilities.

The difference between the price for which a home could be sold and what is still owed on it. Equity usually increases as the mortgage is reduced through regular payments. Market values and improvements to the property also affect equity.

  Equity take out mortgage
A mortgage loan used to take equity from a property for a variety of reasons, such as renovations.

  Estoppel certificate
Also called a certificate of status, it outlines a condominium corporation's financial and legal state. Fees may vary and may be capped by law (does not apply in Quebec).

  Fair market value (FMV)
The price a buyer with knowledge of all pertinent facts is willing to pay for a property.

  Fixed mortgage interest rate
A locked-in rate that will not increase for the term of the mortgage.

A housing concept that incorporates, at the design and construction stage, the ability to make future changes easily and with minimum expense, to meet the evolving needs of its occupants.

A legal process where the lender takes possession of your property and sells it to cover unpaid debt.

A freehold title is an interest in land that gives the holder full and exclusive ownership of the land and building for an indefinite period. A leasehold title is an interest in land that gives the holder the right to use and occupy the land and building for a defined period.

  Genworth Financial Canada
The leading private sector supplier of mortgage default insurance in Canada.

  Gift letter
This is a letter stating that the giver (an immediate family member) in making a gift of a certain amount to the recipient for the down payment of a home. It also states that the gift is genuine and that the recipient (or home buyer) is not required to pay back the gift at any time.

  Gross Debt Service Ratio (GDS)
The percentage of gross income that will be used for payments of principal, interest, taxes and heating costs (P.I.T.H.) and 50% of any condominium maintenance fees or 100% of the annual site lease for leasehold tenure.

  Gross monthly income
Monthly income before taxes and deductions.

  High-ratio mortgage
A mortgage loan higher than 80% of the lending value of the property. This type of mortgage must be insured against payment default.

  Home inspector
A professional who visually inspects a home to tell you if something is not working properly, or is unsafe. He or she will also tell you if repairs are needed, and possibly even where there were problems in the past.

  Home insurance
Provides payment to the homeowner in the event of loss due to fire, theft, or damage through natural causes such as hail, tornado, lightning and flooding.

  Home insurance policy
An insurance policy covering your physical home in the event of fire or other casualty, the contents of the home, and other losses you may suffer due to destruction of the property, in whole or in part.

The cost of borrowing money. Interest is usually paid to the lender in regular payments along with repayment of the principal (loan amount).

  Job letter
A letter from your employer stating your length of employment, guaranteed number of hours worked per week, and income amount.

  Land registration
A system to record interests in land, including the ownership and disposition of land.

  Land surveyor
A professional who can survey a property in order to provide a certificate of location.

The financial obligation of an individual, such as credit card debt, car payments, mortgage payments, etc.

  Licensed Mortgage Associate
The person in a brokerage that deals with clients. A Mortgage Associate will take clients' applications on behalf of the brokerage, and walk them through the mortgage process.

A claim against a property for money owing. A lien may be filed by a supplier or a subcontractor who has provided labour or materials but has not been paid.

  Loan to Value Ratio (LTV)
The ratio of the value of the mortgage loan to the appraised value or purchase price of the property (whichever is less). For example, if someone purchased a home for $100,000 and had $20,000 as a down payment, the mortgage would be $80,000, or 80% of the value of the home (therefore an 80% LTV).

  Lump sum prepayment
An extra payment, made as a lump sum, to reduce the principal balance of your mortgage, with or without penalty.

  Market value
The highest price a buyer would pay and the lowest price a seller would accept on a property.

  Manufactured home
A factory-built, single-family home that is transported to a chosen location and placed onto a foundation.

  Maturity date
The last day of the term of the mortgage. On this day, the mortgage loan must either be paid in full or the agreement renewed.

  Mobile home
These are built in factories, then taken to the place where they will be occupied. While these homes are usually placed in one location and left there permanently, they do retain the ability to be moved.

  Modular home
A factory-built, single-family home typically shipped to a location in two or more sections (or modules).

A mortgage is a security interest given in the property you are purchasing which secures repayment of the loan related to the property. That security interest is discharged on payment of the principal and interest owning on the loan in accordance with the mortgage document.

  Mortgage approval
Written notification from the mortgage lender to the borrower that approves the advancement of a specified amount of mortgage funds under specified conditions.

  Mortgage broker
A professional whose role it is to find you a lender with the terms and rates that will best suit you.

  Mortgage brokerage
A mortgage brokerage is a legal identity licensed to trade in mortgages. Mortgage Brokers and Licensed Mortgage Associates must be licensed under a brokerage.

  Mortgage life insurance
Mortgage life insurance provides coverage if you die before your mortgage is paid off.

  Mortgage lender
An institution (bank, trust company, credit union, etc.) that lends money for a mortgage.

  Mortgage loan insurance
Mortgage loan insurance is required for residential mortgage loans with a loan-to-value ratio of more than 80%, and is available from CMHC or Genworth. Because mortgage loan insurance protects the lender against losses in the event that a borrower fails to pay his or her mortgage, it enables more Canadians to purchase their home earlier and benefit from home equity sooner.

  Mortgage payment
A regular payment to the lender that includes both the interest and the principal.

  Mortgage principal
The outstanding balance of your mortgage.

  Mortgage refinancing
The process of replacing your mortgage with a new one.

  Mortgage renewal
A new agreement to extend or renew mortgage terms with your mortgage holder.

  Mortgage statement
A statement received from your mortgage lender that includes information including property address, outstanding principal balance, monthly payment, interest rate, mortgage term, etc.

  Mortgage term
The length of time, usually in years, in which the parameters of a mortgage have legal effect.

The party that advances the funds for a mortgage loan; the lender.

The party that uses their home as a security for a mortgage; the borrower.

  MLS (Multiple Listing Service)
An online listing service that contains photos and descriptions of most homes for sale.

  Net worth
Your financial worth, calculated by subtracting your total liabilities from your total assets.

  New Home Warranty Program
Coverage for newly built homes to be used in the event that an item under the warranty needs to be repaired within the specific warranty period. The repair will be made by the organization that provided the warranty.

In Quebec a notary handles the legal matters related to home buying. In most other provinces, a notary only administers oaths, certifies documents and attests to authenticity of signatures and cannot, in his/her capacity as notary, advise on legal matters.

  Notice of Assessment
The summary that Revenue Canada sends you after your income tax has been filed. It specifies what you claimed on your taxes last year, the amount of taxes you owe, and the amount of money you will receive as a tax refund.

  Offer to Purchase
A written contract setting out the terms under which the buyer agrees to buy the home. If the Offer to Purchase is accepted by the seller, it forms a legally binding contract.

  Open mortgage
A flexible mortgage that allows you to pay more than your set payments before the end of its term.

  Open house
A period of time during which a house or apartment for sale or rent is open for public viewing.

  Operating costs
The expenses that a homeowner pays each month to operate his or her home including property taxes, insurance, utilities, telephone and communications charges, maintenance and repairs.

  Payment schedule
The monthly, biweekly or weekly mortgage payments.

  Pay stub
A document you receive from your employer with each pay cheque stating your gross earnings, CPP and EI payments, income tax deducted, etc. It should also state the year to date amounts of all the aforementioned income and payments.

The amount that you borrow for a loan (not including interest).

  P.I.T.H. (Principal, interest, taxes and heating)
Costs used in both the Gross Debt Service ratio (GDS) and Total Debt Service ratio (TDS) calculations.

  Property insurance
Insurance that you buy for the building(s) on the land you own. This insurance should be high enough to pay for the building to be rebuilt if it is destroyed by fire or other hazards listed in the policy.

  Property taxes
Taxes charged by the municipality where the home is located, usually based on the value of the home. In some cases the lender will collect a monthly amount as part of the mortgage payment to cover your property taxes, which is then paid by the lender to the municipality on your behalf.

  Portable mortgage
A mortgage that permits the borrower to transfer their mortgage balance to a new property with the same lender without penalties.

  Pre-approved mortgage
It qualifies you for a loan amount before you start looking for a home. It also acts as a rate hold, guaranteeing you interest rates for up to 120 days.

  Prepayment penalties
If you "break" (or pay off) your mortgage before your term is up, you may have to pay a prepayment penalty. The penalty is generally three months' worth of interest payments.

  Prepayment privilege
Some mortgages allow you to double up payments, pay off a certain percentage of your mortgage principal a year, or increase your monthly mortgage payments by a certain percentage.

  Real estate
Property consisting of buildings and land.

  Realtor or real estate agent
A person who acts as an intermediary between the seller and the buyer of a property.

Reserve fund
A fund required to be set up by the condominium corporation for major repair and replacement of common elements and assets of a corporation.

Paying off the existing mortgage and arranging a new one with a different lender, or renegotiating a new term, interest rate, etc. for an existing mortgage.

The renegotiation of the terms, interest rates, etc. of a mortgage at the end of its term.

Reverse mortgage
A type of mortgage loan available in Canada that is designed for homeowners 60 years and older.

Row house
Also called a townhouse, a row house is one unit of several similar single-family homes, side-by-side, joined by common walls.

Property that is pledged to guarantee the fulfillment of an obligation and that can be claimed by a creditor if a loan is not repaid.

Single-family detached home
A free-standing home that is not attached to a house on either side.

Single-family semi-detached home
A home that is attached to another building on one side.

Stacked townhouse
Two two-story homes that are stacked one on top of one another, with buildings attached in groups of four or more. Each unit has direct access from the outside.

Strata (or condominium)
You own the unit you live in (e.g. a high-rise low-rise or townhouse) and share ownership rights for the common areas of the building along with the development's other owners.

Survey or certificate of location
A document that shows property boundaries and measurements, specifies the location of buildings, fences, and other improvements on the property, and states easements or encroachments.

The length of time for which the mortgage contract conditions, including interest rate, are fixed.

A freehold title gives the holder full and exclusive ownership of the land and building for an indefinite period. A leasehold title gives the holder the right to use and occupy the land and building for a defined period.

Title insurance
Insurance against loss or damage arising from a matter affecting the title to real property (e.g.: by a defect in the title or by the existence of a lien, encumbrance or servitude).

Total Debt Service Ratio (TDS)
The percentage of gross income that will be used for payments of principal, interest, taxes and heat (P.I.T.H.) and other debt obligations, such as car payments or payments of other loans.

Also called a row house, a townhouse is one unit of several similar single-family homes, side-by-side, joined by common walls.

The process of deciding whether or not to provide a mortgage loan to a home buyer based on credit, employment, assets and other factors. This process also includes the matching of a home buyer to a mortgage lender, mortgage product, interest rate, mortgage term, etc.

Variable mortgage interest rate
Fluctuates based on market conditions but the mortgage payment remains unchanged.

The seller of a property.

Vendor take-back mortgage
The vendor, not a financial institution, finances the mortgage. The title of the property is transferred to the buyer, who makes mortgage payments directly to the seller.

Void cheque
A personal, pre-printed cheque with "void" written across it, which is provided to the lender for the account your mortgage payments will be coming out of, as proof that the account is, indeed, yours.