Glossary

Accelerated biweekly payment A biweekly payment schedule that demands payments 26 times per year. This is a popular option as it often coincides with payroll. It also pays down your mortgage more quickly than monthly or bimonthly payments
Adjustable rate mortgage (ARM) A mortgage with a rate based on Bank Prime rate. Subject to fluctuations. Also called variable rate.
Adjustment A calculation which pro-rates items paid and unpaid at the time of a real estate transaction, ensuring you only pay starting the day you take possession of the property. Usually performed by your lawyer.
Agreement of Purchase and Sale The legally binding agreement to purchase a property, made between a seller and buyer of a home.
Amortization period The time it would take to pay off the mortgage in full, assuming payments remain the same.
Appraisal An assessment of the value of the property.
Assumable mortgage An agrement to take over an existing mortgage when you buy a property. You would still have to qualify.
Bank A bank is a financial institution which can lend money, take deposits, has investment services, usually branch locations
Bridge Financing, or Bridge Loan A short term loan to cover mortgage payments when you buy a property before you can sell yours, and are unable to use the proceeds of your sale.
Closed mortgage A mortgage agreement where the rate, term, and prepayment priveleges are not modifiable before the end of the term, often incurring penalties when renegotiated
Closing costs Expenses paid upon the finalization of a property purchase. These could include land transfer tax, legal fees, costs associated with possession of the property, moving costs, etc.
CMHC Canada Mortgage and Housing Corporation. *link*
Collateral Something of value that is held for security. In the case of an auto loan, it’s the vehicle.
Collateral mortgage A different way of registering security against your home. The lender directly puts a lien on your property. Most commonly seen with HELOC’s.
Conditional offer An offer to a seller of a property that has conditions attached, and a time frame in which to meet those conditions. i.e. 10 days to arrange financing
Conventional mortgage A mortgage for less than 80% of the purchase price. Not subject to default insurance premiums. Also known as low ratio mortgage.
Convertible mortgage A convertible mortgage has the flexiblity to be modified before the end of the term. An example is the privelige to convert a VRM to a FRM at anytime, without penalty.
Credit bureau The agency that retains your credit history on file and provides the report.
Credit score, a.k.a. FICO or beacon score A numeric value that summarizes how ideal you are as a borrower.
Credit report the report that is kept on file with the credit bureau. It can be viewed by you or a lender.
Credit history A running history of all of the credit you’ve been extended in your lifetime, including late payments and balances. Also referred to in a slang sense as the ‘credit bureau’.
Debt service ratio A formula for assessing how much of your income is used to pay debt, expressed as a percentage
Default Failure to pay a debt, in this case, a mortgage
Deposit A deposit is usually required a show of good faith when making a serious offer on a property, held in trust by the seller’s lawyer, later to be deducted from the purchase price
Disbursements When your lawyer pays out on your behalf. i.e a disbursement might be a cheque written to a creditor in the event of consolidation, or to a bank to pay out a mortgage.
Down Payment The amount of money (cash) you contribute to the price of home you’ve purchased
Equity The amount of value you own outright on your home. The value of the home minus all collateral debt owed (mortgage, HELOC)
Fire Insurance A policy protecting you and the lender from a catastrophic loss of the  home
Firm Offer An offer to purchase a property which has been accepted and has no conditions attached.
Fixed Rate Mortgage A mortgage with a rate that will not change for the duration of its term
Foreclosure The legal process where the lender will take possession of your home in the event of default
GDS or Gross Debt Service (ratio) A benchmark to determine if your income can sufficiently cover the costs associated with home ownership. The general rule is that the monthly cost which includes you mortgage payment, heat, property tax, and condo fees will not exceed 32% of your gross monthly income.
Gross Before taxes. Used to differentiate from Net (after taxes and expenses)
High Ratio Mortgage A mortgage for more than 80% of the purchase price. Will always require mortgage default insurance.
Interest adjustment date The effective date your mortgage begins and starts to accrue interest
Interest rate differential The benchmark used to calculate the penalty to break a mortgage early. It is based on your rate against the current rate, multiplied by a factor of how much time is left on the mortgage. You will either pay this or three months’ interest, whichever is greater.
Lender A financial institution primarily in the business of lending, particularly mortgages. Unlike a bank, consumer products are typically not offered
Lien The legal right to an asset in the event that a loan is not paid. Liens are removed when the debt is paid and the security discharged.
Maturity Date The day your mortgage agreement expires. This is the time you will renew your mortgage and renegotiate a new agreement.
Mortgage A specialized loan from a lending institution to finance the purchase of a home.
Mortgage agent A licensed professional who carries out the duties of the mortgage brokerage. Commonly acting as a liason between borrower and lender. Also mistakenly known as a mortgage broker but cannot legally call themselves as such.
Mortgage broker A specialized license which is more comprehensive than the agent licensing. A broker may be responsible for agents.
Mortgage creditor insurance Insurance which may service or pay off your mortgage debt in the event of illness or death. Similar in some ways to life insurance.
Mortgage default insurance Insurance which protects the lender in the event you fail to pay your mortgage debt.
Open mortgage Open mortgages can be paid off or converted at any time, generally without penalty.
P.I.T.H formula The criteria used to calculate GDS;  P (principal) + I (interest) + T (taxes) + H (heating) = your monthly expenses.
Payment frequency The schedule you choose to pay your mortgage, i.e. Monthly, bimonthly, biweekly, weekly
Penalty A fee paid to a lender should you break your mortgage agreement before the term is up. It is usually calculated as 3 months interest, or IRD (see above); whichever is the higher amount. Fixed rate and closed mortgages usually come with this clause.
Porting The feature of a mortgage to move the same mortgage (term and rate) to a new property.
Potability certificate A certificate of water testing done on a well to show that the water is safe for human consumption.
Pre approval A qualification process to assess your income and set a budget for the homebuying process
Prepayment charge A penalty amount you might have to pay for overpaying a set amount on your mortgage
Prepayment priveges Allowances you have to pay extra on your mortgage without penalty, for example a yearly 10% lump sum payment, or doubling up payments
Prime rate The base interest rate set by the bank on which VRM rates are calculated
Principal The portion you borrowed on your mortgage and owe to the bank. Interest is calculated on how much principal is owed.
Rate The interest rate that determines how much you pay to borrow your mortgage loan.
Refinance Re-borrowing on your existing mortgage or re-mortgaging to obtain funds against the equity of your home
Renewal When your term expires and you have to negotiate a new mortgage
Security When a lender considers something you own in the event you fail to pay a debt.
Septic inspection proof that your septic tank is structurally sound and in safe working condition
TDS ratio A benchmark to determine if your income is sufficient to service (pay) all your debts at a ratio of no higher than 40% of your gross income
Term The length of time your mortgage agreement (rate) is valid for. Typically 3, 4, or 5 year terms are common.
Title The right to own a particular property. Title (ownership) is registered in a central database by your lawyer or title insurer.
Title insurance Insurance which protects your right to ownership against fraud or registry error
Variable rate mortgage A mortgage with a fluctuating interest rate, tied to bank prime. Also known as an ARM or VRM.
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