Mortgage Dictionary

Your Guide to Key Mortgage-Related Terms and Definitions

Adjustable-rate mortgage (ARM)

A mortgage with an interest rate that can adjust periodically over the life of the loan based on changes in a specified financial index.

Amortization

This refers to the process of gradually paying off a mortgage loan over a set period of time, typically in equal installments. The amortization period is the length of time it will take to fully pay off the mortgage, which can range from a few years to several decades.

Appraised Value

This is the estimated value of a property, as determined by a professional appraiser. The appraised value is typically based on factors such as the property’s size, location, condition, and comparable sales in the area.

Blended Mortgage Payment

This is a type of mortgage payment that combines both the principal and interest payments into a single payment. The blended payment is designed to make it easier for homeowners to manage their mortgage payments, as they don’t have to worry about separate payments for principal and interest.

Bridge Financing

This refers to a short-term loan that is designed to help bridge the gap between the purchase of a new property and the sale of an existing property. Bridge financing can be helpful for homeowners who need to access funds quickly to purchase a new home before their current home has sold.

CMHC

This stands for the Canada Mortgage and Housing Corporation, which is a government-owned organization that provides mortgage loan insurance for homebuyers in Canada. CMHC insurance is typically required for homebuyers who are unable to make a down payment of 20% or more.

Closed Mortgage

This is a type of mortgage that cannot be paid off, renegotiated or refinanced before the end of the term without incurring a penalty. This type of mortgage typically has a lower interest rate than an open mortgage, but may not be as flexible in terms of prepayment options.

Closing Date

This is the date on which the home purchase transaction is finalized and the ownership of the property is transferred from the seller to the buyer. On the closing date, all necessary paperwork is signed, and the funds are transferred from the buyer to the seller. The closing date is usually specified in the purchase agreement and can be several weeks or months after the offer is accepted.

Conventional Mortgage

A conventional mortgage is a mortgage loan that is not insured or guaranteed by a government agency such as the Canada Mortgage and Housing Corporation (CMHC). This means that the lender assumes the risk of default and typically requires a larger down payment and a higher credit score than an insured mortgage. A conventional mortgage is often used for higher-priced homes, and the lender may require an appraisal of the property to determine its value.

Conveyance

Conveyance refers to the legal process of transferring the ownership of a property from one party to another. It involves the preparation and signing of legal documents, such as a deed or a transfer of land, and the registration of the transfer with the appropriate government agency. The conveyance process is usually handled by a lawyer or notary, who ensures that all the legal requirements are met and that the transfer is valid and enforceable.

Co-signer

A mortgage co-signer is someone who agrees to take on equal responsibility for the repayment of a mortgage loan with the primary borrower. This means that if the primary borrower is unable to make their mortgage payments, the co-signer is equally responsible for making those payments.

Deed

A deed is a legal document that proves ownership of a property. In the context of a mortgage, the deed is the document that transfers ownership of the property from the seller to the buyer (the mortgagor). The lender (the mortgagee) will hold the deed as security for the mortgage until it is paid off in full.

Deposit

A deposit is a sum of money that a buyer pays to a seller as a sign of their intention to purchase a property. In the context of a mortgage, a deposit is usually paid when an offer to purchase a property is accepted by the seller. The deposit is held in trust by the seller’s real estate agent or lawyer until the closing date, at which point it is applied toward the down payment on the property.

Discharge

A discharge is a legal document that releases the mortgagor from their obligations under the mortgage once it has been paid off in full. The lender (the mortgagee) will provide the discharge to the mortgagor once the final payment has been made, and it will be registered with the land registry office to remove the mortgage from the title of the property. This allows the mortgagor to take full ownership of the property without any encumbrances.

Down Payment

Refers to the initial amount of money put towards the purchase of a home, typically expressed as a percentage of the total purchase price. This amount is deducted from the total cost of the home, and the remaining amount is usually financed through a mortgage. Canadian homebuyers may be required to pay a minimum down payment based on the purchase price and type of property.

Equity

Refers to the amount of ownership in a property that belongs to the homeowner. Equity is the difference between the market value of the home and the amount owed on the mortgage. As the homeowner pays down the mortgage or the property value increases, the equity in the home grows.

First Mortgage

Refers to the primary loan used to buy a home. Usually, first mortgages have a higher priority than any other mortgages taken on the same property. In Canada, first mortgages may be fixed or variable-rate loans and can be obtained from various lenders such as banks, mortgage brokers, and credit unions.

Fixed Rate Mortgage

Refers to a type of mortgage that has a fixed interest rate for the lifetime of the loan, usually spanning 1 to 10 years, depending on the term of the mortgage. This means the interest rate and the mortgage payments will stay the same for the entire term of the mortgage, regardless of fluctuations in the market interest rates. Fixed-rate mortgages provide homebuyers with the certainty of knowing what their mortgage payments will be each month, making budgeting and financial planning easier.

Gross Debt Service Ratio

A financial calculation used to determine the maximum amount of debt that a borrower can afford based on their income and expenses. The GDSR is calculated by dividing the borrower’s monthly housing costs (including mortgage payments, property taxes, heating expenses, and condo fees, if applicable) by their gross monthly income.

Halal Mortgages

Halal mortgages offer a way for Muslims to buy homes without going against their religious beliefs. Unlike regular mortgages, which involve interest, Halal mortgages follow Islamic principles. They might cost more because they share risks between the lender and the buyer. But for many Muslims, staying true to their faith is more important than the cost. Let’s explore how these mortgages work and why they matter to Muslim homebuyers.

High Ratio Mortgage

A type of mortgage where the loan-to-value ratio (LTV) is above 80%, meaning the borrower has a down payment of less than 20%. High-ratio mortgages require mortgage insurance and are typically offered by lenders through the Canada Mortgage and Housing Corporation (CMHC) or other insurers.

Lien

A legal claim on a property that secures a debt owed by the property owner, such as a mortgage or a tax lien.

Lending Value

The value of a property that a lender is willing to lend against. This value is determined by the lender’s assessment of the property’s market value, location, zoning, comparable sales, and other factors.

Loan To Value Ratio (LTV)

A financial ratio is used to assess the risk of a mortgage. It is calculated by dividing the amount of the mortgage loan by the appraised value or purchase price of the property, whichever is lower. Higher LTV ratios indicate a higher risk for the lender.

Maturity Date

The date when a mortgage loan must be fully repaid or renewed. This date is set when the mortgage is first created and depends on the length of the mortgage term, which can range from six months to 10 years.

Mortgage Payment

The monthly amount that a borrower is required to pay to the lender to repay the mortgage loan.

Mortgagee

The lender of a mortgage loan, who provides the funds to purchase the property.

Mortgage Lender

An institution or individual who provides a mortgage loan, such as a bank, credit union, mortgage broker, or private lender.

Mortgagor

The borrower of a mortgage loan who uses the funds to purchase the property.

Mortgage Banker

A type of lender who originates mortgage loans and then sells them to investors.

Mortgage Broker in Toronto

An intermediary who connects borrowers with lenders in Canada and helps negotiate the terms of the mortgage loan.

Open Mortgage

A type of mortgage that allows the borrower to repay the mortgage loan at any time.

Power of Attorney

A legal document that grants someone the authority to act on behalf of another person, such as signing mortgage documents.

Pre-Approval

The process in which a lender evaluates a borrower’s creditworthiness and determines the maximum amount the borrower can borrow for a mortgage loan.

Prepayment Options

A feature of a mortgage loan that allows the borrower to make extra payments towards the principal balance of the loan before the due date, potentially resulting in a lower overall interest paid.

Principal

The amount of money that a borrower borrows for a mortgage. The principal balance decreases over time as the borrower makes payments toward the loan.

Private Mortgages

These are mortgages provided either by Mortgage Investment Corps. or individuals.

Purchase Financing

Home purchase financing refers to the process of getting a loan to buy a home. The borrower agrees to pay back the borrowed amount plus interest and fees over a set period of time. Different types of loans, such as fixed or variable rate loans, are available for home purchase financing from various sources, such as banks, credit unions, or other financial institutions.

Second Mortgage

A type of loan where a borrower takes out a second mortgage on a property that is already mortgaged with a primary mortgage.

Security

An asset or collateral pledged as a guarantee for a mortgage loan. The lender can seize the security if the borrower fails to repay the loan.

Term

The length of time for which a mortgage loan is issued. The term can range from six months to 10 years, after which the mortgage loan can be renewed or paid off.

Title

A legal document that establishes ownership of a property.

Title Insurance

Insurance that protects against financial loss due to defects in a property’s title, such as undisclosed liens or ownership disputes.

Title Search

A legal process of reviewing public records to confirm ownership of a property and ensure there are no outstanding liens or disputes.

Total Debt Service Ratio

A financial calculation used to determine the maximum amount of debt that a borrower can afford based on their income and expenses. The TDSR is calculated by dividing the borrower’s total monthly debt obligations by their gross monthly income.

Underwater Mortgage

A mortgage where the outstanding balance is higher than the current market value of the property, making it difficult to refinance or sell.

Underwriting

The process of assessing a borrower’s eligibility for a mortgage, including reviewing their credit history, income, and other financial factors.

Variable Rate Mortgage

A type of mortgage loan in which the interest rate fluctuates based on market conditions, rather than remaining fixed.

Vendor

The seller of a property that is being purchased.

Yield

The return on investment that lenders receive from a mortgage usually expressed as a percentage of the loan amount.