Glossary of Mortgage Terms
Agreement of Purchase and Sale
A legal agreement that offers a certain price for a home. The
offer may be firm (no conditions attached), or conditional (certain
conditions must be fulfilled before the deal can be closed).
The number of years that you take to fully pay off your mortgage
(not the same as your mortgage term). Amortization periods are
often 15, 20, or 25 years long.
The process of determining the value of property, usually for
lending purposes. This value may or may not be the same as the
purchase price of the home.
An estimate of the market value of the property.
Assuming a mortgage
Taking over the obligations of the previous owner's (or builder's)
mortgage when you buy a property.
Buy down rate
The portion of the interest rate on a buyer's mortgage that
you assume when they buy your home. If you're selling your home
and the prospective buyer doesn't like the interest rate on
their mortgage, you can offer to add a certain percentage of
it onto your existing mortgage
Payments consisting of both a principal and an interest component,
paid on a regular basis (e.g. weekly, biweekly, monthly) during
the term of the mortgage. 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.
Canada Mortgage and Housing Corporation (CMHC)
The National Housing Act (NHA) authorized Canada Mortgage and
Housing Corporation (CMHC) to operate a Mortgage Insurance Fund
which protects NHA Approved Lenders from losses resulting from
Certificate of Location or Survey
A document specifying the exact location of the building on
the property and describing the type and size of the building
including additions, if any.
Certificate of Search or Abstract of Title
A document setting out instruments registered against the title
to the property, e.g. deed, mortgages, etc.
A mortgage which has a fixed interest rate (usually lower than
an open mortgage rate) and a set, unchangeable term. You cannot
pay off a closed mortgage before the agreed end date without
Costs that are in addition to the purchase price of a property
and which are payable on the closing date. Examples include
legal fees, land transfer taxes, and disbursements.
CMHC or GEMICO Insurance Premium
Mortgage insurance insures the lender against loss in case of
default by the borrower. Mortgage insurance is provided to the
lender by CMHC or GEMICO and the premium is paid by the borrower.
An offer to purchase subject to conditions. These conditions
may relate to financing, or the sale of an existing home. Usually
a time limit in which the specified conditions must be satisfied
A mortgage that does not exceed 75% of the purchase price of
the home. Mortgages that exceed this limit must be insured against
default, and are referred to as high-ratio mortgages (see below).
A mortgage that you can change from short-term to long-term,
depending on your financial needs.
The percentage of the borrower's gross income that will be used
for monthly payments of principal, interest, taxes, heating
costs and condominium fees.
Deed (Certificate of Ownership)
The document signed by the seller transferring ownership of
the home to the purchaser. This document is then registered
against the title to the property as evidence of the purchaser's
ownership of the property.
A sum of money deposited in trust by the purchaser when making
an offer to be held in trust by the vendor's agent, broker,
lawyer or notary until the closing of the transaction.
The money that you pay up front for a house. Down payments typically
range from 10%-25% of the total value of the home.
The interest of the owner in a property over and above all claims
against the property. It is usually the difference between the
market value of the property and any outstanding encumbrances.
Before a mortgage can be advanced, the purchaser must have arranged
fire insurance. A certificate or binder from the insurance company
may be required on closing.
An offer to buy the property as outlined in the offer to purchase
with no conditions attached.
A mortgage for which the rate of interest is fixed for a specific
period of time (the term).
Foreclosure - A legal procedure whereby the lender eventually
obtains ownership of the property after the borrower has defaulted
Gross Debt Service (GDS) Ratio
The percentage of gross income required to cover monthly payments
associated with housing costs. Most lenders recommend that the
GDS ratio be no more than 32% of your gross (before tax) monthly
GE Capital Mortgage Insurance Company of Canada (GEMI)
A private mortgage insurance company. One potential source of
mortgage insurance for high-ratio mortgages.
The mortgage you obtain when you have less than 25% of the total
purchase price to put down as your down payment. This type of
mortgage must be insured (through sources such as CMHC or GEMI
An amount of money required to be withheld by the lender during
the construction or renovation of a house to ensure that construction
is satisfactorily completed at every stage.
The difference between the price for which a home could be sold
(market value) and the total debts registered against it.
Insurance to cover both your home and its contents (also referred
to as property insurance). This is different from mortgage life
insurance, which pays the outstanding balance of your mortgage
in full if you die.
The process of having a qualified home inspector identify potential
repairs to the property you are interested in and their estimated
The amount of interest due between the date your mortgage starts
and the date the first mortgage payment is calculated from.
Sometimes there is a gap between the closing date of your home
purchase and the first payment date of your mortgage. Let's
say that the closing date on your new house is August 10th -
but your mortgage payments are on the 15th of each month (so
your first payment is calculated from August 15th and paid on
September 15th). That leaves four days (August 10th to 14th)
that aren't accounted for in your first mortgage payment. You
have to make an extra payment to make up for these four days;
the payment is generally due on your closing date. You can avoid
all this by arranging to make your first mortgage payment exactly
one payment period (e.g., one month) after your closing date.
Interest Rate Differential Amount (IRD)
An IRD amount is a compensation charge that may apply if you
pay off your mortgage principal prior to the maturity date or
pay the mortgage principal down beyond the prepayment privilege
amount. The IRD amount is calculated on the amount being prepaid
using an interest rate equal to the difference between your
existing mortgage interest rate and the interest rate that we
can now charge when re-lending the funds for the remaining term
of the mortgage.
Short-term financing to help a buyer bridge the gap between
the closing date on the purchase of a new home and the closing
date on the sale of the current home.
Land transfer tax
A tax that is levied (in some provinces) on any property that
Legal fees and disbursements
Some of the legal costs associated with the sale or purchase
of a property. It's in your best interest to engage the services
of a real estate lawyer (or a notary in Quebec).
Lump sum payment
An extra payment that you make to reduce the amount of your
A loan that you take out in order to buy property. The collateral
is the property itself.
Last day of the term of the mortgage agreement
Mortgage life insurance
This form of insurance pays the outstanding balance of your
mortgage in full if you die. This is different from home or
property insurance, which insures your home and its contents.
Mortgage Life Insurance
A form of reducing term insurance recommended for all mortgagors.
If you die, have a terminal illness, or suffer an accident,
the insurance can pay the balance owing on the mortgage. The
intent is to protect survivors from the loss of their homes.
Mortgage Critical Illness Insurance
Mortgage Critical Illness Insurance is available as an enhancement to Mortgage Life Insurance. It is recommended for all mortgagors. It can pay off your mortgage -- up to $300,000 -- if you are diagnosed with life-threatening cancer, heart attack or stroke.
The percentage interest that you pay on top of the loan principal.
For example, you may take out a mortgage of $100,000 at a rate
of 12%. Your monthly payments will consist of a portion of the
original $100,000, plus 12% interest.
The number of years or months over which you pay a specified
interest rate. Terms usually range from six months to 10 years.
Mortgagee and Mortgagor
The lender is the mortgagee and the borrower is the mortgagor.
The cost hiring of packers, movers or renting a van.
Multiple Listing Service (MLS)
A computerized listing of the properties available in your area,
including information and pictures of each property.
Offer to Purchase
A legally binding agreement between you and the person who owns
the house you want to buy. It includes the price you are offering,
what you expect to be included with the house, and the financial
conditions of sale (your financing arrangements, the closing
A mortgage which can be prepaid at any time, without penalty.
Principal, interest and taxes. Together, these make up the regular
payment on a mortgage if you elect to include property taxes
in your mortgage payments.
Transferring an existing mortgage from one home to a new home
when you move. This is known as a "portable" mortgage.
This is the interest rate, which we charge on lending you money
for your mortgage.
Pre-approved mortgage certificate
A written agreement that you will get a mortgage for a set amount
of money at a set interest rate. Getting a pre-approved mortgage
allows you to shop for a home without worrying how you'll pay
Prepaid property tax and utility adjustments
The amount you will owe if the person selling you the home has
prepaid any property taxes or utility bills. The amount to reimburse
them will be calculated based on the closing date.
The ability to prepay all or a portion of the principal balance.
Prepayment charges may be incurred on the exercise of prepayment
A fee charged by the lender when the borrower prepays all or
part of a closed mortgage more quickly than is set out in the
The amount of money borrowed for a new mortgage.
A legal description of your property and its location and dimensions.
An up-to-date survey is usually required by your mortgage lender.
If not available from the vendor, your lawyer can obtain the
property survey for a fee.
Renegotiating your existing mortgage agreement. May include
increasing the principal or paying out the mortgage in full.
Once the original term of your mortgage expires, you have the
option of renewing it with the original lender or paying off
all of the balance outstanding.
Taxes applied to the purchase cost of a property. Some properties
are sales tax exempt (GST and/or PST), and some are not. For
instance, residential resale properties are usually GST exempt,
while new properties require GST. Always ask before signing
The extra costs incurred when hooking up hydro, gas, phone,
etc. to a new address
Security - In the case of mortgages, real estate offered as
collateral for the loan.
The length of time during which you pay a specific
rate on the mortgage loan (i.e., the number of years in your
mortgage contract). This is different than the amortization
period. A mortgage is usually amortized over 20-25 years, with
a shorter term (typically 6 months to 5 years). After the term
expires, the interest rate is usually renegotiated with the
lender (your bank, for example).
Total Debt Service (TDS) Ratio
The percentage of gross income needed to cover monthly payments
for housing and all other debts and financing obligations. The
total should generally not exceed 37% of gross monthly income.
Variable rate mortgage
A mortgage with an interest rate that changes with the market.
The rate changes each month, meaning that the portion of your
payment that goes towards interest may go up or down each month.
But your total payment will stay the same.