Mortgage Glossary

Mortgage Glossary

Accredited Mortgage Professional (AMP) – AMP is Canada’s only national designation for mortgage professionals. The AMP designation sets a single national proficiency standard for Canada’s mortgage professionals and is issued by the Canadian Institute of Mortgage Brokers and Lenders (CIMBL).

Accrued interest – The interest charged for the period of time that has elapsed since the last interest date.

Adjustable Rate Mortgage – See variable rate mortgage.

Agent – One who is authorized to represent and act on behalf of another person or business, the principal in transactions involving a third party. Unlike an employee who merely works for the principal, an agent works in place of the principal.

Agreement of Purchase and Sale – A written agreement between vendor and purchaser in which the purchaser agrees to buy certain real property and the vendor agrees to sell upon terms and conditions as set out in that agreement.

Amending Agreement – An agreement between the lender and borrower by the lender in which the terms of the registered mortgage are changed. The amending agreement may or may not be not be registered on title.

Amortization – This refers to the process of paying off a mortgage in regular payments composed of both interest and principal.

Amortization Period – The time over which the mortgage is to be completely repaid, assuming equal payments. This means that when looking, for example, at a mortgage with a2l-year amortization period it would take 25 years to reduce the balance to zero, if all regular pa1’ments were made on time and the terms (payment, interest rate) remained the same.

Amortization Schedule – A table showing the amounts of principal and interest which make up each of the periodic level payments and the outstanding principal balance of the loan after each level payment is made.

Amortized Mortgage – A mortgage requiring regular payments which include both principal and interest sufficient to fully repay the loan by maturity.

Anniversary Date – The same date in each calendar year during the term of the mortgage. The first anniversary date occurs one from the date interest is adjusted and the periodic repayments begin.

Appraisal – An independent, unbiased report that uses various analysis techniques and market research to determine the realistic value of a property.

Appraiser – An appraiser determines the market value of a house based on its condition and the selling price of comparable houses recently sold in the area. The licensing requirement for real estate appraisers varies from province to province.

Arm’s Length Transaction – A transaction between unrelated parties. A transaction freely arrived at in the open market unaffected by abnormal pressures as might be the case in a transaction between related parties.

Arbitration – The determination of a dispute by a disinterested third party.

Arrears – An overdue payment (in reference to a mortgage for the purposes of this text).

Assets – Goods of value, either tangible or not, that a borrower or business owns.

Assignment of Lease – The absolute or conditional transfer of the right of either party to a lease.

Assignment of Mortgage – The transfer of ownership of a mortgage from one party to another.

Assignor – One who transfers or assigns the rights or title to another.

Balance Sheet – Also known as the Statement of Financial Position or Statement of Assets and Liabilities. The Balance Sheet is a listing of the assets, liabilities (debts), and owners; equity of a business enterprise at a specific point in time. The assets must equal the liabilities plus owners’ equity.

Balloon Payment – Any payment of principal over and above the regular payment.

Bank Act – The Canadian Bank Act regulates all Canadian banking activity conducted through a federally chartered institution. This includes banks, trust companies, loan companies, and insurance companies.

Bank Rate – The rate at which the Bank of Canada charges loans to the chartered banks. This is the rate on which lending institutions base their prime lending rate.

Beacon Score – The name given to the credit score published by Equifax.

Blended Payments – Regular equal mortgage payments combining, or blending, interest and principal components in one constant payment.

Book value of a Mortgage – The mortgage amount outstanding on a mortgage at any given point in time’ The book value is determin;6y deducting the amount of principal repayment from the original principal amount.

Bridge Loan – A bridge loan is a short-term, high interest loan intended to offset financial hardship until a long-term loan is secured

Brokerage – The aspect of business concerned with bringing parties together for the transaction of business and the execution of contracts.

Broker – one who acts as an intermediary between parties in a transaction. A broker, for a fee or other consideration, arranges a transaction (a sale) by a seller to the buyer.

Builder’s Loan – A loan designed for borrowers who need financing for construction projects. These differ from normal loans as the funds are received in stages (also known as draws) during the building process to protect the lender from construction abandonment.

Buy Down – A lump sum payment as consideration for the reduction in the interest charged on a loan from that which would normally be charged.

Canada Mortgage and Housing Corporation (CMHC) – A Crown Corporation which was initially created to administer the National Housing Act and is Canada’s only public sector mortgage insurer.

Gash Back – A mortgage feature that provides the borrower with cash back, as a percentage of the mortgage principal. It is generally used to cover closing costs.

Certificate of occupancy (Permit) – A certificate provided by the municipality that a property has been constructed under the authority of the issued building permit, has met the requirements of the building code, and is now be occupied.
Charge – The name given to a mortgage document when title is registered under the Land Titles.

Closed Mortgage – A mortgage agreement that cannot be repaid refinanced or renegotiated until maturity, unless other vise stated in its terms.

Closing Date – The date on which a sale becomes final, funds are transferred from the purchaser to the vendor, and the new owner takes possession of a property.

Closing Process – The procedure of finalizing the sale, once the lender receives an accepted commitment.
Co-Applicant – one of two or more people applying together for a loan.

Collaterals Mortgage – The mortgage registered to document collateral security.

Collateral Security – Security given in addition to the direct security and subordinate to it.

Commercial Properties – Properties that are utilized for commerce or trade (e.g. stores, office buildings).

Commitment – A letter / document issued by a lender reciting the basic terms of a loan which, when accepted by the borrower, forms a binding contract. The commitment may have conditions attached to it which must be met before the contract can be finalized.

Common Law – A legal system of principles and rules of action based on customs and common usages. It forms a major part of the law in many countries, especially those with a history as British territories, such as Canada.

Common Mistake – Both parties make the same mistake in a term of the contract.

Compound interest – Interest charged not only on the principal sum but also on interest amount charged but not paid, in preceding periods that accumulate as new principal.

Contract – A contract is a legally binding agreement between two or more capable people for consideration or value, to do or not do some lawful and genuinely intended act.

Conventional Mortgage – A loan based on the credit of the borrower and on the collateral for the mortgage’ A conventional mortgage does not exceeds 80%of the market value of the property. This means that the borrower must have 20% or more available for the down payment.

Convertible Rate – Mortgages with a convertible rate feature allow borrowers to fix the rate of their variable rate mortgage at any time with no penalty.

Credit Report – A detailed description of the applicant’s credit records.

Credit Score – A single number that represents the information found in a borrower’s credit history. Equifax’s credit score is known as the Beacon Score, while Trans Union’s score is called the Empiric Score.

Credit Unions – Credit unions are lending institutions owned by their members. Membership is often based on a common bond of association such as employment or ethnic background.

Creditor – One to whom a debt is owed.

Current Assets – Goods that can easily be turned into cash, sold or consumed within a year’s time.

Current Liabilities – Debts and obligations that are expected to be paid within a year.

Default – Failure to fulfill contractual obligations.

Depreciation – The loss of value of an asset over time.

Direct Comparison – This type of appraisal also referred to as the market data approach, bases property value on the current selling prices of similar properties.

Discharge Document – once the receipt (acknowledging the completion) has been processed and registered to the title, it becomes the discharge document.

Double Up Option – A clause that may be included as part of an open mortgage contract, giving the borrower the opportunity to double the scheduled principal and interest payments.

Electronic Funds Transfer (EFT) – The automatic transfer of funds from one account to another. Mortgage repayments can be made electronically directly to the lender’

Equity (for Mortgages) – The difference between rending value (the purchase price or market value) and indebtedness.
Existing Mortgage – A mortgage loan that is already in-place when the property is being sold.

Extension Agreement – An agreement extending a loan past the original maturity date.

Face Rate – The contractual interest rate stated in a mortgage document or other financial instrument. Also known as the nominal rate.

Finder’s Fee – A fee or commission paid by a lender to a mortgage professional for referring a mortgage loan.

First Mortgage – A mortgage registered before all others on title.

Fixed Rate Mortgage – In a fixed rate mortgage the interest is determined and is set for the term of the mortgage. Fixed rate mortgages are most desirable when current interest rates are low.

Foreclosure – A legal remedy available to a lender when there is default under any of the covenants in the mortgage. It deprives the borrowers of their equitable right to redeem

Fully Open Mortgage – An open mortgage that allows principal payments to be made at any amount, at any time, in addition to regular mortgage payment, without penalty..

Grantee – The party to whom an interest in real property is conveyed (the buyer).

Grantor – The person who conveys an interest in real estate by deed (the seller).

Gross lncome (Single Family) – The total annual personal income before deductions used in the calculation of an applicant’s debt service ratios.

Guarantor – One who promises to pay a debt or perform an obligation contracted by another in the event the original borrower fails to pay or to perform as contracted.

High Ratio Mortgage – A mortgage is considered high ratio when the loan-to-value is 80% or more. This occurs when the borrower’s down payment is 20% or less of the property value.

Household Formation – Looks at how individuals group together to create a household.

lndependent Mortgage Brokers Association of Ontario (IMBA) – A volunteer-based organization serving independent mortgage professionals in Ontario.

lndustrial Property – Property that contains units that are designed for manufacturing, production and warehousing.
lnterest – An amount, expressed as a percentage, which a borrower agrees to pay on borrowed money, at a certain frequency as per an agreement with the lender.

lnterest Accruing Loan – In this type of loan no payments on interest or the principal are paid until the end of the term. Only when the mortgage contract has expired are the payments due.

lnflation – A general increase in the price level of goods and services.

lntangible Assets – Non-physical goods that have value to a business. Most common forms are business goodwill or legal right to market a product.

lnterest – An amount, expressed as a percentage, which a borrower agrees to pay on borrowed money, at a certain frequency as per an agreement with the lender.

lnterest Accruing Loan – In this type of loan no payments on interest or the principal are paid until the end of the term. Only when the mortgage contract has expired are the payments due.

Joint Venture – An arrangement under which two or more people or businesses go into a single venture as partners.

Lease – A contract between landlord (lessor) and tenant (lessee) for the occupation or use of the landlord’s interest in a property by the tenant for a specified period of time and for a specified consideration (rent).

Lease Guarantee Insurance – Insurance that protects the owner of leased commercial and industrial real estate from loss of rental income through the failure of a tenant to make rental payments.

Lending value – The property value for mortgage purposes. Usually, the lesser of appraised value or sale price.

Lessee – Tenant.

Letter of instruction – A letter of instruction will call for the lawyer to act for the lender and administer the distribution of the mortgage loan.

Liabilities – A business’ or a borrower’s debts and legal obligations.

Lien – A claim on real or personal property for the payment of some undercharged debt or duty.

Liquidity – The readiness or ease with which an asset can be converted to cash.

Listing Agreement – The listing agreement is a contract between a seller and a real estate agent or broker; it sets out the conditions of the listing.

Loan qualification – Also known as qualifying the borrower. Loan qualification is the process of analyzing the buyer’s eligibility for financing.

Loan-to-Value Ratio (LTV) – The amount of the mortgage loan compared to the value of the property.

Long Term lnvestments – These investments are similar to fixed assets but typically do not depreciate in value.

Long Term Liabilities – Debts and obligations that must be repaid over a long period of time, e.g. mortgages.

Lump Sum payment Option – A clause that may be included in an open mortgage allowing the borrower to prepay a portion of the principal if desired and in accordance with the specific terms of the contract.

Mortgage Agent – An individual authorized to deal in mortgages on behalf of a mortgage broker.

Mortgage Broker – An individual authorized to deal in mortgage and rend money using real estate as a security.

Mortgage Brokers Act – A piece of legislation that regulates the activities of mortgage brokers across Canada.

Mortgage Consultants – See mortgage agent.

Mortgage Default Insurance – A type of insurance which protects the mortgage lender in case the borrower defaults on the mortgage payments.

Mortgage Originator – A mortgage professional engaged in the acceptance, completion and/or submission of the mortgage loan applications to an r:ndenvriting lender.

Mortgage Refinancing – The replacement of current mortgage financing with new finan.irg, usually to take advantage of different interest rate or financial conditions or the existing equity in the property.

Mortgage Representative – Employees of a financial institution who originate mortgages.

Mortgage Servicing – The process of managing the administrative duties resulting from the mortgage contract.

Mortgage Specialist – See mortgage agent.

Mortgage Term – The length of time the interest rate is guaranteed for a mortgage. Mortgage terms normally range from 6 months to 5 years or more, after which time the borrower can either repay the balance of the principal owing or re-negotiate the mortgage at current rates.

Mortgaged Out – The situation existing when the total mortgage debt equals or exceeds the market value or cost of the property.

Mortgagee – The lender or creditor.

Mortgagor – The borrower or debtor.

Net lncome/Net Loss from Operations (lncome Statement) – The amount that is remaining when you subtract all costs and taxes from total revenues.

Nominal lnterest Rate – Also known as the stated rate. This is the interest rate used to calculate interest payments. It differs from the ffictive interest rate.

Offer to purchase – A written contract outlining the terms under which the buyer agrees to purchase the property. There may be conditions attached to the offer, for example, the offer may be conditional on the buyer arranging mortgage financing or selling a current home.

Offeree – The individual or group who receives an offer to enter into a contract.

Offeror – The individual or group who presents something to another for acceptance or rejection.

Open Mortgage – An open mortgage allows a borrower to repay any amount of the principal at any time without notice or penalty. Mortgages may be partially open, having clauses that allow partial pre-payment at specified times.
Skip Payment option – This alternative grants the borrower the ability to skip a monthly payment without the mortgage going into default.

Owner Occupied – The owner of the land also resides in that property. The opposite of an investment property.

Owner’s Equity – The amount left over for the firm’s owner(s) if the company’s assets were used to pay off all its liabilities.

Par – An expression used when a mortgage is sold or purchased for the outstanding balance without premium or discount.

Partially Amortized Mortgage – A mortgage that protects both borrowers and lenders from the risk of unexpected interest rate fluctuations. The loan matures on a short term basis, at which time the full amount of the outstanding amount must be either repaid or refinanced at current interest rates.

Partnership – A business co-owned by two or more people.

Perfecting Title – The elimination of any claims against title.

Personal Liability – The borrower’s personal assets are pledged, or subject to claim, in addition to a primary security.

Personal Property – Alternatively referred to as ‘chattels’. Personal property is more temporary and more destructible than real property.

Portable Mortgage – A mortgage with an option that allows a buyer to transfer a current mortgage to a new property (typically subject to credit approval and a property appraisal).

Postponement – The deferment of a prior charge on title to another.

Power of Attorney – A written instrument, duly signed and executed by an individual, that authorizes someone to act on his or her behalf, to the extent indicated in the instrument.

Premium – The amount, often stated as a percentage, paid in addition to the face value of a mortgage when a mortgage is being purchased.

Prepayment Penalty – The sum of money (usually equal to an amount of interest) a lender may require from a borrower to repay all or part of any outstanding principal in advance.

Prime Rate – The interest rate at which financial institutions lend to their best customers.

Principal – The amount upon which interest is paid.

Principal Risk – A risk to the lender associated with interest only loans. This risk is a result of market fluctuations. If the market value of a property falls, it might be less than the principal amount of the loan due at the end of the mortgage term. The lender might not be able to get the entire principal.

Private Mortgages – Mortgages provided by private corporations and individuals.

Promissee – The person who can enforce the promise in a contract is called the promissee.

Promisor – The person who makes the promise in a contract is called the promisor.

Property Valuator – This automated valuation model from Landcor Data Corp. produces estimates of current market value based on data from the British Columbia Assessment Authority.

Real Property – Real property is defined as the interests, benefits, and rights inherent in the ownership of physical real estate. It does not include personal property. In civil law, real property is referred to as immovable property.

Reassessment – The process of creating a new base for property taxation by updating assessments to reflect more current values.

Receipt – A document acknowledging the completion of the repayment agreement ‘under the terms of the contract and the release of the lender’s interest in the property.

Reverse Mortgage – This type of mortgage allows older consumers to convert their home equity into monthly cash payment(s), generally for living expenses. A homeowner’s equity is gradually drawn down by a series of monthly payments from the lender to the homeowner – the borrower.

Seal – A device used to produce an officiar stamp as a symbol of authority.

Secondary Financing – Financing real estate with a loan, or loans, subordinate to a first mortgage. Also known as a Second Mortgage.

Secondary Mortgage Market – A market where existing mortgages are bought and sold.

Standby Fee – A sum of money given by the borrower to the render to hold a mortgage
Starter Home – A small, inexpensive home generally bought by singles or newlyweds, with the intent to sell in a few years.
Term – In a mortgage, term is the actual length of time for which the money is loaned. The term is usually shorter than the amortization period. At the end of the term the outstanding debt must either be refinanced at current market rates or paid off in full.

Unities – In common law, unities are the four conditions required to create and maintain joint tenancy.

Title – All joint tenants must obtain their interest from the same document.

Time – All joint tenants must receive their interests at the same time.

Possession – Each interest is an undivided interest in the whole of the property.

Valuation Date – The date used for establishing the assessed value for all properties in a jurisdiction; formerly called a “base year”.

Variable Rate Mortgage – This gpe of mortgage, also referred to as adjustable rate mortgage, is the opposite of a fixed rate mortgage. The interest rate on this loan may change during the term of the mortgage reflecting changes in the current market rates.

Vendor Take-Back Mortgage (or Seller Take-Back Mortgage) – A mortgage in which the lender uses his or her own equity to provide some or the entire mortgage financing in order to sell the property.

Working capital – An indication of how much money would remain once all current liabilities were paid. It is calculated by determining the difference between current assets and current liabilities.

Zoning – The uses to which property may be put in specific areas, as specified by municipal authorities.