Glossary of Terms

Amortization period: The number of years it will take to repay the mortgage loan in full. (This is usually longer than the term of the mortgage.) For instance, you may have a five-year term amortized over 25 years.

Appraised value: An estimate of the value of the property, conducted for the purpose of mortgage lending by a certified appraiser.

Assumability: This feature allows the buyer of your house to take over or "assume" your mortgage. If your mortgage has a fixed interest rate lower than current rates, it could be an attractive selling feature.

Closed mortgage: A mortgage that 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.

Condominium fee: A payment among owners, which is allocated to pay expenses.

Conventional mortgage: A mortgage loan issued for up to 75% of the property's appraised value or purchase price, whichever is less. It is offered to buyers who make a down payment of 25% or more of the appraised value or purchase price.

Down payment: The portion of the purchase price that you pay initially as a lump sum; the rest is financed by your financial institution. A down payment is generally up to 25% of the purchase price.

Equity: The difference between the home's selling value and the debts against it. It also refers to the difference between the value of your property and the amount you still owe on the mortgage.

Fixed rate mortgage: Carries a set interest rate for a specific period of time (the term of the mortgage). The regular payment of the principal and interest remains the same throughout the term. The benefit of choosing this option is that you are protected if interest rates rise.

High-ratio mortgage: Offered to buyers with a down payment of less than 25%. This type of loan must be insured against default by the federal government through the Canada Mortgage and Housing Corporation (CMHC) or an approved private insurer (the lender usually arranges this). The borrower pays a one-time insurance premium to the insurer (ranging from 0.5% to 3.75% depending on the size of the loan and value of the home; additional charges may also apply). The premium is usually added to the principal amount of the mortgage. If you default on your mortgage, the lender is paid by the insurer.Interest. This is added to the amount you have borrowed to compensate the lender for the use of their money. Your mortgage is repaid in regular payments which are applied toward the principal and interest.

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

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.

Maturity date: The end of the term of the loan, at which time you can pay off the mortgage or renew it.

Mortgage: A personal loan used to purchase a property. You pledge the property being purchased as security for the loan.

Mortgagee: The financial institution or person that lends the money.

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

Mortgage life insurance: Pays off the mortgage if the borrower dies.

Mortgagor: The borrower.

Open mortgage: Gives you the flexibility to make unlimited pre-payments or lock into a fixed term at any time. Allows partial or full payment of the principal at any time, without penalty. This loan's interest rate changes periodically, and is tied to the prime rate. This type of mortgage is popular when interest rates are expected to fall or remain stable.

Portability: If you are selling your home and buying another, this option allows you to take your mortgage — with the same term, rate and amount — and apply it to your new house without penalty. If your mortgage isn't portable, don't sign for a longer term than you're likely to stay in the house or you could wind up paying a penalty to break the mortgage agreement.

Pre-approved mortgage: Qualifies you for a mortgage before you start shopping. You know exactly how much you can spend and are free to make a firm offer when you find the right home.

Prepayment privileges: Voluntary payments that are in addition to regular mortgage payments.

Principal: The amount borrowed or still owing on a mortgage loan. Interest is paid on the principal amount.

Refinancing: Paying off the existing mortgage and arranging a new one or renegotiating the terms and conditions of an existing mortgage.

Renewal: Renegotiation of a mortgage loan at the end of a term for a new term.

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

Term: The number of months or years the mortgage contract covers (typically six months to five years), during which you pay a specified and fixed interest rate. It also indicates when the principal balance becomes due and payable to the lender.

Title: Legal ownership in a property.

Variable rate mortgage: A mortgage with fixed payments that fluctuates with interest rates. The changing interest rate determines how much of the payment goes towards the principal.

Vendor take-back mortgage: When the seller provides some or all of the mortgage financing in order to sell their property.

Return to Top

Perhaps a book recommendation can go here?