Mortgage Glossary

Print this list to use as a reference as you make mortgage inquiries.

Amortization:
The length of time it will take to pay off the mortgage in its entirety.

Appraisal:
Lenders require an independent assessment of the value of the home you are buying before agreeing to finance the purchase. The cost of this is typically the only cost associated with qualifying for a residential mortgage.

Capped Rate
An interest rate with a pre-determined ceiling - usually associated with a variable-rate mortgage.

Closed Mortgage:
With a closed mortgage, an interest penalty may be charged to pay off or pay down the mortgage.

Closing Costs:
Costs that are in addition to the purchase price of a property and which must be paid on the closing date. Examples include legal fees, land transfer taxes, and disbursements.

Closing Date:
The date on which the sale becomes final, the new owner takes possession of the property and funds are transferred from the purchaser to the vendor.

CMHC Insurance:
Backed by 60 years of experience CMHC works with community organizations, the private sector, non-profit agencies and all levels of government to help create innovative solutions to today's housing challenges, anticipate tomorrow's needs, and improve the quality of life for all Canadians.

Commitment Letter:
A letter outlining the amount, terms and conditions under which a lender is willing to offer a mortgage.

Conventional Mortgage:
A mortgage where the borrower is contributing more than 20% or more of the value of the property as the down payment.

Convertible Mortgage:
A mortgage that you can change from short-term to long-term, depending on your financial needs.

Fixed Interest Rate:
A fixed interest rate remains the same throughout the term of the mortgage.

High-Ratio Mortgage:
Allows you to borrow more than 80% of the value of the property. A high-ratio mortgage must be insured through an insurer like CHMC, Genworth financial and AIG. This fee can be added to the amount borrowed.

Home Inspection:
A visual inspection of the major components of a home by a qualified individual, who will give the home buyer a true and unbiased picture of the home's condition.

Home Insurance:
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.

Interest Adjustment:
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.

Interest Adjustment Date:
Most lenders prefer to have mortgage payments come due on the first of the month. But if your home purchase closes on another date, the funds are disbursed on that date. In order to keep your regular payment date on the first of the month, lenders ask you to make an interest adjustment payment. It's paid on the closing date by cheque or by deduction from the mortgage advance and covers the interest owed for the number of days between the closing date and the end of the month.

Land Transfer Tax:
A tax that is levied (in some provinces) on any property that changes hands.

Lump Sum Payment:
An extra payment that you make to reduce the amount of your mortgage. This is the same as pre-paying, which is determined by the prepayment clause in your mortgage.

Mortgagee/Mortgagor:
Mortgagee is the lender; mortgagor is the borrower.

Mortgagee/Mortgagor:
Mortgagee is the lender; mortgagor is the borrower.

Mortgage Broker:
A company or individual who helps the homeowner find the right financing to buy a property. A broker does not actually lend money but seeks out a lender and arranges the mortgage terms. This may include negotiating with the lender for the best possible deal for the homebuyer.

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.

Office to Purchase/Conditional Offer:
A written contract outlining the terms under which the buyer agrees to purchase the property. There may be conditions attached to the offer, for example: offer being subject to arranging the mortgage or selling a home.

Portability:
The ability to transfer your mortgage, including rate and terms, from your existing property to a new property.

Prepayment Clause:
A clause in a mortgage agreement that lets you pay off all or part of the mortgage before the maturity date.

Rate Commitment:
How long a lender is willing to offer you the prevailing interest rate. Can vary from 30 to 180 days.

Refinancing:
Increasing the amount of your current mortgage, at a new interest rate. The term of the new mortgage must be equal to or greater than the term remaining on your current mortgage.

Renewal/Renewing:
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 outstanding balance.

Sales Taxes:
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 an offer.

Service Charges:
The extra costs payable for hooking up hydro, gas, phone, etc. to a new address.

Tax Hold Back:
When your property taxes are included with your mortgage payments, your lender will hold back funds from your disbursement to cover interim or final taxes payable to the municipality. The amount depends on the month the mortgage was funded and on the dates when interim and final taxes are due. Hold backs are used to pay for the current year's taxes, while your monthly tax installments are accumulated in an account to pay for the next year's tax bills.

Term:
The length of time a mortgage has been committed for. The interest rate usually remains constant during this term unless the commitment states otherwise.

Variable Interest Rate:
A variable interest rate floats or varies during the term of the mortgage. If the interest rate increases, then more of your payment goes toward the interest and less towards the prinicipal.

Weekly and Biweekly Payments:
You can usually choose to make your mortgage payments once a week or once every two weeks. This accelerates the reduction of your mortgage because you are making the equivalent of one extra monthly payment per year. Reducing the outstanding balance of your mortgage at this faster rate saves you interest.