• Douglas Paterson

Complete List Of Canadian Mortgage Terminology

Updated: Apr 26, 2021


mortgage terminology and mortgage dictionary













While purchasing, refinancing or renewing a mortgage can be anything from exciting to scary, if you don't understand the language and terminology related to your mortgage the entire experience can be down-right confusing. And that's that last thing you need when dealing with such significant financial investment. We've provided a extensive list of mortgage terminology (a mortgage dictionary if you will) to help everyone educate or simply clear up a misunderstood word.


Adjustable-rate mortgage

Often referred to as arm, an adjustable-rate mortgage is aligned to the conditions of the market. This means that your interest rate will shift from day to day along with the market, and the amount of your monthly mortgage payment will fluctuate along with it.

Mortgage amortization

The period of time required to completely pay off a mort­gage if all conditions are met and all payments are made on time.

Mortgage Application

A form used to apply for a mortgage. It includes all of the relevant personal and financial information of the person or people applying.

Appraisal

An estimate of the current market value of a home.

Appraiser

A certified professional who carries out a home appraisal.

Appreciation

An increase in the value of a home or other possession from the time it was purchased.

Approved lender

A lending institution, such as a bank, that the government of Canada authorizes to make loans under the terms of the national housing act. Only approved lenders can offer CMHC-insured mortgages.

Assumption agreement

A legal document that requires a person buying a home to take over the mortgage of the builder or the previous owner.

Blended payment

A regular mortgage installment that includes payments toward both the mortgage principal and the interest.

Canada mortgage and housing corporation (CMHC)

As Canada’s authority on housing, CMHC contributes to the stability of the housing market and financial system, provides support for Canadians in housing need and offers objective housing research and information to Canadian governments, consumers, and the housing industry.

Certificate of status (or “estoppel certificate”)

A certificate that outlines the financial and legal status of a condominium corporation. (this does not apply in Quebec.)

Certificate of location (or “survey”)

A document that shows the legal boundaries and measure­ments of a property, specifies the location of any buildings and states whether anyone else has the right to cross over the property for a specific purpose.

Closed mortgage

A mortgage that can’t normally be paid off or renegotiated before the end of the term without the lender’s permission and a financial penalty. Some closed mortgages allow for extra or accelerated payments, but only if specified in the mortgage agreement.

Closing costs

The legal fees, transfer fees, disbursements and other costs that must be paid when buying a home. These are in addition to the down payment and the GST, PST and HST if applicable. Closing costs are due on the day the buyer offi­cially takes ownership of the home, and they usually range from 1.5% to 4% of the purchase price.

Closing date

The date when the sale of the property becomes final, and the new owner takes possession of the home.

Commitment letter (or “mortgage approval)

A written notification from a lender to a borrower that says a mortgage loan of a specific amount is approved under specific terms and conditions.

Compound interest

Interest that is calculated on both the original principal and the interest that has already been earned (or “accrued”) on that principal.

Conditional offer

An offer to purchase a home that includes one or more conditions (for example, a condition that the buyer is able to get a mortgage) that must be met before the sale can be officially completed.

Condominium (or “strata”)

A type of homeownership where people own the unit they live in and share ownership of all common areas with the other owners. Common areas can include parking facilities, hallways, elevators, lobbies, gyms, swimming pools and the grounds or landscaping.

Contractor

A person who is responsible for the construction or reno­vation of a home, including scheduling, workmanship and managing subcontractors and suppliers.

Conventional mortgage

A mortgage loan equal to or less than 80% of the value of a property. (that is, where the down payment is at least 20%.) Conventional mortgages don’t usually require mort­gage loan insurance

Counteroffer

An offer made by the seller of a home after rejecting an offer by a potential buyer. The counteroffer usually chang­es something from the original offer, such as the price or closing date.

Credit bureau (Credit Rating)

A company that collects information from various sourc­es on a person’s borrowing and bill-paying habits. They provide this information to lenders to help them assess whether or not to lend money to that person.

Credit history (or “credit report”)

The report a lender uses to determine if a person should get a mortgage.

Curb appeal

How attractive a home looks from the street, including features like landscaping and a well-maintained exterior.

Debt Service Ratios

The GDS and TDS are ‘debt service ratios’ that are used to determine whether a potential borrower can afford to pay their potential mortgage. These numbers are expressed as percentages.

GDS

Aka “gross debit service” ratio, GDS attempts to measure a borrower’s ability to make their regular mortgage payments, relative to their income. The GDS measures the pith (see below) against monthly income.

Pith

The pith represents the principal, interest, property taxes, and property heat. ‘pi’ – this is your monthly mortgage payment, consisting of both the amount paid toward the principal (p) and that which is paid to cover the monthly interest (i) T - monthly property taxes paid on the subject property. H – the cost to heat the home on a average monthly basis.

TDS

Like the GDS the TDS is used to determine if a borrower can afford the potential mortgage payment, but in this calculation a lender, in addition to the GDS, includes all other debts that the borrower has including credit cards, lines of credit, car loans, heloc’s, ect….

Deed

A legal document that transfers ownership of a home from the seller to the buyer.

Default

Failing to make a mortgage payment on time or to other­wise abide by the terms of a mortgage loan agreement. If borrowers default on their mortgage payments, their lender can charge them a penalty or even take legal action to take possession of their home.

Delinquency

Failing to make a mortgage payment on time.

Deposit

Money that a buyer places in trust to show they are serious when they make an offer to purchase a home. The deposit is held by the real estate agent or lawyer (or notary in Quebec) until the sale is complete, and then it’s transferred to the seller.

Depreciation


A decrease in the value of a home or other possession from the time it was purchased.


Down payment

Down payment is one of the most familiar mortgage terms out there. It refers to the amount of money you put down on your home to secure it. While putting 20% down will enable you to avoid having to pay private mortgage insurance, the amount that is required can vary between lenders. Also, keep in mind there are many instances where it makes sense to make a smaller down payment rather than the largest you can afford.

Duplex

A building that contains two separate and complete sin­gle-family homes located either adjacent to each other or one on top of the other.

Easement

A legal interest in a property owned by another person or company for a specific limited purpose. For example, a public utility company may have an easement that lets them pass through a property.

Emergency fund

Money that a homeowner regularly sets aside to pay for emergencies or major repairs. Owners should usually save around 5% of their monthly income for emergencies.

Equity

The cash value that a homeowner has in their home after subtracting the amount of the mortgage or other debts owed on the property. Equity usually increases over time as the mortgage loan is gradually paid. Changes in overall market values or improvements to a home can also affect the value of the equity.

Estoppel certificate (or “certificate of status”)

A certificate that outlines a condominium corporation’s financial and legal status. (this does not apply in Quebec.)

Fixed-rate mortgage

Unlike an arm mortgage, a fixed-rate mortgage offers a predictable monthly interest rate that you can rely on, month in and month out. While this can be reassuring for many homeowners who are rate-weary, it can potentially end up costing more than an adjustable-rate mortgage by the end of the loan term.


Foreclosure

A legal process whereby the lender takes possession of a property if the borrower defaults on a loan. The lender then sells the property to cover the unpaid debt.

Freehold

A form of homeownership where the homeowner buys the right to have full and exclusive ownership of a home and the land it sits on for an indefinite period. Freehold is in contrast to leasehold ownership, which gives the home­owner the right to use and occupy the land and building for only a limited defined period.

Gross debt service (GDS) ratio

The percentage of a person or household’s gross month­ly income that goes to pay the mortgage principal and interest, property taxes and heating costs, plus 50% of any condominium maintenance fees or 100% of the annual site lease for leasehold tenure if applicable. To qualify for a mortgage, the borrower’s GDS ratio must be at or below 32%. Gross monthly income Total monthly income of a person or household before taxes and other deductions.


High-ratio mortgage

A mortgage loan for more than 80% of the value of a prop­erty. (that is, where the down payment is less than 20%.) A high-ratio mortgage usually must be insured against default with mortgage loan insurance provided by CMHC or a private company.

Home inspection

A thorough examination and assessment of a home’s state and condition by a qualified professional. The examination includes the home’s structural, mechanical, and electrical systems.

Home inspector

A professional who examines a home for anything that is broken, unsafe or in need of replacement. The inspector also checks if the home has had any major problems in the past.

Home insurance premium

The amount homeowners pay on a monthly or annual basis for home or property insurance.

Household budget

A monthly plan that tracks household income and expens­es to make sure household members are living within their means and meeting their savings and investment goals.

Insurance broker

A professional who can help homeowners choose and buy different types of insurance, including property insurance, life and disability insurance and mortgage loan insurance.

Interest

The cost of borrowing money. Interest is usually paid to the lender in regular installments along with repayment of the principal (that is, the amount of the original loan).

Interest rate

The rate used to calculate how much a borrower must pay a lender for the use of the money being loaned to them.

Land registration

A system to record legal interests in land, including owner­ship and disposition of land.

Land surveyor

A professional who surveys a property to provide a land survey (or “certificate of location”). If the seller does not have a survey, or if it’s more than five years old, the buyer will likely need to hire a surveyor before they can get a mortgage. A real estate agent usually helps coordinate the survey with the seller.

Land transfer tax

A tax charged by many provinces and municipalities (usually a percentage of the purchase price) that the buyer must pay upon closing.

Lawyer

A legal advisor (usually replaced by a notary in Quebec) who is licensed to practice law and who will protect legal interests and review any contracts.

Leasehold

A form of homeownership where the homeowner buys the right to have full and exclusive ownership of a home and the land it sits on for a defined period. Leasehold is in contrast to freehold ownership, which gives the homeown­er the right to use and occupy the land and building for an indefinite period.

Lender

A bank, trust company, credit union, pension fund, insurance company, finance company or other institution that loans people money to buy a home.

Lien

A claim against a property by another person or company for money owed by the owner or previous owner.

Loan to value (LTV)

Often referred to a the “LTV”, loan to value is simply a number which represent the percent of the value of property being borrowed against the property. While other considerations may factor in, the simplest calculation is loan amount / property value (represented as a percentage). For example, if you are buying a home which is valued at $1,000,000 and you would like to borrow $600,000 from a lender, the loan to value (LTV) will be $600,000/$1,000,000 = 0.60 or 60


Lump sum pre-payment

An extra payment that is made to reduce the principal balance of a mortgage, with or without a penalty. Lump sum payments can help borrowers save on interest costs and pay off their mortgage sooner.

Manufactured home

A single-family home that is built in a factory and then transported to a chosen location and placed onto a foundation.

Maturity date

The last day of the term of a mortgage. The mortgage loan must either be paid in full, renegotiated or renewed on this day.

Mobile home

A home that is built in a factory and transported to the place where it will be occupied. While mobile homes are usually placed permanently in one location, they can be moved again later if desired.

Modular home

A single-family home that is built in a factory and typically shipped to a location in two or more sections (or “mod­ules”) to be assembled onsite.

Mortgage

A loan given by a lender to a buyer to help with the purchase of a home or property. The mortgage loan is usually repaid in regular payments that generally include both the principal and interest.

Mortgage approval (or “commitment letter”)

A written notification from a lender to a borrower that says a mortgage loan of a specific amount is approved under specific terms and conditions.

Mortgage broker

A professional who works with many different lenders to find a mortgage that best suits the needs of the borrower.

Mortgage life insurance

Insurance that protects the family of a borrower by paying off the mortgage if the borrower dies.

Mortgage insurance vs home insurance

Often known as CMHC this type of insurance can often be confused with homeowner's insurance, which protects your home in the event of fires, floods, and other damage. Mortgage insurance, however, is a type of insurance that is required for those who do not put 20% down and is there to protect the lender in case of loan default. For homebuyers who can put down 20% or more, mortgage insurance is typically not an issue (mortgages for those new to Canada is one such exceptions to the rule). Mortgage loan insurance is provided by CMHC, Sagen (formerly Genworth) and Canada guarantee or a private company and is usually required for any mortgage where the down payment is less than 20% of the purchase price or lending value of a home. Mortgage loan insurance helps Canadian’s purchase homes earlier and at interest rates that are comparable to buyers with a larger down payment.

Mortgage loan insurance premium

The amount homebuyers must pay to CMHC or anoth­er insurer to insure their mortgage against default if their down payment is less than 20% of the purchase price. The CMHC premium is calculated as a percentage of the mortgage loan and is based on factors like the size and source of the down payment. In general, the smaller the down payment is, the higher the insurance premiums will be. Premiums can typically be paid separately or included in the regular mortgage payments to the lender.

Mortgage payment

A regularly scheduled payment that usually includes both the loan principal and the interest.

Mortgage term

The length of time that the conditions of a mortgage, such as the interest rate and payment schedule, are in effect. Terms are usually between 6 months and 10 years. At the end of the term, the mortgage loan must either be paid in full, renewed, or renegotiated, usually with new conditions.

Net worth

The total financial worth of a person, calculated by sub­tracting liabilities (everything the person owes) from assets (everything the person owns).

New home warranty program

A program available in all provinces and some territo­ries guaranteeing that any defects in a new home will be repaired at no cost to the buyer within the period covered by the warranty.

Notary

In Quebec, a notary (rather than a lawyer) handles the legal matters related to buying a home. These include pro­tecting legal interests and reviewing any contracts.

Offer to purchase

A written contract that sets out the terms and conditions under which a buyer agrees to buy a home. If the offer is accepted by the seller, it becomes a legally binding agree­ment.

Ongoing costs

The monthly expenses that come with owning a home, including mortgage payments, property taxes, home insur­ance, utilities, ongoing maintenance, and repairs.

Open house

A set period of time when potential buyers can come to look at a house or apartment that’s for sale without an appointment.

Open mortgage

A flexible mortgage loan that lets a borrower pay off or renegotiate their loan at any time, without having to pay penalties. Because of this flexibility, open mortgages usu­ally have a higher interest rate than closed mortgages.

Payment schedule

The schedule a buyer agrees to follow to pay back their mortgage loan. In most schedules, mortgage payments are made weekly, every two weeks or once a month.

Pith

An acronym that stands for mortgage principal and inter­est payments, property taxes and heating costs, all the main costs paid by a homeowner monthly.

Power of sale

A provision that gives a lender the power to sell a prop­erty if the borrower defaults on their mortgage. The ownership of the property changes hands after the sale is completed.

Premium

See “mortgage loan insurance premium.”

Pre-payment options

The ability to make extra payments, increase your pay­ments or pay off your mortgage early without incurring a penalty.

Pre-payment penalty

A fee charged by your lender if you pay more money on your mortgage than the pre-payment option allows.

The Principal

With various costs involved in a mortgage, such as interest, insurance, and the down payment, it can be challenging to keep all the mortgage fees and costs straight. However, the principal amount is unique as it represents only total loan (the actual amount being borrowed) to make a home purchase. When you hear the phrase "paying down the principal", it refers to the total amount you are paying to lower your loan and has nothing to do with payments toward interest accrued.

Property (or home) insurance

Insurance that protects the owners in case their home or building is damaged or destroyed by fire or other hazards listed in the policy.


Property taxes

Taxes that are charged by the municipality based on the value of the home. In some cases, the lender will collect property taxes as part of the borrower’s mortgage pay­ments and then pay the taxes to the municipality on the borrower’s behalf.


Real estate

Property consisting of buildings and/or land.


Real estate agent (or “real estate broker”)

A professional who acts as an intermediary between the seller and buyer of a property. They help the buyer find a home, make an offer, and negotiate the best price.


Realtor.ca (formerly mls.ca)

An online service that provides descriptions of most of the homes for sale across the country. Homes on the site can be searched by location, price, size, or several other features. For Quebec listings, the equivalent site is centris.ca.


Reserve fund

A sum of money put aside by a condominium corporation for the repair or replacement of common elements such as the roof, windows, boiler, hallway carpets and other com­mon assets and areas.


Row house (or “townhouse”)

A row house is one of several similar single-family homes that are joined side by side and share common walls.


Security

Also called “collateral.” Property that is pledged to guaran­tee a loan or other obligation that can be claimed by the lender if a loan is not repaid. With a mortgage, the home being purchased is used as security for the loan.


Semi-detached home

A home that is attached to another home on one side.


Single detached home

A free-standing home (that is, not attached to any other homes on either side) intended to be occupied by a single family.


Stacked townhouse

Two-storey homes stacked one on top of the other, usually in groups of four or more.


Strata (or “condominium”)

Many ask, "What is a Strata". Well it is a type of homeownership where people own the unit they live in and share ownership of all common areas with the other owners. Common areas can include parking facilities, hallways, elevators, lobbies, gyms, swimming pools and the grounds or landscaping.

Survey (or “certificate of location”)

A document that shows the legal boundaries and measure­ments of a property, specifies the location of any buildings and states whether anyone else has the right to cross over the property for a specific purpose.


Sustainable neighbourhood

A neighbourhood that meets the needs of the residents while also protecting the environment.


Title

A document that gives the holder legal ownership of a property.


Title insurance

Insurance against losses or damages that could occur because of anything that affects the title to a property (for example, a defect in the title or any liens, encumbrances or servitudes registered against the legal title to a home).


Total debt service (TDS) ratio

The percentage of a person or household’s gross monthly income that goes to pay the mortgage principal and inter­est, property taxes and heating costs, plus all other debt obligations such as car payments, personal loans, or credit card debt. To qualify for a mortgage, the borrower’s TDS ratio must be at or below 40%.


Townhouse (or “row house”)

A townhouse is one of several similar single-family homes that are joined side by side and share common walls.


Variable interest rate mortgage

A mortgage where the interest rate fluctuates based on the current market conditions. The payments will generally re­main the same, but the amount of each payment that goes toward the principal or the interest on the loan changes as interest rates fluctuate.


Vendor

The seller of a property.


Vendor take-back mortgage

A type of mortgage where the seller, not a bank or other financial institution, finances the mortgage loan for the buyer.

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