A
| Adjustable Rate Mortgage (ARM) | A mortgage with an interest rate that changes over time based on market rates. It often starts with a lower fixed rate, making initial payments lower. Rate adjustments are typically tied to a benchmark index, such as the prime rate, and can occur annually or at other intervals. |
| Amortization | The process of paying off a loan over time through regular payments with each payment covering both principal and interest. Early payments primarily cover interest. An amortization schedule outlines these payments until the loan is repaid – usually 25-30 years. |
| Appraisal | An independent assessment of a property’s market value, conducted by a licensed appraiser. This is crucial for lenders to ensure the property can cover the loan amount in case of default. Oftentimes a Lender will use a Automated Valuation Model instead. |
| Assumable Mortgage | A mortgage that can be transferred to another borrower without altering its terms. The new borrower takes over the remaining payments, subject to lender approval of their creditworthiness. |
B
| Bank of Canada | Canada’s central bank, which regulates monetary policy and influences interest rates affecting mortgages and other loans nationwide primarily through setting the Bank of Canada Policy Rate. |
| Big 6 Banks | The six largest banks in Canada: RBC, TD, Scotiabank, BMO, CIBC, and National Bank. They offer a wide range of financial services, focusing on borrowers with good to excellent credit and low risk. |
| Blended Rate | An interest rate that combines existing rates from multiple loans into one new rate. This can occur when refinancing or renegotiating terms to take advantage of lower current rates. |
| Blended Payments | Payments that combine different interest rates or loan terms into one monthly payment, often used when refinancing or consolidating loans. |
| Breaking a Mortgage | Ending a mortgage contract before its term ends, which typically incurs pre-penalties such as an interest rate differential or three months’ interest. Reasons usually include refinancing or selling the property. |
| Bridge Loan | A short-term loan used to bridge the gap between buying a new property and selling an existing one. It provides temporary financing until long-term financing is secured. |
C
| Closed Mortgage | A mortgage that restricts early repayment without incurring penalties, except under specific conditions outlined in the agreement. |
| CMHC | Canada Mortgage and Housing Corporation, a federal agency providing mortgage insurance and promoting affordable housing initiatives across Canada. |
| Co-Borrower | An individual who shares equal responsibility for repaying a loan and has access to the borrowed funds. This differs from a co-signer who does not have access to funds but shares repayment liability. |
| Collateral Mortgage | A type of mortgage where the loan amount can be equal to or exceed the property’s value, offering flexibility for additional lending in the future, however it effectively ties your home’s equity to that lender. |
| Contract Rate | The interest rate specified in a mortgage agreement that determines monthly payments. It may differ from market rates at any given time. |
| Conventional Mortgage | A mortgage requiring at least a 20% down payment and not insured by CMHC. It typically offers lower monthly payments due to higher initial equity. |
| Conversion Rate | In mortgages, this refers to converting an adjustable-rate mortgage (ARM) into a fixed-rate mortgage within specified conditions and timeframes. |
| Credit Score (Beacon) | A numerical representation of an individual’s creditworthiness based on their credit history. It influences loan approval and interest rates offered by lenders. |
| Credit Utilization | The ratio of credit used compared to available credit limits. It’s a key factor in credit scoring models like FICO Beacon |
D
| Debt-Service Ratio | Measures the portion of income used for debt payments. Lenders use it to assess borrowing capacity; commonly split into Gross Debt Service (GDS) and Total Debt Service (TDS) ratios. |
| Down Payment | The initial cash payment made when purchasing property, expressed as a percentage of the purchase price. It affects mortgage insurance requirements and monthly payments. |
E
| Effective Rate | The actual annual interest rate accounting for compounding periods within the year. It provides a more accurate cost of borrowing than nominal rates. |
F
| Equity | The difference between a property’s market value and the outstanding balance on any loans secured against it. Equity represents ownership stake in the property. |
G
| Gross Debt Service Ratio (GDS) | The percentage of gross income used for housing-related costs like mortgage payments, taxes, and heating expenses; typically should not exceed 32% |
| Guarantor | An individual who agrees to repay a borrower’s debt if they default; does not have ownership rights in the property but provides additional security to lenders |
H
| High-Ratio Mortgage | A mortgage with a down payment of less than 20% of the home’s purchase price, requiring mortgage insurance due to higher risk. |
| Home Equity | The difference between the market value of a home and the outstanding balance of all liens on the property. |
| Home Equity Line of Credit (HELOC) | A revolving line of credit secured by home equity, allowing borrowing for large expenses or debt consolidation. |
| Homeowners Insurance | Property insurance covering losses and damages to an individual’s house and assets in the home. |
I
| Insurable Mortgage | A mortgage that can be insured by the lender, typically involving a down payment of 20% or more on properties under $1 million. |
| Insured Mortgage | A mortgage requiring default insurance due to a down payment of less than 20%, offering lower interest rates due to reduced lender risk. |
| Interest Rate | The percentage charged on a mortgage loan, representing the cost of borrowing money from a lender. |
| Interest Rate Differential | A charge applied if a borrower pays off their mortgage before maturity, calculated based on interest rate differences. |
L
| Loan to Value Ratio | The ratio of a loan amount to the appraised value of the property, expressed as a percentage -used to assess lending risk. The lower the better. |
| Low Ratio Mortgage | Also known as a conventional mortgage, it requires a down payment of 20% or more, avoiding mandatory mortgage insurance. |
M
| Maturity Date | The final payment date of a mortgage loan, after which no further payments are due and ownership is fully transferred to the borrower. |
| Monoline Lender | A financial institution specializing solely in mortgage lending, often offering competitive rates and terms. |
| Mortgagee | The lender or financial institution that provides funds for purchasing real estate in a mortgage agreement. |
| Mortgagor | The borrower who takes out a mortgage loan to purchase real estate and is responsible for repayment. |
| Mortgage Switch (Assignment) | Transferring an existing mortgage from one lender to another to secure better terms or rates without changing the loan balance. |
| Mortgage Ratios | Financial ratios used by lenders to evaluate a borrower’s ability to repay a mortgage, including debt-to-income and loan-to-value ratios. |
| Mortgage Default | Occurs when a borrower fails to meet the legal obligations or conditions of their mortgage agreement. |
| Mortgage Default Insurance | Insurance protecting lenders against losses if borrowers default on their mortgages, typically required for high-ratio mortgages. |
| Mortgage Discharge | The process of removing a mortgage from title once it is paid off in full, releasing the borrower from further obligations. |
| Mortgage Default Insurance | Insurance that protects lenders against losses from borrower defaults; required for high-ratio mortgages with less than 20% down payment. |
| Mortgage Prepayment | Paying off part or all of a mortgage before its maturity date, potentially incurring prepayment penalties like interest rate differentials. These vary greatly. |
| Mortgage Renewal | The date when a mortgage reaches it’s term period, when you can typically negotiate changes such as a new interest rate, payment amount, refinance, take out equity or change lenders. Your existing mortgage terms may restrict these options. |
| Mortgage Term | The length of time over which the agreed-upon conditions and interest rate remain in effect for a mortgage loan before renewal is needed. |
| Mortgage Terms | Legal clauses within your mortgage contract that specify obligations and conditions, and costs such as your rate, compounding period, prepayment penalties, assumability, portability, and renewal terms. |
N
| Negative Amortization | Occurs when monthly payments are insufficient to cover interest costs, causing an increase in the outstanding loan balance over time. |
| Negative Equity | When the value of an asset falls below the outstanding balance on the loan used to purchase it, often referred to as being “underwater.” |
| Notice of Assessment (NOA) | A statement from tax authorities detailing income tax owed or refunded, often used by lenders to verify income during mortgage applications. |
O
| O.A.C. | On Approved Credit – Subject to borrower’s credit approval. |
| O.S.F.I. | Office of the Superintendent of Financial Institutions – Canada’s primary regulator of federally regulated financial institutions. |
| Open Mortgage | Allows repayment of the principal without penalties. Typically this comes with a higher interest rate. |
P
| Portable Mortgage | Transfer mortgage balance to a new property without penalties. |
| Pre-approval | Lender’s tentative promise to loan based on preliminary assessment. |
| Pre-qualification | Initial estimate of how much one can borrow without guarantees. |
| Prime Mortgages (“A” Mortgages) | Loans to high-quality borrowers with low interest rates. |
| Prime Rate | Lowest commercial interest rate charged by banks. |
| Principal | The original sum of money borrowed in a loan or mortgage. |
| Private Mortgage | Loan from private lenders with flexible terms but higher costs. |
Q
| Qualifying Rate | Rate to ensure repayment ability under varied conditions. |
| Quick Close | A mortgage loan processed and closed on a quick timeline. |
R
| Readvanceable Mortgage | Combines mortgage with a line of credit. |
| Refinancing | Replacing an existing mortgage with a new one, often to reduce interest rates or change terms. |
| Renewal | The process of extending the term of an existing mortgage at maturity. |
S
| Smith Maneuver | A strategy that allows Canadian homeowners to convert their mortgage into tax-deductible investment loans. |
| Stress Test | Mortgages in Canada must qualify at 2% higher than their contract rate to protect borrowers from future rate increases. |
| Subprime Mortgage (“B” Mortgage) | Loans offered to borrowers with lower credit scores, typically at higher interest rates due to increased risk. |
T
| Teaser Rate | An initially low interest rate offered at the beginning of a loan, which increases after a set period. |
| Tied Selling | A practice where the sale of one product is conditional on the purchase of another product from the same company. |
| Title Insurance Lenders | Protects lenders against losses due to title defects or liens that might affect their security interest in the property. |
| Title Insurance Owners | Protects property owners from losses due to title defects or claims against their ownership rights. |
| Transfer (Switch) | Moving a mortgage from one lender to another without changing the terms or amount owed. |
| Trigger Rate | The interest rate at which payments on a variable-rate mortgage may no longer cover the interest portion, potentially increasing the principal owed. |
| Type-A Cottage | A classification for cottages that meet specific criteria for year-round occupancy and financing eligibility. |
U
| Underwriting | The process lenders use to assess the risk of lending money to a borrower by evaluating their financial status and creditworthiness. |
| Uninsured Mortgage | A mortgage loan that does not have insurance protection for the lender against borrower default, typically requiring a larger down payment. |
V
| Variable Rate Mortgage | A mortgage with an interest rate that fluctuates based on market conditions, often tied to the prime rate. |
To Share: Copy this short URL: https://genewesley.ca/fgp9
