The various terms you'll come across when
buying property and negotiating a mortgage can be confusing. Click on
any of the links below for a brief explanation.
 Agreement of Purchase and Sale
A contract by which one party agrees to sell and another agrees to purchase.
Amortization
The gradual repayment of a debt by means of partial payments on the
principal at regular intervals. The amortization period is the time
required to repay the debt completely.
Appraisal
Process by which the mortgage lending value of a property is determined.
Bridge Financing
Interim financing to bridge between the closing date on the purchase
of the new home and the closing date on the sale of the current home.
Broker
An intermediary between the buyer and seller who is licensed to carry
out such activities.
Building Permit
A certificate that must be obtained from the municipality by the property
owner or contractor before a building can be erected or renovated.
Closing Date
The date of which the sale of the property becomes final and the new
owner takes possession.
Commitment
A notice from a mortgage lender to a prospective borrower that the lender
will advance mortgage funds of a specified amount under certain conditions.
Condition
A clause in a contract that calls for the happening of some event, or
performance of some act before the agreement becomes binding.
Conditional Offer
An offer to purchase subject to specified conditions. These conditions
could be the arranging of a mortgage, or the selling of a present home.
Usually a time limit in which the specified conditions must be met is
stipulated.
Conventional Mortgage
A mortgage loan of up to a maximum of 75% of the lending value of the
property for which a lender does not require loan insurance.
Default
Non-payment of installments due under the terms of the mortgage.
Deposit
Payment of money or other valuables in consideration as a pledge for
fulfillment of the contract.
Discharge
The removal of all mortgages and financial encumbrances on the property.
Easement:
The right acquired for access to or over another person’s land for a
specific purpose, such as for a driveway or public utilities. This is
referred to as a “servitude” in the Province of Quebec.
GDSR
Gross Debt Service Ratio is a primary calculation used by lenders and
mortgage insurer to determine an applicant's ability to service their
respective mortgage request. The calculation is determined as follows:
Mortgage Principle, Interest & Taxes + Heating Cost and/or 1/2 of
Condo Fees Gross annual income of borrower(s)
High Ratio Mortgage
Loan that exceeds 80% of the property’s lending value, and which is
insured through a mortgage insurance plan.
Hold-back
An amount of money withheld by the lender during the progress of construction
of a house to ensure that construction is satisfactory at every stage.
The amount of hold-back is generally equivalent to the estimated cost
to complete construction.
LTT
Land Transfer Tax Refund Program
Mortgage Insurance Premium
A premium which is added to the mortgage and paid by the borrower over
the life of the mortgage. The mortgage insurance insures the lender
against loss in case of default on the part of the borrower.
Mortgage Life Insurance
A form of reducing term insurance available for all mortgagors. In the
event of a death of the owner or one of the owners, the insurance pays
the balance owing on the mortgage. The intent is to protect survivors
from losing their home.
Mortgage Loan Insurance (High Ratio)
High ratio mortgages must be insured through CMHC (Canada Mortgage and
Housing Corporation) or GENCOR (G.E. Capital Corporation). These Insurers
guarantee the risk of lending to home buyers who need a high ratio mortgage.
An insurance premium is paid by the borrower on behalf of the lender.
The insurance premium that is paid to CMHC is to protect the lender
in the event that the mortgage is not paid. This is not life, disability,
or job loss insurance. The insurance premium is calculated as a percentage
of the mortgage amount, depending on the loan to value, and may be added
to the mortgage amount. The premiums are as follows: Loan to Value Premium
75.1 - 80% 1.00% 80.1 - 85% 1.75% 85.1 - 90% 2.00% 90.1 - 95% 2.75%
Other high ratio financing costs include an appraisal of $165.00 plus
8% PST on the insurance premium.
Mortgagee
The entity who lends the money.
Mortgagor
The entity who borrows the money.
Mortgage Term
The actual length of time money is loaned at the contractual rate of
interest. Terms range from three months to twenty five years. Traditionaly
the longer the term the higher the rate.
Mortgage
Types
- Open Mortgage
Allows borrowers to repay a portion or the total amount of their mortgage
at any time without penalty. Ideal for those who plan to sell their
homes in the near future.
- Closed Mortgage
A good choice for those that want security in knowing their monthly
payments are fixed for a certain term. Lacks the option of repaying
the entire amount of the mortgage upon request.
- Conventional Mortgage
Regulations under The Bank Act prohibit lenders from lending in excess
of 80% of the purchase price or the appraised value of a property
without obtaining Hi-Ratio Insurance. A loan for up to 80% of the
purchase price of a property is a conventional mortgage.
- Convertible Mortgage
A short term mortgage usually six or twelve months, allowing the borrower
to switch into a longer term at any time without penalty.
- High Ratio Mortgage
A loan for 80% to 95% of the purchase price of a property.
- Variable Rate Mortgage
A mortgage where payments can be fixed from one to five years, but
the interest rate could change from month to month or quarterly depending
on market conditions. Payments and balance outstanding are adjusted
accordingly.
- First Mortgage
Mortgage given the first priority at the registry office. Can be conventional
or high ratio. They give borrowers the best rate of interest.
- Second Mortgage
A higher interest rate loan that provides borrowers with additional
financing if the first mortgage does not meet their total financial
requirements.
Offer to Purchase
A written contract setting forth the terms under which a buyer agrees
to purchase a property. Upon acceptance by the seller, it forms a contract,
which will form the basis for the final document to be prepared by a
lawyer or notary. It includes the legal and/or municipal description
(this may consist of lot numbers as well as street address), purchase
price, closing date, mortgage and terms of repayment, and lists specific
items included as part of the sale.
OHOSP
Ontario Home Ownership Plan.
P&I&T
Principal, interest and taxes due on a mortgage.
P&I
Principal and interest due on a mortgage.
Penalty
A sum of money paid to a lender for the privilege of prepaying a mortgage
in part or in full.
Power of Sale
The right of a mortgagee to force the sale of the property without judicial
proceedings should default occur.
Prepayment
Full or partial payment of all or part of the principal, separate from
the regular payments called for under a mortgage agreement.
Prepayment Option
The right to prepay a specified amount of the principal balance. Penalty
interest may be incurred on prepayment options.
Principal
The amount owing to the lender at any time.
Purchase Plus Plan
The Purchase Plus Plan lets you add the cost of improvements to your
home onto your mortgage.
Rate (interest)
The return the lender receives for loaning you the money for the mortgage.
Real Estate
Includes real property, leasehold and business whether with or without
premises, fixtures, stock in trade, good of chattels in connection with
the operation of the business.
Roll-Over Mortgage
A mortgage loan where the interest rate is established for a specific
term. At the end of this term, the mortgage is said to "roll-over" and
the borrower and lender may agree to extend the loan. If satisfactory
terms cannot be agreed upon, the lender is entitled to be repaid in
full. In this case, the borrower may seek alternative financing.
Sales Representative
A licensed employee of a Real Estate Broker authorized to trade in real
estate.
Survey
The accurate mathematical measurement of land and building there on.
TDSR
Total Debt Service Ratio is a secondary calculation used by lenders
and mortgage insurers to determine an applicant's ability to service
their respective mortgage request in addition to their other debt obligations.
The calculation is determined as follows: Mortgage, Principle Interest
& Taxes + Heating Cost and/or Condo Fees + 1/2 of Other Debts Gross
annual income of borrower(s)
Term
The length of time which you pay a specific interest rate on your mortgage
loan. At the end of the term you may repay the balance of the loan or
re-negotiate at current rates and conditions.
Title
Evidence of ownership.
Vendor Take Back
Where the seller of a property provides some or all of the mortgage
financing in order to sell the property.
Zoning Laws
Municipal laws restricting the use of land for special purposes.
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Mortgage
Glossary
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