Home Financing Terms

Amortization Period

Number of years it takes to repay the mortgage loan.

Appraisal

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.

Blended Payments

Equal payments consisting of both a principal and an interest component paid on a regular basis (i.e. weekly, bi-weekly, monthly) during the term of the mortgage. The principal portion 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 borrower default.

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.

Closed Mortgage

A mortgage agreement that cannot be prepaid, renegotiated or refinanced before maturity, except upon payment of a prepayment penalty.

Closing Date

The date on which the sale of a property becomes final and the new owner usually takes possession.

Conditional Offer

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 is stipulated.

Conventional Mortgage

A mortgage that does not exceed 75% of the appraised value or purchase price of the property, whichever is less. Mortgage loan insurance is usually not required for this type of mortgage.

Debt-Service Ratio

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.

Deposit

A sum of money deposited in trust by the purchaser when making an offer to be held in trust by the seller's agent, broker, lawyer or notary until the closing of the transaction.
Equity 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.

Fire Insurance

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.
Firm Offer An offer to buy the property as outlined in the Offer to Purchase with no conditions attached.

Fixed Rate Mortgage

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 on payments.

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 income.

High Ratio Mortgage

If you don't have 25% of the lessor of the purchase price or appraised value of the property, your mortgage must be insured against payment default by a Mortgage Insurer, such as CMHC.

Holdback

An amount of money withheld by the lender during the construction or renovation of a house to ensure that construction is satisfactorily completed at every stage. The amount of holdback is generally equivalent to the estimated cost to complete construction.
Inspection The examination of the house by an expert selected by the purchaser.

Maturity Date

Last day of the term of the mortgage agreement.

Mortgage 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.

Mortgage Life Insurance

A form of reducing term insurance recommended for all mortgagors. In the event of the death of the owner or one of the owners, the insurance pays the balance owing on the mortgage. The intent is to protect survivors from loss of their home.

Open Mortgage

A mortgage which can be prepaid at anytime without penalty.

Pre-approved Mortgage

Preliminary approval by the lender of the borrower's application for a mortgage to a certain maximum amount and rate.

Pre-payment Penalty

A fee charged by the lender when the borrower prepays all or part of a closed mortgage more quickly than as set out in the mortgage agreement.

Principal

The mortgage amount actually borrowed.

Refinance

To renegotiate your existing mortgage agreement and may include increasing the principal or paying out the mortgage in full.

Renewal

At the end of a mortgage term, the mortgage may "roll over" on new terms and conditions acceptable to both the lender and the borrower. This is known as renewing a mortgage. If satisfactory terms cannot be agreed upon, the lender is entitled to be repaid in full. In this case, the borrower may seek alternative financing.

Prepayment Option

The right to prepay all or portion of the principal balance. Prepayment charges may be incurred on the exercise of prepayment options.

Second Mortgage

This is usually at a higher interest rate and represents the difference between the appraised value of the house and first mortgage financing plus the downpayment.

Security

In the case of mortgages, property offered as collateral for the loan.

Term

The length of the current mortgage agreement. A mortgage may be amortized over a long period (such as 25 years) with a shorter term (six months to five years or more). After the term expires, the balance of the principal then owing on the mortgage can be repaid or a new mortgage agreement can be entered into at the then current interest rates.

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 for which the rate of interest changes as money market conditions change. The regular payments stay the same for the term. However, the amount applied towards the principal changes according to the change (if any) in the interest rate. Also referred to as a floating rate mortgage.