Mortgage Glossary

A

• Amortization Period – The total time it takes to pay off a mortgage in full, typically 25 or 30 years.

• Appraisal – A professional evaluation of a property’s value, often required by lenders.

• Approval – Confirmation from a lender that a borrower qualifies for a mortgage based on financial criteria.

B

• Bank of Canada Rate – The interest rate set by the Bank of Canada that influences mortgage rates.

• Blended Payments – Equal mortgage payments that include both principal and interest.

• Bridge Loan – A short-term loan that helps buyers cover the gap between purchasing a new home and selling their current one.

C

• Closing Costs – Expenses beyond the home price, such as legal fees, land transfer tax, and home inspection costs.

• Collateral – An asset (such as the home itself) pledged to secure a mortgage loan.

• Conventional Mortgage – A mortgage with a down payment of at least 20% of the home’s purchase price.

D

• Debt-to-Income Ratio (DTI) – A calculation lenders use to determine how much debt a borrower has compared to income.

• Default – Failure to make mortgage payments as agreed, which may lead to foreclosure.

• Down Payment – The initial amount a buyer pays upfront when purchasing a home, typically at least 5% in Canada.

E

• Equity – The difference between a home’s market value and the amount still owed on the mortgage.

• Escrow – A financial arrangement where a third party holds funds (often for taxes and insurance) until certain conditions are met.

F

• Fixed-Rate Mortgage – A mortgage with an interest rate that remains the same for a set term (e.g., 3, 5, or 10 years).

• Foreclosure – A legal process where a lender takes possession of a property due to missed mortgage payments.

G

• Gross Debt Service Ratio (GDS) – The percentage of income used for mortgage payments, property taxes, and heating costs.

• Guarantor – A person who agrees to be responsible for mortgage payments if the primary borrower defaults.

H

• Home Equity Line of Credit (HELOC) – A revolving credit line secured against the equity in a home.

• High-Ratio Mortgage – A mortgage where the down payment is less than 20%, requiring mortgage default insurance.

I

• Interest Rate – The percentage charged by a lender on the mortgage loan balance.

• Insured Mortgage – A mortgage that requires default insurance (e.g., CMHC insurance) because the down payment is below 20%.

L

• Land Transfer Tax – A provincial tax applied when purchasing a property.

• Loan-to-Value Ratio (LTV) – The ratio of a mortgage loan to a home’s appraised value, used by lenders to assess risk.

M

• Mortgage Insurance – Insurance that protects the lender if a borrower defaults on a high-ratio mortgage.

• Mortgage Term – The length of time a mortgage agreement is in effect before renewal, typically 1 to 5 years.

O

• Open Mortgage – A mortgage that allows for early repayment without penalties.

• Overpayment – Making additional payments beyond the scheduled amount to pay off a mortgage faster.

P

• Porting a Mortgage – Transferring an existing mortgage to a new property without breaking the original contract.

• Pre-Approval – A lender’s confirmation of how much a borrower qualifies for before house hunting.

• Prepayment Penalty – A fee charged if a borrower pays off a mortgage early or makes payments beyond the allowed limit.

• Prime Rate – The interest rate banks use as a benchmark for setting mortgage rates, influenced by the Bank of Canada.

• Principal – The original loan amount borrowed, excluding interest.

R

• Refinancing – Replacing an existing mortgage with a new one, often to secure a lower interest rate or access home equity.

• Renewal – Extending a mortgage after the term expires, usually with new interest rates and terms.

T

• Title – Legal ownership of a property.

• Total Debt Service Ratio (TDS) – The percentage of income used for all debt payments, including mortgage, loans, and credit cards.

• Term Mortgage – A mortgage with a fixed period before it needs renewal, distinct from the total amortization period.

V

• Variable-Rate Mortgage – A mortgage where the interest rate fluctuates based on market conditions.

• Vendor Take-Back Mortgage – A financing arrangement where the home seller provides aA

• Amortization Period – The total time it takes to pay off a mortgage in full, typically 25 or 30 years.

• Appraisal – A professional evaluation of a property’s value, often required by lenders.

• Approval – Confirmation from a lender that a borrower qualifies for a mortgage based on financial criteria.