Glossary

Glossary of Terms

Provision in a mortgage that allows the lender to demand payment of the entire principal balance if a monthly payment is missed or some other default occurs.
A way to reduce the remaining balance on the loan by paying more than the scheduled principal amount due.
A mortgage with an interest rate that changes during the life of the loan according to movements in an index rate. Sometimes called AMLs (adjustable mortgage loans) or VRMs (variable-rate mortgages).
The cost of a property plus the value of any capital expenditures for improvements to the property minus any depreciation taken.
The date that the interest rate changes on an adjustable-rate mortgage (ARM).
The period elapsing between adjustment dates for an adjustable-rate mortgage (ARM).
An analysis of a buyers ability to afford the purchase of a home. Reviews income, liabilities, and available funds, and considers the type of mortgage you plan to use, the area where you want to purchase a home, and the closing costs that are likely.
The gradual repayment of a mortgage loan, both principle and interest, by installments.
The length of time required to amortize the mortgage loan expressed as a number of months. For example, 360 months is the amortization term for a 30-year fixed-rate mortgage.
The cost of credit, expressed as a yearly rate including interest, mortgage insurance, and loan origination fees. This allows the buyer to compare loans, however APR should not be confused with the actual note rate.
A written analysis prepared by a qualified appraiser and estimating the value of a property.
An opinion of a property’s fair market value, based on an appraiser’s knowledge, experience, and analysis of the property.
Anything owned of monetary value including real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, etc.).
The transfer of a mortgage from one person to another.
An assumable mortgage can be transferred from the seller to the new buyer. Generally requires a credit review of the new borrower and lenders may charge a fee for the assumption. If a mortgage contains a due-on-sale clause, it may not be assumed by a new buyer.
The fee paid to a lender (usually by the purchaser of real property) when an assumption takes place.
A financial statement that shows assets, liabilities, and net worth as of a specific date.
A mortgage with level monthly payments that amortizes over a stated term but also requires that a lump sum payment be paid at the end of an earlier specified term.
The final lump sum paid at the maturity date of a balloon mortgage.
Income before taxes are deducted.
A plan to reduce the debt every two weeks (instead of the standard monthly payment schedule). The 26 (or possibly 27) biweekly payments are each equal to approx. one-half of the monthly payment required if the loan were a standard fixed-rate mortgage. The result for the borrower is a substantial savings in interest.
A second trust that is collateralized by the borrower’s present home allowing the proceeds to be used to close on a new house before the present home is sold. Also known as interim financing or “swing loan.”
An individual or company that brings borrowers and lenders together for the purpose of loan origination.
When the seller, builder or buyer pays an amount of money up front to the lender to reduce monthly payments during the first few years of a mortgage. Although uncommon, buydowns can occur in both fixed and adjustable rate mortgages.
The frequency of payment and/or interest rate changes in a mortgage. (weekly, bi-weekly, semi-monthly, monthly)
A meeting held to finalize the sale of a property. The buyer signs the mortgage documents and pays closing costs. Also called “settlement.”
These are expenses – over and above the price of the property – that are incurred by buyers and sellers when transferring ownership of a property. Closing costs normally include an origination fee, property taxes, charges for title insurance and legal costs, appraisal fees, etc. Closing costs will vary according to the area country and the lenders used.
Interest paid on the original principal balance and on the accrued and unpaid interest.
A report detailing an individual’s credit history that is prepared by a credit bureau and used by a lender to determine a loan applicant’s creditworthiness.
A credit score measures a consumer’s credit risk relative to the rest of the Canadian population, based on the individual’s credit usage history. The credit scores most widely used by lenders are the Equifax and TransUnion scores. This 3-digit number, ranging from 300 to 850, is calculated by a mathematical equation that evaluates information on your credit report. Higher scores represents lower credit risks, which typically equate to better loan terms. In general, credit scores are critical in the mortgage loan underwriting process.
Failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage.
Failure to make mortgage payments on time.
This is a sum of money given to bind the sale of real estate, or a sum of money given to ensure payment or an advance of funds in the processing of a loan.
Part of the purchase price of a property that is paid in cash and not financed with a mortgage.
A borrowers normal annual income, including overtime that is regular or guaranteed. Salary is usually the principal source, but other income may qualify if it is significant and stable.
The amount of financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on the mortgage.
An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit of funds or documents into an escrow account to be disbursed upon the closing of a sale of real estate.
The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.
The part of a mortgagor’s monthly payment that is held by the servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due.
The primary lien against a property.
The monthly payment due on a mortgage loan including payment of both principal and interest.
A mortgage interest that are fixed throughout the entire term of the loan.
A fixed-rate mortgage that provides scheduled payment increases over an established period of time. The increased amount of the monthly payment is applied directly toward reducing the remaining balance of the mortgage.
A mortgage that is guaranteed by a third party.
The percentage of gross monthly income budgeted to pay housing expenses.
The index is the measure of interest rate changes a lender uses to decide the amount an interest rate on an ARM will change over time.The index is generally a published number or percentage, such as the average interest rate or yield on Treasury bills. Some index rates tend to be higher than others and some more volatile.
This refers to the original interest rate of the mortgage at the time of closing. This rate changes for an adjustable-rate mortgage (ARM). It’s also known as “start rate” or “teaser.”
The regular periodic payment that a borrower agrees to make to a lender.
A mortgage that is protected by the CMHC (or Genworth, or Canada Guaranty).
The fee charged for borrowing money.
The percentage rate at which interest accrues on the mortgage. In most cases, it is also the rate used to calculate the monthly payments.
The maximum interest rate, as specified in the mortgage note.
The minimum interest rate, as specified in the mortgage note.
The penalty a borrower must pay when a payment is made a stated number of days after the due date.
An alternative financing option that allows low- and moderate-income home buyers to lease a home with an option to buy. Each month’s rent payment consists of principal, interest, taxes and insurance (PITI) payments on the first mortgage plus an extra amount that accumulates in a savings account for a downpayment.
A person’s financial obligations. Liabilities include long-term and short-term debt.
A limit on the amount that payments can increase or decrease over the life of the mortgage.
A limit on the amount that the interest rate can increase or decrease over the life of the loan.
An agreement by a bank or other financial institution to extend credit up to a certain amount for a certain time.
A cash asset or an asset that is easily converted into cash.
A sum of borrowed money (principal) that is generally repaid with interest.
The relationship between the principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property. For example, a $100,000 home with an $80,000 mortgage has an LTV of 80 percent.
The date on which the principal balance of a loan becomes due and payable.
A legal document that pledges a property to the lender as security for payment of a debt.
That portion of the total monthly payment that is applied toward principal and interest.
A company that originates mortgages exclusively for resale in the secondary mortgage market.
An individual or company that brings borrowers and lenders together for the purpose of loan origination.
A contract that insures the lender against loss caused by a mortgagor’s default on a government mortgage or conventional mortgage. Mortgage insurance can be issued by a private company or by a government agency.
The amount paid by a mortgagor for mortgage insurance.
A type of term life insurance. In the event that the borrower dies while the policy is in force, the debt is automatically paid by insurance proceeds.
The borrower in a mortgage agreement.
The value of all of a person’s assets, including cash.
An asset that cannot easily be converted into cash.
A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.
A fee paid to a lender for processing a loan application. The origination fee is stated in the form of points. One point is 1 percent of the mortgage amount.
A property purchase transaction in which the party selling the property provides all or part of the financing.
A point is equal to one percent of the principal amount of your mortgage. For example, if you get a mortgage for $165,000 one point means $1,650 to the lender.
A fee that may be charged to a borrower who pays off a loan before it is due.
The process of determining how much money you will be eligible to borrow before you apply for a loan.
The interest rate that banks charge to their preferred customers. Changes in the prime rate influence changes in other rates, including mortgage interest rates.
The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.
The outstanding balance of principal on a mortgage not including interest or any other charges.
The four components of a monthly mortgage payment. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the monthly cost of property taxes and homeowners insurance, whether these amounts that are paid into an escrow account each month or not.
Calculations used to determine if a borrower can qualify for a mortgage. They consist of two separate calculations: a housing expense as a percent of income ratio and total debt obligations as a percent of income ratio.
A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate and lender costs for a specified period of time.
A person licensed to negotiate and transact the sale of real estate on behalf of the property owner.
A real estate broker or an associate who is an active member in a local real estate board that is affiliated with the Canadian Real Estate Association.
Paying off one loan with the proceeds from a new loan using the same property as security.
A credit arrangement, such as a credit card, that allows a customer to borrow against a pre-approved line of credit when purchasing goods and services.
Where existing mortgages are bought and sold.
The property that will be pledged as collateral for a loan.
An agreement in which the owner of a property provides financing, often in combination with an assumable mortgage. See Owner Financing. Also known as a “vendor take back” mortgage, (VTB).
The method used to determine the monthly payment required to repay the remaining balance of a mortgage in substantially equal installments over the remaining term of the mortgage at the current interest rate.
Total obligations as a percentage of gross monthly income including monthly housing expenses plus other monthly debts.
The process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower’s creditworthiness and the quality of the property itself.The process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower’s creditworthiness and the quality of the property itself.