Accrued Interest - Interest that has accumulated over time but has not yet been paid.
Appraisal - An estimate of a property's market value by a professional Appraiser; used by lenders in determining the amount of the mortgage.
Assessed Value - The value of a property, set and used by each municipality for the purposes of calculating property tax.
Assumable Mortgage - A mortgage held on a property by the seller that can be taken over by the buyer, who then accepts responsibility for making the mortgage payments.
Balance Due on Completion - The remaining amount of money to be paid by the buyer to finalize a property purchase at closing.
Bare Trust - An arrangement where a trustee holds legal title to property solely for the benefit of the beneficiary, with no other duties.
Certificate of Charge - A document issued by a lender indicating a mortgage or lien on a property.
Cessation of Charge - The process of removing a mortgage or lien from the title of a property, often after the loan has been paid off.
Chattel Mortgage - A loan secured by personal property rather than real estate.
CMHC - Canada Mortgage and Housing Corporation. A Crown corporation providing information services and mortgage loan insurance.
Conventional Mortgage - A mortgage loan which is 75 per cent or less of the loan-to-value ratio; and does not require insurance by CMHC or other private insurer.
Debt Service Ratio - The percentage of a borrower's income that can be used for housing costs.
Debt to Income Ratio - A measure used by lenders to determine a borrower's ability to manage monthly payments and repay debts.
Default - Failure to meet the legal obligations of a loan, typically by not making the required payments.
Delinquency - Late or missed payments on a loan obligation.
Demand Note - A loan agreement that allows the lender to demand repayment at any time.
Discharge of Mortgage - The removal of a mortgage from the records, typically after the loan has been fully repaid.
Down Payment - The difference between a property's purchase price and the amount financed.
Equity - The difference between the price for which a property can be sold and the mortgage(s) on the property. Equity is the owner's stake in the property.
First Mortgage - The first security registered on a property. Additional mortgages secured against the property are "secondary" to the first mortgage.
Foreclosure - A legal process by which the lender takes possession and ownership of a property when the borrower doesn't meet the mortgage obligations.
Gross Debt Service (ADS) Ratio - Gross debt service divided by household income. A rule of thumb is that ADS should not exceed 30%. It is also referred to as PIT (Principal, Interest and Taxes) over income. Sometimes energy costs are added to the formula, producing BITE, which moves the rule of thumb ADS to 32%.
Gross Income - The total income generated by a property before any expenses are deducted.
High-Ratio Mortgage - A mortgage that exceeds 75 percent of the loan-to-value ratio; must be insured by either the Canada Mortgage and Housing Corporation (CMHC) or a private insurer to protect the lender against default by the borrower who has less equity invested in the property.
Loan Term - The duration over which a loan agreement is scheduled to be repaid.
Maturity Date - The date on which a loan or bond comes due and is to be paid off.
Mortgage - A contract between a borrower and a lender. The borrower pledges a property as security to guarantee repayment of the mortgage debt. Lenders consider both the property (security) and the financial worth of the borrower (covenant) in deciding on a mortgage loan. See below for more on mortgage terminology.
Mortgage Broker - A person or company having contacts with financial institutions or individuals wishing to invest in mortgages. The mortgagor pays the broker a fee for arranging the mortgage. Appraisal and legal services may or may not be included in the fee.
Mortgage Insurer - In Canada, high-ratio mortgages (those representing greater than 75% of the property value) must be insured against default by either CMHC or private insurers. The borrower must arrange and pay for the insurance, which protects the lender against default.
Mortgage Life Insurance - Insurance that pays off the mortgage debt should the insured borrower die.
Mortgage Prepayment Penalty - a fee paid by the borrower to the lender in exchange for being permitted to break a contract (a mortgage agreement); usually three months' interest, but it can be a higher or it can be the equivalent of the loss of interest to the lender.
Mortgagee - The person or financial institution lending the money, secured by a mortgage.
Open Mortgage - A mortgage that can be prepaid or renegotiated at any time and in any amount, without penalty.
Portability - A mortgage feature that allows borrowers to take their mortgage with them without penalty when they sell their present home and buy another one.
Pre-Approved Mortgage - Tentatively approved by a financial institution for a specified amount, interest rate and monthly payment.
Prepayment Clause - A clause inserted in a mortgage, which gives the mortgagor the privilege of paying all or part of the mortgage debt in advance of the maturity date.
Principal - The mortgage amount initially borrowed or the portion still owing on the mortgage. Interest is calculated on the principal amount.
Refinancing - The process of obtaining a new mortgage, usually at a lower interest rate, to replace the existing mortgage.
Second Mortgage - A second financing arrangement, in addition to the first mortgage, also secured by the property. Second mortgages are usually issued at a higher interest rate and for a shorter term than the first mortgage.
Total Debt Service (ADS) Ratio - the maximum percentage of a borrower's income that a lender will consider for all debt repayment (other loans and credit cards, etc.) including a mortgage.
Underwriting - The process by which lenders assess the risk of lending to a borrower, based on their creditworthiness and the value of the property.
Variable-rate Mortgage - A mortgage for which payments are fixed, but whose interest rate changes in relationship to fluctuating market interest rates. If mortgage rates go up, a larger portion of the payment goes to interest. If rates go down, a larger portion of the payment is applied to the principal.
Vendor Take-Back Mortgage - When sellers use their equity in a property to provide some or all of the mortgage financing in order to sell the property.