Glossary of Mortgage Terms



Accrued Interest
Interest which has accumulated unpaid since the last payment date.

"A" Lender
A residential mortgage lender that underwrites and approves borrowers
based on strict income, credit and property criteria. These lenders pay
the mortgage broker for arranging the loan and no fees are charged to
the client. Borrowers are fully qualified. They are usually a bank or
trust company or credit union.

The gradual retirement of a debt by means of partial payments of the
principle at regular intervals.

Amortization Period
The gradual arrangement for paying off a mortgage by equal installments
or periodic constant payments. Repayments of principle and interest in
"blended" amounts. Fully amortized means complete repayment
without a "balloon" payment at the end of the term. Can be
short as 5 years or as long as 40 years.

Amortization Schedule
The amortization schedule shows monthly installments of principle and
interest and how much of the payment is allocated to each. It also shows
the unpaid principle balance.

Appraised Value
A dollar amount assigned to taxable property, by the assessor, for the
purpose of equalizing the burden of taxation.

What the borrower owns. Liquid Assets are those that can be quickly
converted to cash.

Assignment of Mortgage
The assigning of a mortgagee's interest in the mortgage to a new
mortgagee. The legal sale of the mortgage with or without an agreement
to purchase.

Assumption Of Mortgage
For an existing mortgage against a property and becomes liable for
timely payment of the mortgage. This action might occur with or without
approval of the existing mortgagee depending on the terms of the
existing mortgage.


Blanket Mortgage
A single document which is registered covering more than one little

Blended Mortgage
Combing the amount owing on an existing mortgage with additional
mortgage money for the purpose of buying another property. The interest
rate changes to one that combines the rate on the old loan with the rate
in effect at the time you add additional financing.

Blended Payments
The method of repayment where periodic payments of principle and
interest are made in such a way that the payments remain constant in
amount, although the portions attributed to principle and interest vary
with each payment.

Bridge Financing
A special short term loan needed to cover (bridge) the gap in time
between completing the purchase of one property and finalizing
arrangements to pay for it. This is often the result of mismatched
closing dates.


Carrying costs
The actual cost of living in and maintaining property, including
mortgage payments property
tax, heating, repairs, and so on.

Closed Mortgage
The restriction or denial of repayment rights until the maturity of the

Closing Dates
The date on which the sale of the property becomes final and the new
owner takes possession.

Canadian Mortgage and Housing Corporation, a Crown Corporation which
administers the National Housing Act.

The ownership of a separate amount of space in a multiple dwelling or
other multiple occupancy building with proportioned tenancy in common
ownership of common elements. Used jointly with other owners however,
the owner does not own hid/her specific unit but he/she becomes a
shareholder of the corporation which owns all the real property and
occupies by way of a tenancy agreement administrated by an elected board
of directors.

Co ownership occurs when the ownership of the whole property is divided
(not necessarily on a pro-rated basis) between two or more persons.
Usually there is a written agreement between the co-owners in which the
rights of each co-owner is described. Each co-owner may sell his/her
right of ownership or dispose of it as he/she wishes.

Collateral Mortgage
A loan backed by a promissory note and the security of a mortgage on a
property. The money borrowed may be used for another purpose, such as
home renovations or a vacation.

A notice from a Mortgage lender to a prospective borrower the lender
will advance mortgage funds in a specified amount under certain

Commitment fee
This fee is charged by a lender for keeping an agreed amount of the
funds available to the borrower for a specified period of time.

Compound interest
Interest charged not only to the principle sum but also on interest
amounts charged in a preceding period.

The ownership of a separate amount of space in a multiple dwelling or
other Multiple-occupancy building with proportioned tenancy in common
ownership of common elements used jointly with other owners.

An agreement between two or more parties given receipt of lawful
consideration to do or refrain from doing some act.

Conventional Mortgage
A first mortgage, outside the conditions of NHA (the National Housing
Act), granted by an institutional lender such as a bank, mortgage, loan
or trust company wherein the amount of the loan does not exceed 75% of
the appraised lending vale of the property.

Convertible Mortgage
A short term, usually 6 (six) or 12 (twelve) months, allowing the
borrower to switch into a longer term at any time without penalty. There
are several different variations to the convertible mortgage.


Debt Service
The amount of principle and interest repayments made under a mortgage on
a periodic basis. If payments are equal they are "constant
payments", if the amounts vary they are known as "variable

An Instrument in writing, duly executed and delivered, that conveys
title or an interest in real property.

Failure to fulfill an obligation.

Demand Note
Payment is made on demand, usually within a few days notice to the

A sum of money (in the form of cash) required to be paid with an offer
to purchase as a symbol of the purchasers commitment.

Discharge Of Mortgage
A Document executed by the mortgagee, and given to the mortgagor when a
mortgage loan has been repaid in full before, at, after the maturity

Down Payment
The amount of money (in the form of cash) put forward by buyer toward
the purchase price of a home.


Effective interest rate
The actual interest rate on investment where a debt or loan was bought
at discount or at a premium.

The remaining interest an owner of real property has in its total value
after allowing for encumbrances and creditors' claim.

Equity Lenders
These are lenders that lend money on the equity in the property, more so
than on a borrowers income or credit.


First Mortgage
A Mortgage on property creating a prior claim over any subsequent
mortgages or charges and usually conveying the legal estate to the
mortgagee. Upon foreclosure of the mortgage, the first mortgagee must be
fully satisfied out of the proceeds before any subsequent claims.

Fixed-rate Mortgage
This is the usual form of mortgage where interest rate remains the same
during the entire life of the loan.

Floating Rate of Interest
Rate of interest which fluctuates a certain number of percentage points
above or below prime lending rates.

Remedial court action taken by a mortgagee when default occurs on a
mortgage, to cause forfeiture of the equity of redemption of the

The ownership of a tract of land on which the building(s) are located.
The most common type of ownership of real estate.


Gross Debt Service Ratio (GDS)
The annual charges for principal, interest and taxes as a function of
gross income of the mortgagor.

Gross Income
The scheduled income from the operation of the business of the
management of the property, customarily stated on an annual basis. Also
refers to the total personal income (from all sources) of an individual,
before taxes and other deductions.

A third party person without interest in the property who agrees to
assume responsibility for a debt in the event of default by the


High Ratio Mortgage
A mortgage loan that exceeds the normal limit of a conventional first
mortgage, in regard to the ratio of the loan amount to the property's
lending value; the higher loan amount is made possible by a mortgage
insurance plan. e.g. CMHC.

Hold back
An amount of money retained by a construction lender or owner until
satisfactory completion of the work performed by a contractor.


Income/Expense Ratio
Ratio of operation expenses to gross income and expressed as a
percentage ( also known as operating ratio).

Annual profit on a loan of money. The price paid to "rent"
money. A function of the rate of interest over a period of time on a
specific sum of money.

Interest Adjustment Date (IAD)
The date on which the mortgage really begins, usually the first of the
month. The borrower is required to pay interest on the loan between the
date of receiving the funds and the IAD before regular mortgage payments

Interest Only Loan
Borrower pays back interest only on the loan and there is no
amortization until later or until the end of the term. This may occur
when a purchaser wishes to resell property after a short period or if he
wishes to build up enough income from the property before amortization.


Joint Tenancy
Ownership of land by two or more persons whereby, on the death of one,
the survivor or survivors take the whole estate.


A person has use of the property for a limited time. This person can
rent the building and rent the land on which the building sits.

Leasehold Mortgage
A mortgage for the purchase of a home or improvements to a home where
the building is on land that is leased or rented.

Lending Value
An independent appraiser's value interpreted by the lender as to the
worth of a property in the current market given a reasonable time period
to sell the property.

Letter of intent
Similar to as letter where the lender issues a letter to a borrower
outlining their intent to lend them money for a specific purpose and
under what conditions that money will be loaned.

What the borrower owes.

The lender's legal claim to the borrower's property.

Line of Credit
A maximum credit limit allowed by a lender to a borrower, as long as the
borrower maintains an acceptable balance on account or has good credit
rating. The credit line will vary from time to time according to the
changing circumstances of the borrower or the lender.

Loan Coverage
The ratio of net operating income to mortgage debt service; in general,
loan coverage of 1.2 is considered adequate.

Loan fee
A charge for making a loan in addition to the interest charged to the

Loan To Value Ratio
The advance ratio of the principle amount of the mortgage as a function
of the lending value of the property.


Maturity Date
The last day of the term of the mortgage agreement. The mortgage must be
paid out in full or the agreement renewed by the maturity date.

A conveyance of the property to a creditor, as security for payment of a
debt. Such security is redeemable or recoverable on payment or discharge
of the debt at a specified date. More recently referred as a Charge in
the new Polaris registry system. An encumbrance registered on the title
of the lands.

Mortgage Insurance Premium
A premium which is charged as a percentage of the mortgage. The mortgage
insurance insures the lender against loss in case of default by the

Mortgage Life Insurance
A form of reducing term insurance recommended for the borrower. In the
event of the death of the borrower or one of the co-borrowers, the
insurance pays off the balance owing the mortgage. The intent is to
protect survivors from losing their home.

The one to whom property is conveyed. The holder of the mortgage (The

The one who makes the payments. The owner of the property. (The


National Housing Act (NHA) Loan
A mortgage backed (insured) to a certain maximum by CMHC or an approved
private insurer.

Net Rate of Interest
The interest rate received by a mortgage lender net of the servicing fee
deducted by a loan correspondent, etc.

Nominal Rate
The quoted interest rate for a mortgage.


Offer of Purchase
A formal, legal agreement that offers a certain price for a specified
property. The offer may be firm (no conditions attached) or conditional
(certain conditions must be fulfilled).

Open Mortgage
A way of registering a mortgage which allows the mortgagor to make extra
payments, make principle repayments, or pay the loan off in full at any
time without penalty.


Principal and Interest due on a mortgage.

Principal, interest and property taxes due on a mortgage.

Principal, interest, property tax and heating costs due on a mortgage.
These payments are used to calculate the GDS and TDS of a borrower.

A sum of money paid to the lender for the privilege of prepaying a
mortgage in part or in full, outside the privileges set out in the terms
of the mortgage.

Portable Mortgage
Upon the consent of the lender, the mortgagor may transfer the balance
of their existing mortgage to new property to being mortgaged.

Power of Sale
The right of a mortgagee to force sale of the property without judicial
proceedings should default occur.

Pre-approved Mortgages
Preliminary approval by the lender of the borrower's application for a
mortgage to a certain maximum amount and rate. Usually conditional upon
the property being purchased meeting the lenders criteria.

Pre-Authorized Cheque (PAC)
See Pre-Authorized Payment.

Pre-Authorized Payment (PAP)
This method of making mortgage payments allows the lender to deduct the
agreed upon mortgage (tax & insurance, if applicable) payment
directly from the borrower's chequing account.

Prepayment Charge
A fee charged by the lender when the borrower prepays or part of a
mortgage more quickly than stated in the mortgage agreement. The fee
charged to compensate the lender for loss of revenue.

Prepayment Options
The clause in the mortgage agreement that specifies when, how much and
how prepayments of the mortgage principal (above and beyond the regular
mortgage payments) can be made by the borrower.

Prime Rate
The rate charged by the banks to their most credit-worthy borrowers.

The amount of money borrowed. Could be part of the repayment plan that
lowers this original amount.

Priority of Mortgages (i.e. First,
Second, Third)

Dates of registration by the number and date in the local Registry
Office and/or land Titles, then given to the mortgagee. First mortgages
have priority over second mortgages; second mortgages have priority over
third mortgages; and so on. Priority refers to the mortgagee's claim to
the property should payments go into default.

Promissory Note
An unconditioned note or written promise by the promisor to pay a sum of
money to the payee on demand or at a fixed or determinable future date.


Rate (interest)
The return the lender receives for loaning the borrower the money for
the mortgage.

The buying back of a mortgage estate by payment of the sum due on the

To pay in full and discharge a mortgage and any other registered
encumbrances and arrange for a new mortgage with the same lender or a
different lender.

To change the terms and condition of a mortgage agreement prior to
maturity. Renegotiation occurs with lender who currently holds the

Renewal Agreement
An Agreement whereby the lender may agree to extend the term of the
loan, but possibly on revised terms as to principle repayments and
interest rate.

Reserve Fund
A fund set up by a condominium corporation for major repairs and
replacement of such items as the roof, elevators, plumbing, heating
systems, etc. All condo corporations, by law, require a reserve fund.

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 can not be agreed upon, the lender is entitled to be
repaid in full. In this case, the borrower may seek alternative


Second Mortgage
A mortgage placed on a real property which is already encumbered with
one mortgage. Determination of first, second, third, etc. mortgage is by
priority registration (time and date).

Property offered as backing for a loan. In the case of mortgages, the
property being purchased with the loan usually forms the security of the

Shelter Payments Ratio
Gross debt service plus annual heat costs as function of the gross
income of the mortgagor.

The accurate mathematical measurements of land and buildings thereon
made with the aid of instruments.


Tenancy in Common
Ownership of land by two or more persons; unlike joint tenancy in that
the interest of the deceased does not pass to the survivor, but is
treated as an asset of the deceased's estate.

Term of Loan
The length of time during which the special conditions of the mortgage
remain in force. At the end of the term, things such as interest rate,
pre-payment privileges, etc. are renegotiated.

Total Debt Service Ratio (TDS)
Gross debt service plus payments on other debts such as bank loans,
finance company loans, credit card payments, alimony, etc. as a function
of the gross income of the borrower.

To convey from one person or institution to another.

Transfer of Charge
Assignment of a mortgage under the Land Titles System.


Underwriter (Mortgage)
A person employed by a mortgage lender or mortgage broker who assesses
loan applications based upon the following: Quality of the real
Property, credit worthiness and ability to pay off the applicant and
guidelines of the lender with regard to ratio of mortgage loan to value
of property.


Variable Interest Mortgage
A loan where the interest rate may vary during the term of the mortgage.
The variance is usually tied to some specific factor such as prime bank
rate or the guaranteed investment certificate rate for a designated

Vendor Take Back Mortgage
A mortgage which a vendor of real property takes from the purchaser
usually as part payment of the purchase price of the property. A private
first or second mortgage that the vendor lends to the


The public regulation of the character and intensity of the use of real
estate. This is accomplished by the establishment of districts in each
of which uniform holding restrictions related to use, height, area, bulk
and density of the population are imposed upon the private property.



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