Your Mortgage Term Glossary
Heard a term your unfamiliar with? Here are some answers to help you understand the wording throughout the entire process of getting a mortgage and understanding the industry:
Agreement of Purchase and Sales
The legal contract a purchaser and a seller go into.
The number of years it takes to repay the entire amount of the financing based on a set of fixed payments.
The process of determining the market value of a property.
Items owned by a person or company, regarded as having value. Often used in determining net worth or in securing financing.
A legal document signed by a buyer that requires the buyer to assume responsibility for the obligations of an existing mortgage.
Equal payments consisting of both an interest and a principal component. Typically, while the payment amount does not change, the principal portion increases, while the interest portion decreases.
Canada Mortgage and Housing Corporation (CMHC)
CMHC is a federal Crown corporation that administers the National Housing Act (NHA). Among other services, they also issue mortgage loan insurance for high ratio mortgages.
A mortgage that cannot be prepaid or renegotiated for a set period of time without penalties.
The date on which the new owner takes possession of the property and the sale becomes final.
An asset that you offer as security for a loan.
A mortgage where the borrower places a down payment of at least 20% of the purchase price.
A system that assesses a borrower on a number of items, assigning points that are used to determine the borrower’s credit worthiness.
A loan where the balance must be repaid upon request.
A sum of money deposited in trust by the purchaser on making an offer to purchase.
The difference between the market value of the property and any outstanding mortgages registered against the property. This difference belongs to the owner of that property.
A debt registered against a property that has first call on that property.
A mortgage for which the interest is set for the term of the mortgage.
Gross Debt Service Ratio (GDS)
It is one of the mathematical calculations used by lenders to determine a borrower’s capacity to repay a mortgage. It takes into account the mortgage payments, property taxes, approximate heating costs, and 50% of any maintenance fees, and this sum is then divided by the gross income of the applicants. Ratios up to 32% are acceptable.
A person with an established credit rating and sufficient earnings who guarantees to repay the loan for the borrower if the borrower does not.
A mortgage where the borrower places a down payment of less than 20% of the purchase price. This type of mortgage must be insured.
Home Equity Line of Credit
A secured form of credit that uses the borrower’s property as collateral.
Interest Adjustment Date (IAD)
The date on which the mortgage term will begin. This date is usually the first day of the month following the closing. The interest cost for those days from the closing date to the first of the month are usually paid at closing.
A mortgage on which only the monthly interest cost is paid each month. The full principal remains outstanding.
A mortgage is a loan that uses a piece of real estate as a security. Once that loan is paid-off, the lender provides a discharge for that mortgage.
The financial institution or person (lender) who is lending the money using a mortgage.
The person who borrows the money using a mortgage.
A mortgage that can be repaid at any time during the term without any penalty. For this convenience, the interest rate is between 0.75-1.00% higher than a closed mortgage.
Principal, interest, and property tax due on a mortgage. If your down payment is greater than 25% of the purchase price or appraised value, the lender will allow you to make your own property tax payments.
An existing mortgage that can be transferred to a new property. One would want to port their mortgage in order to avoid any penalties, or if the interest rate is much lower than the current rates.
A fee charged to a borrower by the lender when the borrower prepays all or part of a mortgage over and above the amount agreed upon.
The lowest rate a financial institution charges its best customers.
The original amount of a loan, before interest.
The number of days the lender will guarantee the mortgage rate on a mortgage approval. This can vary from lender to lender anywhere from 30 to 120 days.
Refers to the replacement of an existing debt obligation with a debt obligation under different terms. The most common consumer refinancing is for a home mortgage.
If the replacement of debt occurs under financial distress, it is also referred to as debt restructuring.
A loan (debt) can be refinanced for various reasons:
- to take advantage of a better interest rate (which will result in either a reduced monthly payment or a reduced term)
- to consolidate other debt(s) into one loan (this will result in a longer term)
- to reduce the monthly repayment amount (this will result in a longer term)
- to reduce or alter risk (e.g. changing from a variable-rate to a fixed-rate loan)
- to free up cash (this will result in a longer term)
When the mortgage term has concluded, your mortgage is up for renewal. It is open at this time for prepayment in part or in full, then renew with same lender or transfer to another lender at no cost.
A debt registered against a property that is secured by a second charge on the property.
To transfer an existing mortgage from one financial institution to another.
The period of time the financing agreement covers. The terms available are: 6 month, 1, 2, 3, 4, 5, 6, 7, 10 year terms, and the interest rates will be fixed for whatever term once chooses.
Total Debt Service (TDS) Ratio
It is the other mathematical calculations used by lenders to determine a borrower’s capacity to repay a mortgage. It takes into account the mortgage payments, property taxes, approximate heating costs, and 50% of any maintenance fees, and any other monthly obligations (i.e. personal loans, car payments, lines of credit, credit card debts, other mortgages, etc.), and this sum is then divided by the gross income of the applicants. Ratios up to 42% are acceptable.
Variable Rate Mortgage (VRM)
A mortgage for which the interest rate fluctuates based on changes in prime.
Vendor Take Back (VTB) Mortgage
A mortgage provided by the vendor (seller) to the buyer.
SOURCE: Vine Group