Glossary of Mortgage Terms
Here's a glossary of mortgage terms commonly used:
A
Amortization Period: The total time it takes to pay off a mortgage, often up to 25 or 30 years.
Appraisal: A professional assessment of a property’s value, typically required by lenders.
APR (Annual Percentage Rate): The total cost of borrowing, including interest and other fees, expressed as a percentage.
B
Blended Mortgages: combines your current rate with a new, lower one. Blend-to-term and blend-and-extend are two types of blended mortgages.
Bridge Financing: a loan used to purchase a new home before selling your current one.
C
Closed Mortgage: A mortgage that restricts the amount of extra payments you can make without penalties.
CMHC (Canada Mortgage and Housing Corporation): A government agency that provides mortgage loan insurance to protect lenders in case of default.
Conventional Mortgage: A mortgage where the down payment is at least 20%, and mortgage default insurance is not required.
D
Debt Service Ratios:
- GDS (Gross Debt Service) Ratio: The percentage of your income used to cover housing-related costs.
- TDS (Total Debt Service) Ratio: The percentage of your income used to cover all debts, including the mortgage.
Down Payment: The initial payment made when purchasing a home, typically 5-20% of the property’s purchase price.
E
Equity: The difference between the market value of your home and the outstanding balance of your mortgage.
Early Payout Penalty: A fee charged when paying off a mortgage before the term ends.
F
Fixed-Rate Mortgage: A mortgage with an interest rate that remains constant for the duration of the term.
Foreclosure: The legal process by which a lender takes possession of a property after the borrower defaults on mortgage payments.
H
HELOC (Home Equity Line of Credit): A loan secured by the equity in your home, allowing you to borrow money as needed up to a set limit.
Home Equity: The difference between the market value of your home and the outstanding balance of your mortgage.
I
Interest Rate: The percentage charged by the lender on the outstanding balance of the mortgage.
Interest-Only Mortgage: A mortgage where only the interest is paid during the term, with the principal remaining unchanged until the end of the term.
L
Lender: The financial institution or entity providing the mortgage loan.
Loan-to-Value (LTV) Ratio: The ratio of the mortgage amount to the appraised value or purchase price of the property.
M
Mortgage Default Insurance: Insurance required for mortgages with down payments less than 20%, protecting the lender in case of default.
Mortgage Principal: The amount of money originally borrowed or still owed on a mortgage, excluding interest.
Mortgage Pre-Approval: A lender’s preliminary evaluation of a borrower’s ability to obtain a mortgage.
O
Open Mortgage: A mortgage that allows you to make additional payments or pay off the loan in full without penalties.
Offer to Purchase: A formal agreement outlining the terms and conditions of buying a property.
P
Portability: The option to transfer an existing mortgage to a new property without incurring penalties when moving.
Prepayment: Additional payments made towards the mortgage principal, reducing the loan’s balance faster.
Prime Rate: The interest rate that banks charge their most creditworthy customers. It influences variable mortgage rates.
R
Refinancing: Obtaining a new mortgage to replace an existing one, often to get a better interest rate or access home equity.
Renewal: The process of renegotiating a new term for your mortgage when the current term expires.
T
Term: The period during which the conditions of your mortgage (interest rate, payment schedule) are set, typically ranging from 6 months to 10 years.
Title: Legal ownership of a property.
V
Variable-Rate Mortgage: A mortgage where the interest rate changes with the lender’s prime rate, causing fluctuations in monthly payments.
