Mortgage Terms

Amortization - The period of time, most often 15, 20 or 25 years, required to reduce the  debt to zero when payments are made regularly. It is now possible to get mortgages with amortizations as high as 40 years.

Appraised Value - An estimate of the value of the property.  Conducted by a certified appraiser for the purpose of making the decision of mortgage lending.

Assumption Agreement - A legal document signed by a home buyer that requires the buyer to assume responsibility for the obligations of a mortgage by the builder or the original owner. 

Blended Payment - A mortgage payment that includes principal and interest.  It is paid regularly (either weekly, bi-weekly, or monthly) during the term of the mortgage.  The payment total remains the same, although the principal portion increases over time and the interest portion decreases.

Closed Mortgage - A mortgage that locks you into a specific payment schedule.  You cannot pay off a closed mortgage before the agreed end date unless certain conditions are met.  A penalty usually applies if you repay the loan in full before the end of a closed term.

Closing Costs - Costs that are in addition to the purchase price of a property and which are payable on the closing date.  Examples include legal fees, land transfer taxes and disbursements.

Deposit - the amount that is paid to the Seller's Agent to consummate your contract.  The deposit is usually held in trust by a third party.

Down Payment - The portion of the house price the buyer must pay up front from personal resources, before securing a mortgage.  It is the difference between the purchase price and the amount of the mortgage loan which generally ranges from 5% to 20% of the purchase price.  The down payment may have to be made in two parts:  your initial deposit and the balance of your cash portion to close the transaction.

Easement - A right acquired for access to, or over, or for use of, another person's land for a specific purpose, such as a driveway or for public utilities.

Encumbrance - A registered claim for debt against a property, such as a smortgage or secured personal line of credit.

Equity - The difference between the price for which a home could be sold and the total debt registered against it.  Equity usually increases as the outstanding principal of the mortgage is reduced.  Market value and improvements to the property also affect equity.

Gross Debt Service Ratio (GDS) - The percentage of annual income required to handle the payments associated with housing (principal, interest, property taxes, condo fees and an allowance for heat).  Most lenders require this ratio to not to be between 32% & 35%.

High-Ratio Mortgage - The mortgage you obtain when you have less than 20% of the total purchase price to put down as your down payment.  This type of mortgage must be insured (through sources such as CMHC or Genworth Financial)

Interest Adjustment Date (IAD) - a date from which interest on the mortgage advanced is calculated for your regular payments.  This date is usually one payment period before regular mortgage payments begin. Interest due from the date your mortgage is advanced to the IAD is due on closing.

Maturity Date - The last day of the term of the mortgage agreement.  On this day the mortgage loan must be either paid in full or the agreement is renewed.

Mortgage Insurance - Applies to high-ratio mortgages.  It protects the lender against loss if the borrower is unable to repay the mortgage.

Mortgage Life Insurance - This form of insurance pays the outstanding balance of your mortgage in full if you die.  This is different from home or property insurance, which insures your home and its contents.

Net Worth - Your total financial worth, calculated by subtracting your total liabilities from your total assets.

Open Mortgage - A mortgage which you can pay off, renew or refinance at any time, without penalty.

P.I.T. Principal, Interest, Taxes - payments due on a regular basis under the terms of the mortgage agreement.  Generally, payments are made monthly and include one twelve of the estimated annual municipal and school taxes.  Since the taxes change from year to year, this section of the mortgage will change accordingly.

Portable Mortgage - A mortgage option that enables borrowers to transfer the terms of their current mortgage to another property, without penalty.  The mortgage usually has to be re-registered to take effect on the new property.

Pre-Approved Mortgage - A written agreement that you will get a mortgage for a set amount of money at a set interest rate.  You know exactly how much you can spend and are free to make a "firm" offer when you find the right home.

Pre-Payment Privileges - Voluntary payments made in addition to regular mortgage payments. The amount you are allowed to pay and is often 15% to 20% of the original mortgage amount. These are usually an annual right that does not carry forward if it is unused.

Principal - The amount of money actually borrowed.

Property Survey or Real Property Report - A legal description of the property and its location and dimensions.  An up-to-date survey is usually required by your mortgage lender.  If not available from the seller, your lawyer can obtain the property survey for a fee.

Property Tax Adjustment - An adjustment done at closing to account for the seller's or buyer's portion of property taxes for the current year.

Refinance - To pay off a mortgage or other registered encumbrance and arrange for a new mortgage, sometimes with a different lender.

Renewal - Re-Negotiation of a mortgage loan at the end of any mortgage term, for a new term.

Second Mortgage - An additional mortgage on a property that already has a mortgage.  Usually has a shorter term and higher interest rate than the first mortgage because it ranks below the first mortgage.

Term - The length of time during which a borrower pays a specific interest rate on the mortgage loan.  The entire mortgage principal is usually not paid off at the end of the term because the amortization period is usually longer than the term.

Total Debt Service Ratio (TDS) - The percentage of annual income needed to cover the GDS plus payments on other debts such as bank loans, credit card payments, car payments, alimony etc.  Most lenders require this not to exceed 42%.

Variable Rate Mortgage - A mortgage where payments fluctuates with interest rates. 

Vender Take-Back Mortgage - When the seller provides some or all of the mortgage financing in order to sell their property.