Glossary

Accelerated Payment: Allows borrowers to make additional payments, reducing the principal faster than scheduled.

Adjustable-Rate Mortgage (ARM): Features an interest rate that fluctuates periodically based on market conditions.

Agreement of Purchase and Sale: Legally binding contract detailing the terms of a property transaction between buyer and seller.

Amortization: The total duration required to fully repay a mortgage, typically spanning up to 25 years in Canada.

Annual Percentage Rate (APR): Represents the total yearly cost of a mortgage, including interest and fees, expressed as a percentage.

Appraisal: Professional assessment to determine a property’s current market value.

Arrears: Indicates a state where mortgage payments are overdue or behind schedule.

Assumable Mortgage: Can be transferred from the property seller to the buyer, maintaining existing terms.

Balloon Payment: A substantial, one-time payment required at the conclusion of a mortgage term.

Bankruptcy: Legal procedure for individuals or businesses unable to meet their debt obligations.

Basis Point: Represents one-hundredth of a percentage point, used to denote interest rate changes.

Beacon Score: Specific type of credit score utilized by lenders to evaluate creditworthiness.

Blended Mortgage: Combines the interest rates of an existing mortgage with a new one.

Bridge Financing: Short-term loan covering the gap between purchasing a new home and selling the current one.

Buy-Down: Strategy where the buyer pays additional points upfront to secure a lower interest rate.

Cap: Limits the maximum increase an interest rate can undergo in an adjustable-rate mortgage.

Cash-Back Mortgage: Provides the borrower with a cash rebate upon mortgage closing.

Chattel Mortgage: Secures a loan against movable personal property rather than real estate.

Clear Title: Indicates property ownership free from legal claims or encumbrances.

Closing: Final stage of a real estate transaction where property ownership is officially transferred to the buyer.

Closing Costs: Expenses incurred when finalizing a property purchase, including legal fees and taxes.

Collateral: Asset pledged to secure a loan, typically the property itself in mortgage agreements.

Commitment Letter: Formal document from a lender offering a mortgage loan under specified conditions.

Compound Interest: Calculated on both the principal amount and previously accumulated interest.

Conditional Offer: Property purchase offer that includes specific conditions that must be satisfied.

Conventional Mortgage: Requires a down payment of at least 20%, eliminating the need for mortgage default insurance.

Convertible Mortgage: Allows transition from a variable to a fixed interest rate during the mortgage term.

Counteroffer: Response to an initial offer that proposes alternative terms or conditions.

Credit Report: Comprehensive record of an individual’s credit history and financial behaviour.

Credit Score: Numerical representation of creditworthiness, influencing loan approvals and interest rates.

Debt Consolidation: Process of merging multiple debts into a single loan, often at a lower interest rate.

Debt-Service Ratio: Percentage of income allocated to cover housing costs and other debt payments.

Deed: Legal document that transfers property ownership from one party to another.

Default: Failure to fulfill the terms of a mortgage agreement, typically through missed payments.

Delinquency: State of being late on mortgage payments, potentially leading to default.

Down Payment: Initial upfront payment when purchasing a home, typically at least 5% of the purchase price in Canada.

Easement: Grants the right to use another person’s land for a specific purpose.

Encumbrance: Any claim, liability, or restriction attached to a property.

Equity: Difference between a property’s market value and the outstanding mortgage balance.

Escrow: Third-party account holding funds or documents until specific conditions are met in a transaction.

Fixed-Rate Mortgage: Maintains a constant interest rate throughout the entire mortgage term.

Foreclosure: Legal process allowing a lender to take possession of a property due to mortgage default.

Gross Debt Service (GDS) Ratio: Percentage of gross monthly income used for housing costs, ideally not exceeding 32%.

Guarantee: Third-party promise to repay a loan if the primary borrower defaults.

HELOC (Home Equity Line of Credit): Revolving credit line secured against a property’s equity.

High-Ratio Mortgage: Involves a down payment less than 20%, requiring mortgage default insurance.

Home Inspection: Thorough examination of a property’s condition conducted by a qualified professional.

Interest Rate: Percentage charged on borrowed funds, affecting monthly mortgage payments.

Lien: Legal claim against a property for unpaid debts or obligations.

Loan-to-Value (LTV) Ratio: Compares the mortgage amount to the property’s appraised value or purchase price.

Lock-In: Guarantees a specific interest rate for a set period during the mortgage process.

Maturity Date: Marks the end of a mortgage term, requiring renewal or full repayment.

Mortgage Broker: Professional who assists in finding and negotiating mortgage terms with various lenders.

Mortgage Default Insurance: Required for high-ratio mortgages to protect lenders in case of borrower default.

Mortgage Life Insurance: Pays off the mortgage balance in the event of the borrower’s death.

Negative Amortization: Occurs when the principal balance of a loan increases due to insufficient payments.

Open Mortgage: Allows full repayment at any time without incurring penalties.

Payment Frequency: Determines how often mortgage payments are made, such as monthly or bi-weekly.

PITI: Acronym for Principal, Interest, Taxes, and Insurance – the main components of a typical mortgage payment.

Porting: Process of transferring an existing mortgage to a new property.

Power of Sale: Clause allowing the lender to sell the property if the borrower defaults on the mortgage.

Pre-Approval: Preliminary assessment by a lender indicating the maximum mortgage amount a borrower may qualify for.

Prepayment: Paying off a portion of the mortgage before it’s due.

Prepayment Penalty: Fee charged for early mortgage repayment before the term ends.

Principal: Original loan amount borrowed, excluding interest.

Private Mortgage Insurance (PMI): Insurance some lenders require for high-ratio mortgages.

Refinancing: Replacing an existing mortgage with a new one, often to secure better terms or access equity.

Reverse Mortgage: Allows homeowners to borrow against their home equity without monthly payments.

Second Mortgage: Additional loan secured against a property, subordinate to the first mortgage.

Security: Asset pledged to guarantee loan repayment, typically the mortgaged property.

Stress Test: Financial assessment ensuring borrowers can afford mortgage payments if interest rates increase.

Subordination: Process of ranking multiple loans on a property in order of priority.

Survey: Document illustrating a property’s boundaries and measurements.

Term: Duration of the current mortgage agreement, usually ranging from 1 to 5 years.

Title: Legal right of ownership to a property.

Title Insurance: Protects against losses due to property ownership disputes or title defects.

Total Debt Service (TDS) Ratio: Percentage of gross income required to cover all debt payments, including housing costs.

Underwriting: Process of evaluating a loan application to determine the lender’s risk.

Variable-Rate Mortgage: Features an interest rate that fluctuates based on market conditions.

Vendor Take-Back Mortgage: Mortgage provided by the property seller to the buyer.

Wraparound Mortgage: Encompasses the remaining balance of an existing mortgage plus an additional amount.