Glossary
Adjustable Rate Mortgage (ARM)
A mortgage for which the interest rate changes according to market conditions. The regular monthly payments normally remain the same, however the amount applied towards principal changes according to changes in the interest rate. See also variable rate mortgage (VRM).
Amortization Period
Time period it takes to repay the mortgage loan in full with regular specified payments.
Appraisal
The determination of property value based on recent sales information of similar properties.
Assumable Mortgage
These mortgages can be passed on from a seller of a home to the buyer. The buyer assumes all outstanding payments. The buyer usually must meet the lender’s qualification requirements to assume to the mortgage.
Blanket Mortgage
A mortgage secured by more than one property.
Bridge Mortgage
A mortgage secured to solve short term financing problems.
Closed Mortgage
A mortgage agreement that cannot be prepaid, renegotiated or refinanced before maturity except upon payment of a prepayment penalty.
Closing Date
The date on which the sale of a property becomes final and the new owner usually take possession
Commitment
A written letter of agreement detailing the terms and conditions by which the lender will lend and the borrower will borrow funds to finance a home.
Conditional Offer
An agreement of purchase and sale which is subject to conditions. These conditions may relate to financing, sale of an existing home, a home inspection, etc. There is usually a time period which is specified during which these conditions must be met.
Construction Mortgage
A short term mortgage for funding the cost of construction. The lender advances funds as the work progresses.
Conventional Mortgage
A mortgage loan which does not exceed 75% of the appraised value or purchase price of the property, whichever is the lesser of the two. Traditional mortgages that exceed this limit must be insured.
Deposit
A sum of money deposited in trust by the purchaser when making an offer to be held in trust by the seller’s agent, broker, lawyer, or notary until the closing of the transaction.
Discharge
The removal of all mortgages and financial encumbrances on a property.
Equity
The interest of the owner in a property over and above all claims against the property. It is usually the difference between the market value of the property and any outstanding encumbrances.
Firm Offer
An offer to purchase the property as outlined in the agreement of purchase and sale, with no conditions attached.
First Mortgage
A mortgage that has priority over any other mortgages on the property.
Fixed Rate Mortgage
A mortgage for which the rate of interest is fixed for a specific period of time (the term).
Gross Debt Service Ratio
The percentage of gross income required to cover monthly payments associated with housing (mortgage principal and interest, taxes, heat, condo fees (50%), and secondary financing). Most lenders prefer that the GDS ratio not exceed 44%.
High Ratio Mortgage
A mortgage that is more than 75% of the purchase price or appraised value of the property (lesser of the two). In this case the mortgage must be insured against payment default by a mortgage insurer, such as Genworth , CMHC or United Guaranty.
Interest Only Mortgage
A mortgage that calls for payments of interest only, not to include any amount for principal.
Interest Rate
The percentage of an amount of money that is paid for its use over a specified period of time.
LTV
Loan-to-Value Ratio The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.
Maturity Date
The last day of the term of the mortgage agreement.
Mortgage Insurance Premium
A premium which is generally added to the mortgage and paid by the borrower over the life of the mortgage. The mortgage insurance is provided to the lender by Genworth, CMHC or United Guaranty, and insures the lender against loss in case of default by the borrower.
Mortgagee
The lender.
Mortgagor
The borrower.
Open Mortgage
A mortgage which can be prepaid at any time without penalty.
Pre-Approved Mortgage
The preliminary qualification by the lender of a borrower’s mortgage application indicating a maximum amount which can be borrowed and the rate of interest. Pre-approvals are generally issued for a limited time period and are subject to conditions and a final approval.
Pre-Payment Option
The right to prepay specified amounts of the principal balance.
Pre-Payment Penalty
A fee charged by the lender when the borrower prepays all or part of a closed mortgage sooner than outlined in the mortgage agreement.
Principal
The mortgage amount borrowed by the mortgagor.
Refinance
Renegotiating an existing mortgage agreement. May include increasing the principal or taking out a new mortgage on a property that is free and clear.
Security
In the case of mortgages, it is the real estate offered as collateral for the loan.
Term
The actual length of time for which the money is loaned at a particular rate of interest. Upon maturity of the term, the balance of the principal owing can be repaid or a new mortgage agreement can be entered into at the then current rates and available conditions.
Total Debt Service Ratio
The percentage of gross income needed to cover monthly payments for housing and all other debts and financing obligations. This ratio should not exceed 44%.
Variable Rate Mortgages
A mortgage for which the interest rate changes according to market conditions. The regular monthly payments normally remain the same, however the amount applied towards principal changes according to the change in the interest rate. Also see adjustable rate mortgage (ARM).