This Glossary of mortgage terms is meant to help clarify common mortgage terms a reader may encounter on this and other mortgage-related websites. It is in no way inclusive and we will add to/update it frequently.
ABSTRACT OF TITLE
Registry System: A condensed history of the title to a parcel of land. The abstract consists of a synopsis of every recorded instrument affecting the title to that land arranged in chronological order of recording.
ACCELERATED BI-WEEKLY MORTGAGE PAYMENTS
Mortgage payments which are made every 2 weeks for a total of 26 payments per year. Not to be confused with semi-monthly mortgage payments.
The number of years it will take to repay a mortgage in full. This period can be longer than the loan’s term. For example, a mortgage may have a 5 year term and a 25 year amortization period.
An estimate of the market value of the home (and property) that the borrower pledges as security for the mortgage. This value may be more or less than the purchase price of the property. For XCEED to place reliance on an appraisal, it must be prepared by a qualified appraiser already approved by XCEED.
Payment consists of both a principal and an interest component, paid on schedule (e.g. weekly, biweekly, monthly) for duration of mortgage term. 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.
BLENDED MORTGAGE PAYMENT
A regular installment payment composed of both principal and interest in which part of the money received is applied toward the principal of the loan and part is applied toward the interest. This is the norm for mortgage payments. Blended payments are distinct from the concept of a blended rate mortgage.
BLENDED RATE MORTGAGE
A mortgage that combines the amount the borrower owes under an existing mortgage with additional mortgage money. The interest rate for the new amount borrowed is a blend (or combination) of the interest rate of the old mortgage and the interest rate for the additional amount to be borrowed and may include any penalties the borrower owes the existing lender for prepaying their mortgage prior to maturity.
A loan made for a short term, to “bridge” (or cover) the time gap between completing the purchase of one property or the sale of another property. The need for this type of financing often results from mismatched closing dates.
The expenses of living in, and maintaining a home. This includes mortgage payments, property taxes, heating, repairs and so on.
A mortgage that generally may not be prepaid, or early renewed, unless the borrower is willing to pay a prepayment penalty.
The date the purchase of the property becomes final and the new owner obtains title and takes possession.
A loan evidenced by a promissory note and backed by the collateral security of a mortgage on a property. The money borrowed is generally used for a purpose other than the purchase of a home, such as a vacation, or for home renovations.
A first mortgage of up to 75% of the property’s appraised value or purchase price, whichever is lower.
A legal document that transfers and evidences ownership of the property to the buyer.
Failure to repay an outstanding debt as agreed.
A sum of cash that is required to be paid to the vendor by the purchaser. This money is a symbol of the purchaser’s commitment to buy. If the offer is accepted, the deposit is applied to the down payment.
The amount of money put forward by the buyer toward the purchase price of a home.
The difference between the price for which a property could be sold less the total debt registered against the property.
EFFECTIVE INTEREST RATE
This is the actual interest rate paid on a loan or mortgage. In Canada, mortgages typically have a higher effective interest rate because of the fact that interest rates are compounded semi-annually or twice per year.
The first mortgage in the mortgage agreement that is considered to be in first place and will have first claim on assets in the event of default.
FIXED RATE MORTGAGE
A mortgage in which the rate of interest has been fixed for a specific period of time. This specific period of time is generally known as the term. Article
GROSS DEBT SERVICE (GDS) RATIO
The percentage of gross annual income required to cover payments associated with housing. Payments include mortgage principal, interest, property taxes and sometimes include secondary financing, heating, condominium fees or pad rent.
A mortgage for more than 75% of either or both a property’s appraised value and purchase price. In other words, the down payment amount is less than 25% of the purchase price/appraised value.
The annual percentage amount charged in return for borrowing funds.
LAND TRANSFER TAX
A fee paid to the municipal and/or provincial government for the transferring of property from seller to buyer.
What you owe. For example: taxes, mortgages, car loans and credit card balances.
LOAN TO VALUE (LTV) RATIO
The ratio of the loan to the appraised value or purchase price of the property, whichever is lower.
The last day of the term of your mortgage agreement. The mortgage must be paid in full, or the agreement renewed, by this date.
A mortgage is both a loan used to purchase or refinance a home and a security for the repayment of the loan.
MORTGAGE DISABILITY INSURANCE
Insurance that pays the mortgage installments should the insured borrower become ill or disabled and unable to work.
MORTGAGE DEFAULT INSURANCE
Government-backed or privately-backed insurance protecting the lender against the borrower’s default on mortgages.
MORTGAGE LIFE INSURANCE
Insurance that pays off the mortgage debt should the insured borrower die.
The regular installments made towards paying back the principal and paying interest on a mortgage.
MULTIPLE LISTINGS SERVICE (MLS)
A computer-based system for relaying information to real-estate agents about properties for sale.
Allows partial or full payment of the principal at any time, without penalty.
A mortgage for a set maximum amount and interest rate that is arranged prior to the purchaser finding a house. Often arranged prior to home-shopping, this option can help the purchaser establish an affordable price range.
Allows the borrower to prepay a portion, or all of the principal balance, with or without penalty. These options are typically restricted to specific amounts and times.
The amount initially borrowed under the mortgage.
Paying off the existing mortgage and arranging a new one or re-negotiating the terms and conditions of an existing mortgage.
REGISTERED EDUCATION SAVINGS PLAN (RESP)
- is a special savings plan (like a savings account)
- helps you, your family or friends to save early for a child’s education after high school
- is registered by the Government of Canada
- allows savings for education after high school to grow tax-free and could also gain government money through the Canada Education Savings Grant and the Canada Learning Bond, if you qualify.
REGISTERED RETIREMENT SAVINGS PLANS (RRSP)
(from Canada Revenue Agency)
An RRSP is a retirement savings plan that you establish, that we register, and to which you or your spouse or common-law partner contribute. Deductible RRSP contributions can be used to reduce your tax.
Re-negotiation of a mortgage loan at the end of a term for a new term.
A mortgage granted when there is already a mortgage registered against the property. If the borrower defaults and the property is sold, the second mortgage is paid after the first.
Property (assets) offered as backing for a loan. In the case of mortgages, the property being purchased or refinanced forms thesecurity for the loan.
STATEMENT OF ADJUSTMENTS
A document detailing the exact amount owed by the purchaser to the vendor upon closing. It includes the balance of the purchase price, reimbursment for any prepaid utilities or services and lawyer/notary fees and costs.
A document providing details of a property’s boundaries, measurements and structures. It will also describe any easements, rights-of-way, or encroachments made by either your property or by adjoining properties onto your property.
The length of time that a mortgage agreement covers. The total length of a mortgage is usually made up of several terms. When the term expires, the mortgage is usually repaid in full or renegotiated for another term.
The legal evidence of ownership to a property.
An insurance policy issued by a company that assumes risk. In this case, the risk is that once title has been transferred to a new owner through a closing process, evidence comes to light that challenges the new onwer’s right to clear title.
A detailed examination of the registered title documents to ensure there are no liens or other encumbrances (claims) on the property, and no question regarding the seller’s statement of ownership.
TOTAL DEBT SERVICE (TDS) RATIO
The percentage of a borrower’s gross (before tax) monthly income needed to cover payments for mortgage debt and/or fixed charges (principal, interest, taxes, condominium fees, lease payments) and all other debts and obligations (typically loans and credit cards).
VARIABLE-RATE MORTGAGE (VRM)
A mortgage with fixed payments, but fluctuates with interest rates. The changing interest rate determines how much of the payment goes towards the principal.
The seller in a real estate transaction.