Mortgage Glossary
The Bottom Line on Mortgages
Agreement of Purchase and Sale
The legal contract a purchaser and a seller enter into. We recommend having your offer prepared by a professional realtor who has the knowledge to protect you with suitable clauses.
Amortization Period
The total number of years it takes to repay the entire mortgage balance based on a set schedule of regular payments.
Appraisal
A formal process conducted by a licensed professional to estimate the fair market value of a property.
Assets
What you own, including bank accounts, investments, real estate, and vehicles. Used by lenders to determine net worth and financial strength.
Assumption Agreement
A legal agreement where a buyer assumes responsibility for an existing mortgage on a property.
Blended Payments
Equal regular payments consisting of both principal and interest components. Over time, the principal portion increases while interest decreases.
Canada Mortgage and Housing Corporation (CMHC)
A federal Crown corporation that administers the National Housing Act and provides mortgage default insurance for high-ratio mortgages (down payments under 20%).
Closed Mortgage
A mortgage contract that cannot be prepaid, renegotiated, or paid off early without incurring a prepayment penalty.
Closing Date
The official date on which property ownership transfers to the buyer and funds are disbursed.
Collateral
An asset pledged as security for a loan, such as real estate or term deposits.
Conventional Mortgage
A mortgage loan that does not exceed 80% of the property's value or purchase price, requiring no default insurance.
Credit Scoring
A numerical assessment calculated by credit bureaus (like Equifax and TransUnion) evaluating a borrower's creditworthiness.
Demand Loan
A loan where the lender can demand full repayment at any time.
Deposit
Sum of money provided by the buyer when submitting an offer to purchase, held in trust until closing.
Equity
The financial value of an owner's interest in a property, calculated as market value minus outstanding mortgages.
First Mortgage
The primary loan registered against a property holding first claim on the asset.
Fixed-Rate Mortgage
A mortgage where the interest rate remains locked and unchanged for the entire length of the term.
Gross Debt Service Ratio (GDS)
The percentage of gross income needed to pay housing costs (principal, interest, taxes, heat, and 50% condo fees). Standard maximum is 32-39%.
Guarantor
A co-signor with established credit and income who promises to repay the loan if the primary borrower defaults.
High-Ratio Mortgage
A mortgage exceeding 80% of the home's value or purchase price, requiring default insurance.
Home Equity Line of Credit (HELOC)
A revolving line of credit secured against the borrower's equity in real estate.
Interest Adjustment Date (IAD)
The date from which mortgage interest is calculated up to the start of regular payment cycles.
Interest-Only Mortgage
A loan where payments cover only the interest charges, leaving the principal balance unchanged.
Mortgage
A debt instrument secured by the collateral of specified real estate property.
Mortgagee
The lender financing the mortgage.
Mortgagor
The borrower who pledges real estate as security.
Open Mortgage
A mortgage that can be paid off in part or in full at any time without penalty.
P.I.T.
Principal, Interest, and Taxes bundled into monthly payments.
Portable Mortgage
An option allowing borrowers to transfer their current mortgage rate and terms to a new property.
Prepayment Penalty
A fee charged by a lender for paying off a closed mortgage earlier than agreed.
Prime Rate
The benchmark interest rate financial institutions use to set variable loans.
Refinancing
Replacing an existing mortgage with a new loan under updated terms, rates, or amounts.
Renewal
Re-negotiating mortgage terms at the end of a completed mortgage term.
Second Mortgage
A secondary loan registered against a property behind the first mortgage.
Term
The length of time a mortgage agreement and interest rate remains active (e.g., 1 to 10 years).
Total Debt Service Ratio (TDS)
The percentage of gross income required to cover housing costs plus all other debt obligations.
Variable Rate Mortgage
A mortgage with an interest rate that moves up or down with changes in the lender's prime rate.