Glossary

A 50-50 mortgage is also known as a hybrid mortgage. This product offers you both security and flexibility. There is only one mortgage, but the repayment terms are divided, with half of the mortgage locked into a five-year fixed rate and the other half at a five-year variable rate. 

If interest rates start to rise or if they decrease, only the variable rate half of the mortgage is impacted.

When the owner of a property finds that the conditions of ownership are too burdensome, they may choose to give up their legal claim to the property. This is referred to as abandonment. In cases of abandonment, creditors may seek to recover their money as the property is no longer part of the owner’s estate.

Abandonment is not the same as defaulting on a mortgage. See “default” for more information.

With accelerated bi-weekly mortgage payments, you choose to have your monthly mortgage payment divided in half. That amount is then withdrawn from your account every two weeks, making a total of 26 payments per year. Choosing accelerated bi-weekly payments means you make one extra monthly mortgage payment over the course of a year, which will save you money on interest and reduce your amortization period.

Changing to accelerated bi-weekly instead of monthly payments is an easy way to pay down your mortgage faster. The extra payment is rarely noticed within a yearly budget, yet it makes a difference in how quickly you can repay the mortgage.

The term adjustable rate mortgage is often used interchangeably with variable rate mortgage, and while there are some minor differences in how they function, they are very similar. Under the terms of this kind of mortgage, the interest rates (and thus, the payments) may change, based on an index. In Canada, the index is the prime lending rate. 

With an adjustable rate mortgage, as the interest rate changes, so does the monthly payment. 

The adjustment date, or interest adjustment date, is the day on which borrowed money is disbursed to all involved parties and interest begins to accrue on your mortgage. 

The amount of interest that accrues between the adjustment date and the date of your first mortgage payment, is usually due to be paid on the day before you make your first mortgage payment.

The amortization period refers to the amount of time required to fully repay your mortgage. Typically, an amortization period is 25 years, but some lenders offer amortization periods of up to 35 years.

While the amortization period refers to the full amount of time it takes to pay off your mortgage, it is broken down into smaller intervals called terms. Terms range anywhere from one to ten years in length, and each term has an interest rate (fixed or variable) attached to it. If you begin your mortgage with a 25-year amortization and complete a five-year term, you will have 20 years amortization remaining. 

Increasing payment amounts will serve to reduce your amortization, which will lower the overall lifetime cost of your mortgage financing. 

An amortization schedule is a table that outlines the plan of payments you will make on your mortgage. The table includes the following information: the amount of each payment; how often each payment will be made (weekly, monthly, etc.); how much of the payment will be applied to both interest and principal; and the remaining balance of the mortgage after each payment is made.

An appraisal is an unbiased estimate of the value of a property. The appraisal is conducted by a third party and is required when you apply for a mortgage. The homebuyer is usually the person responsible for the cost of the appraisal.

An appraisal is always required when securing mortgage financing. However, if your mortgage requires high ratio mortgage insurance to secure financing, the insurance provider will be responsible for getting the appraisal done at their cost. 

Appraised value is the estimated fair market value of a property as assessed by a licensed appraiser. 

This is a document filed with the government by a corporation’s founders outlining the details of the corporation, including name, purpose and place of business, as well as other information, depending on the requirements of the jurisdiction. Articles of incorporation are the legal documents which prove the ownership structure of a corporation and date of incorporation.

Articles of incorporation are requested by the lender to support your mortgage application if you claim self-employed or dividend income. They are used to prove the length of your self-employment. 

An asset is something you own that has value or use. Examples of assets would be RRSPs, properties, vehicles, savings, etc.

An assumable mortgage is a mortgage that the lender will allow to be transferred to another qualified borrower without changing the terms of the mortgage. 

Assuming a mortgage is an agreement that takes place between the seller, the seller’s lender and the buyer in which the seller’s mortgage is transferred to the buyer without changing the terms of the mortgage. 

The buyer takes over (assumes) the mortgage payments and pays the seller the difference between the purchase price of the property and the amount still owing on the mortgage. 

The person assuming the mortgage is required to meet the lender’s qualifications in order to assume the mortgage. 

Also known as interim financing, a bridge loan is a short-term financing agreement that allows you to “bridge” the gap between the time that you buy a new property and sell your existing property. 

A bridge loan can only be secured when you have an unconditional sale on your existing property and you have an accepted offer on the property you are purchasing. When those closing dates don’t line up and you need access to funds from the sale of your property, a bridge loan covers you for that interim period. 

Once you’ve sold your current property, the lawyer instructs the bridge loan to be paid out by the proceeds of your sale. 

A closed mortgage locks the interest rate for the mortgage term, but it does not allow you to pay out the mortgage, make extra payments (beyond what is in the agreement) or refinance the mortgage before the maturity date without incurring a penalty. Closed mortgage terms range from one to ten years. 

Closing costs are the legal and administrative expenses associated with concluding a mortgage transaction. Typical costs include lawyer’s fees, title insurance, appraisal fees, fire insurance, taxes, and home inspection fees. 

Typically, lenders like to see that you have at least 1.5% of the purchase price available to cover the costs associated with concluding your mortgage transaction. 

The closing date is the date on which the sale of a property becomes final, funds are moved so that the seller is paid and the buyer’s mortgage is taken out, and the ownership of the property (title) is transferred from the seller to the buyer.

Collateral is something of value that is pledged or guaranteed to the lender in case the borrower cannot repay the loan. In terms of mortgages, the collateral is the property that is being mortgaged. 

Compound period refers to the number of times in a year that the interest rate is compounded on a loan. In Canada, interest is compounded twice per year. 

Condo fees are the monthly mandatory fees that a strata requires from each resident for the upkeep of all common areas in the condominium complex. When securing mortgage financing for a condominium, a lender may require that a percentage of the condo fees are included in the debt service ratios. 

A conventional mortgage is one where the buyer has paid a down payment of at least 20%, leaving a mortgage of no more than 80% of the purchase price or appraised value of the property, whichever is less. One of the benefits of a conventional mortgage is that you aren’t required to pay for default mortgage insurance. 

A credit bureau, also known as a consumer credit reporting agency, is a company that collects and compiles information about your credit history from financial institutions and various other bodies. In Canada, there are two credit bureaus - Equifax Canada and TransUnion.

A credit report is the history of an individual’s credit. This is generated by either Equifax Canada or TransUnion. The terms credit bureau and credit report are often used interchangeably, and while the bureau refers to the agency who provides the report and the report is a summary of the credit history, most people actually only discuss your credit score.  

Lenders consider the information from your credit report when assessing your trustworthiness in providing you with mortgage financing. 

Your credit score is a three-digit number between 300 and 900 that is used by lenders to decide whether you will be able to pay back the money that you are applying for. Your credit score is based on a number of factors such as past payment timeliness, the amount of debt you already have in relation to your credit limits, and the length of your credit history. 

The higher your credit score number, the better your chances of getting a mortgage, and at a lower interest rate. 

Debt consolidation happens when you combine several debts into one debt that you repay in monthly payments. As it relates to mortgage financing, debt consolidation can happen when you refinance an existing mortgage and access some of the equity to pay off credit cards, car loans, or lines of credit. Your debt is then consolidated into your mortgage. 

Debt service ratios are two ways that lenders use to determine your ability to pay back a loan, and therefore, how much a lender will give to you. There are two ratios that are used by mortgage lenders: the Gross Debt Service ratio (GDS) and the Total Debt Service ratio (TDS). 

The GDS ratio calculates how much of your gross annual income is used to cover the costs of owning a home. This includes mortgage payment, taxes, heating, and condominium fees, if applicable. 

The TDS ratio calculates how much of your income is used to cover the costs of owning a home, but also includes other debt payments such as car loans, student loans, credit card and line of credit payments.

While figuring out your debt service ratios is a simple calculation, different lenders have different guidelines on what the ratios must be in order to secure financing.

To default on a mortgage means to be unable to meet the financial obligations of the mortgage contract. When you are unable to make the required payments, this is referred to as defaulting on your mortgage.

If you default on your mortgage, the lender will begin the process of foreclosure. 

Secured by the unconditional sale of your existing property, a deposit loan allows you to access the equity you have in your current property to borrow money to put a deposit down on the purchase of another property.

A down payment is the initial payment that the buyer makes towards the purchase of a property. A mortgage is then taken out for the difference between the purchase price of the property and the amount of the down payment. In Canada, the minimum down payment required to secure mortgage financing is 5%.

Equity is the difference between the price for which the property could be sold and the debt that is still owed on the property. 

An equity take out mortgage is when you refinance your existing mortgage to access some of your home’s equity.

Fair market value (FMV) is the price that a willing and able buyer, who has knowledge of all the pertinent facts, is willing to pay for a property and the price for which the seller is willing to sell the property.

A first mortgage is taken when you borrow money to buy a property. When this happens, your lawyer will register your mortgage on the title in what is called first position or first charge. This means that when you sell the property, the lender with the first mortgage has first claim against the proceeds of the sale. 

A second mortgage refers to an additional loan on the property. If you take a second mortgage, you continue to make payments on the first mortgage, but you are now required to make payments on the second mortgage as well.  If you sell your property, the lawyers will use the proceeds of the sale to pay off your mortgages in sequence - the first position mortgage is paid out first, and the second position mortgage is paid out second.

A fixed rate mortgage is a mortgage where the interest rate and payment have been fixed or locked in for a certain period of time called a term. Terms range anywhere from one to ten years. 

Foreclosure happens when you default on your mortgage payments. In foreclosure, the lender takes legal possession of the property in order to sell it and recover the amount of the mortgage loan.

The GDS ratio, or Gross Debt Service ratio, calculates how much of your gross annual income is used to cover the costs of owning a home. This includes mortgage payment, taxes, heating and condominium fees, if applicable. 

The GDS ratio is only one of two ratios that lenders use to determine your ability to pay back a loan, and therefore, how much a lender will give to you.

A gift letter states that an immediate family member is giving a genuine gift of money to the gift recipient for the down payment of a home. The letter must state that the amount of money does not have to be repaid at any time.

HELOC stands for Home Equity Line of Credit. This is a revolving line of credit, which means that you can borrow any amount of money up to the approved limit, provided that you make the minimum interest payments each month. Because a HELOC is a loan secured by the equity that is in your home, the offered interest rate is usually lower than an unsecured line of credit.

A high ratio mortgage is a mortgage that exceeds 80% of the value of your property. This means that you made a down payment of less than 20% of the value of the property. A person who holds a high ratio mortgage is required to purchase default insurance to protect the lender from missed payments.

In Canada there are three default insurance providers: Canadian Mortgage and Housing Corporation (CMHC), Sagen (formerly Genworth Canada), and Canada Guaranty. 

A home inspection is done by a certified inspector who conducts a visual inspection of the interior and exterior of the home looking for defects or anything that is not up to code. A successful home inspection report is usually one of the conditions of an offer to purchase as discoveries of unexpected and potential future costs may influence your buying decision. 

Although a home inspection is not required in order to secure mortgage financing, it is a good idea to have one completed to assess the property you’re looking to purchase. If deficiencies show up in the report, there may be room to negotiate a better purchase price.

Home insurance covers damage done to your home in the event of fire, theft, or natural disasters such as flood, tornado and earthquake. Lenders require proof that you have arranged home insurance before they will issue a mortgage on a property. 

A home insurance policy covers your physical home, the contents of the home, and other losses due to the destruction of the property in part or in whole by fire, theft or natural disasters that are covered under home insurance.

The interest adjustment date, or adjustment date, is the day on which borrowed money is disbursed to all involved parties and interest begins to accrue on your mortgage. 

The amount of interest that accrues between the interest adjustment date and the date of your first mortgage payment is usually due to be paid on the day before you make your first mortgage payment.

In terms of borrowing, interest is the amount of money that a lender will charge you for the use of their money. An interest rate is the percentage of the total loan that will be charged to you as the cost of borrowing the money.

See “bridge loan”.

A job letter is also referred to as an employment letter. This is provided by your employer to verify your employment, guaranteed number of hours per week, and income amount. If you’re an employee of a company, a job letter is an important component in qualifying for a mortgage.

The land transfer tax is a tax paid when the ownership of a property is transferred from one person to another. If you are the buyer, then you pay the transfer tax.

This transfer tax is applicable in all Canadian provinces except Alberta and Saskatchewan, which charge a smaller transfer fee. Some buyers may be exempted from paying the land transfer tax, but exemptions depend on the province you live in.

The amount of the land transfer tax is calculated as a percentage of the property's value, so the more valuable the property, the higher the tax. Each province has its own regulations. 

Legal fees and disbursements are fees paid to your lawyer to cover the cost of the work they do in order to complete the legal transaction of purchasing a property. Legal fees and disbursements are considered to be part of the closing costs of the purchase. When you pay legal fees and disbursements, you are paying for things like preparing and recording official documents, land title and tax searches, agents’ fees, and miscellaneous expenses. 

Liability refers to any financial obligation you have such as mortgage payments, credit card debt, or car payments.

A licensed mortgage associate is the person within a mortgage brokerage who helps the client obtain a mortgage. The licensed mortgage associate will collect the necessary documents for the mortgage application. They will review the types of mortgage products available to you and advise you on which product will best suit your needs. Finally, the licensed mortgage associate will walk you through all the steps of the transaction.

A lien is a notice attached to the title of your property that says you owe money to creditors and that the property is the security to ensure that you pay back the debt. A mortgage is an example of a property lien. If you want to sell your property and transfer the title to the purchaser, you must pay back the debts and clear the title of the lien against your property.

A loan is a borrowed amount of money that needs to be paid back to the lender in full, usually with the addition of interest.

The loan-to-value ratio is the ratio that compares the amount of your mortgage loan to the appraised value or purchase price of your property (whichever is less). 

For example, if you purchased a property valued at $100,000 and made a down payment of $20,000, you would need a mortgage of $80,000 or 80% of the value of your property. This means that your LTV would be 80%. 

The higher your LTV ratio, the riskier your loan is to the lender.

When you make a lump sum payment, you are making a one-time full or partial payment against the mortgage or loan principal. Most mortgage agreements allow you to make a lump sum payment up to a certain percentage of the total mortgage amount each year.

Market value refers to the price that a seller can expect to receive from a buyer in a fair and open negotiation. Typically, market value is assessed by professional appraisers or real estate agents and depends on a variety of factors such as condition of the property, neighbourhood location, demographics, current mortgage rates, availability of credit, and the general situation of the housing market at the time the property is for sale.

The maturity date is the date that your mortgage term ends. When you reach the maturity date, you must either repay the mortgage in full or renew it for another term. 

A mortgage is a loan that is secured against a property. In other words, you borrow money to purchase a property, and if you do not make the payments, the lender can take the property to pay back the loan.

Mortgage affordability is the amount of money that a borrower can afford to pay on a monthly basis towards paying off their mortgage. Mortgage affordability is determined by a number of factors such as income, expenses, and the proposed monthly payment.

A mortgage application is the first step in securing financing for a real estate purchase. Your mortgage application will outline detailed information about you and your financial situation.

The mortgage balance is the full amount owed on the mortgage at any given time for the duration of the mortgage. The balance is the combined total of the principal still owing and accrued interest.

A mortgage broker is a licensed mortgage specialist who sells mortgages on behalf of multiple lenders. Because a broker has access to multiple lenders and mortgage products, they can find the mortgage product that is best suited to your needs, negotiating a better rate and passing volume discounts onto you. It is the job of a mortgage broker to walk you through the mortgage process from application to closing.

Each province has a list of people who are certified to help you secure mortgage financing, but provinces may use different wording for the term mortgage broker. Some provinces make distinctions between types of brokers, such as principal broker, broker of record, mortgage broker, mortgage expert, mortgage professional, and mortgage agent. No matter the title, each one of these licensed specialists can help you secure financing. 

A mortgage brokerage is a company that is licensed to trade in mortgages. Mortgage brokers and licensed mortgage associates must be licensed under a mortgage brokerage.

A mortgage company is a business whose principal activity is to provide or service mortgage loans. A mortgage company may be a chartered bank, credit union, trust company or other financial institution that provides mortgage loans.

A mortgage deed is often just referred to as the mortgage. It is the document in which the borrower grants the mortgage holder the right to retain a lien on the property and the right to foreclose upon the lien if the mortgage payments are not made according to the agreement.

The mortgage deed is filed as a public record and is held by the lender until the mortgage has been fully repaid.

Mortgage default insurance is required for mortgages where the buyer has not been able to make a down payment of at least 20%. This insurance protects the lender from losses should the buyer default on the mortgage payments. 

In Canada there are three mortgage default insurance providers: Canadian Mortgage and Housing Corporation (CMHC), Sagen (formerly Genworth Canada), and Canada Guaranty. 

A mortgage holder is an individual or institution that owns the mortgage loan that was given to the property owner. The mortgage holder is entitled to enforce the terms of the mortgage.

Mortgage lead is the term used by mortgage brokers or lenders to describe a potential mortgage customer. If you’re reading this right now and considering using our mortgage services, you are a mortgage lead. I would love for you to become a mortgage client!

The mortgage lender is the entity that provides financing for the purchase of property. Mortgage lenders can include banks, credit unions, trust companies, mortgage investment corporations, individuals, or other financial institutions such as mortgage finance companies or insurance companies.

Also known as mortgage protection insurance, mortgage life insurance pays off some or all of your mortgage balance in the event of your death or significant disability. Purchasing mortgage life insurance is optional. 

A mortgage loan is a loan that is secured by the real estate that is owned by the borrower.

A mortgage payment is the regular payment that the borrower pays to the lender in order to repay the mortgage loan. Typically, the mortgage payment includes both principal and interest portions.

Mortgage principal is the amount of money that was borrowed from the lender, minus the amount that has already been repaid. As monthly mortgage payments are made, the amount of the mortgage principal is reduced.

Mortgage qualification is the standard set by a mortgage lender to approve a certain mortgage amount to a potential borrower. Qualification includes assessing the applicant’s income, credit history, down payment or equity, and the property that will be used as collateral. 

As each lender has its own set of qualifications, working with an independent mortgage professional is crucial in understanding how your financial situation will look to the lender.

A mortgage rate is the rate of interest that will be charged on the mortgage loan. Interest rates can be either fixed for a particular period of time or will fluctuate with the Bank of Canada’s prime lending rate.

When you reach the end of your mortgage term, if there is still an outstanding balance owing on your mortgage, you will need to renegotiate your next term. 

Instead of dealing directly with your existing mortgage lender, this is a great time to assess all your options. Contact your independent mortgage professional for unbiased advice.

A mortgage statement is issued by your lender and includes the following information: total principal and interest payments made during the period; principal balance at the end of the statement period; interest rate; mortgage terms; and remaining time in the amortization period.

A mortgage statement is issued at least once a year, sometimes monthly, but is available to the borrower upon request. When you’re ready to refinance your mortgage, you’ll be required to provide a current mortgage statement which shows the balance outstanding.

The mortgage term is the length of the mortgage contract. Terms range anywhere from one to ten years in length and include fixed and variable rates. The interest rate and the payment terms and conditions are guaranteed for the term. At the end of the term, the mortgage must be renewed or repaid. 

A mortgage term is different from the amortization period. The amortization period refers to the full period of time it takes to repay your mortgage, but it is broken down into smaller intervals of time called terms. If you begin your mortgage with a 25-year amortization and complete a five-year term, you will have twenty years amortization remaining. At this point, you would renegotiate your term.

In a mortgage agreement, the mortgagee is the lender.

In a mortgage agreement, the mortgagor is the borrower.

Multiple Listing Service (MLS) is a database provided by the Canadian Real Estate Association and the National Association of REALTORS®. It lists all properties for sale or lease in a particular area. MLS does not list properties that are being sold directly by their owners without the assistance of a real estate agent.

When you are looking to purchase a property, the MLS listing is required by the lender as part of the mortgage application documentation. 

The notice of assessment (NOA) is a document provided by the Canadian government each year after your taxes have been filed. The NOA outlines how much money you made in a given year, what you claimed on your taxes in that year, and the amount of tax you still owe or the tax refund that is owed to you.

Lenders often require the NOA as proof of income for self-employed individuals. 

An offer to purchase is a formal and legal agreement between a buyer and seller where the buyer offers a certain amount of money for a property. A deposit usually accompanies the offer to purchase. If the contract is finalized but the buyer changes their mind, the seller has the right to keep the deposit. 

An offer to purchase may be firm, which means there are no conditions attached to the offer, or it may be conditional, which means that certain conditions must be fulfilled. Typical conditions include financing, appraisal, a successful home inspection, and/or the sale of an existing property.

An open mortgage is a mortgage that can be repaid partially or in full without penalty at any time during the mortgage term. Because an open mortgage offers more flexibility in terms of repayment, open mortgage interest rates are typically much higher than closed mortgage interest rates.

The overnight rate is the interest rate at which large banks borrow money among themselves in the short term. As it relates to mortgage financing, the overnight rate has an impact on a bank’s prime lending rate. 

A pay stub is a document you receive from your employer on pay day, which gives the following information for that pay period: gross earnings, deductions (CPP, EI, income tax), and your net income. The pay stub also includes the earnings and deductions information for the year up to that point. 

Lenders will request a recent pay stub accompanied by a job letter as proof of employment. 

Portability is a feature of a mortgage that allows you to “port” or move your mortgage to a new property, without penalty, if you sell your existing property before the mortgage term is up. Portability is important because you may have a fixed interest rate that is lower than the best available rate at the time you are making the new purchase.

The terms and conditions of porting your mortgage vary between lenders. Some make it easy to port your mortgage, while other lenders provide a very narrow window. If flexibility is important to you, make sure to address this with your mortgage professional. 

Porting means to transfer your existing mortgage, with its rates and terms, from one property to another. You are only permitted to port your mortgage if you are selling a property at the same time you are buying a new one. 

Pre-approval is the process you go through to establish whether or not you will be able to secure financing for a mortgage. The pre-approval process includes an assessment of your income, down payment, and credit score. It will also outline how much you can afford to borrow. If any of these pieces are missing, your mortgage professional will provide you with a plan to get you on the right track. 

Once the pre-approval process is complete, you'll be able to proceed with confidence. 

It's important to note that pre-approval is not a guarantee that you will get mortgage financing. A pre-approval isn't for the lender, it's for you.

If the owner of the home you are purchasing has already paid property taxes or utilities on the property, you will reimburse them for those costs when the property deal closes. The amount you owe them will be calculated based on the closing date.

Prepayment refers to paying part of your mortgage ahead of schedule. Depending on the terms of your mortgage agreement, there may be penalties for making prepayments.

If you choose to repay your mortgage before the term is up, you will have to pay a prepayment penalty. For a variable mortgage, the penalty is usually three months’ interest. For a fixed mortgage, the penalty is three months’ interest or the interest rate differential, whichever is greater. 

The interest rate differential (IRD) is based on the amount you are prepaying and an interest rate that equals the difference between your original mortgage interest rate and the interest rate that the lender can charge today when re-lending the funds for the remaining terms of the mortgage. 

If you’ve ever heard of wild and outrageous mortgage penalties, it’s because each lender has a different way of calculating an IRD. If you’re considering a fixed rate mortgage, you should certainly inquire as to the structure of the lender’s IRD. 

A prepayment privilege is a mortgage feature that allows you to decrease the mortgage amount more quickly and therefore reduce the amount of interest you will pay on the mortgage. 

There are a number of different options that are usually available in prepayment privileges: paying a lump sum of the original mortgage amount in a given year; increasing your monthly payment amount or the frequency of the payments; and doubling up your payments.

Prime rate refers to the interest rate that banks charge lenders at a particular time. Each lender has its own prime rate that is impacted by the Government of Canada’s benchmark rate. 

With regards to mortgages, you usually hear about prime rate when considering a variable rate mortgage. Rates for a variable rate mortgage are typically set by an institution based on the prime rate +/- a percentage. As the prime rate fluctuates, so does your mortgage interest rate and potentially your payment.

A property survey is an important document that tells you about the right of ways and easements on the property you are planning to purchase. A survey will also tell you any details concerning the rights of others to access certain parts of the property and draw attention to any issues regarding property lines. For example, part of the house on the property may be outside of the property line or a neighbour might have built a fence to the inside of your property line. 

A property tax assessment puts a value on your property for the purpose of determining taxation. A property tax assessment will outline the amount of property tax you pay as the owner of the property. This document is required by the lender when applying for mortgage financing. 

A purchase contract is a legally binding document stating the buyer’s intention of purchasing the property from the seller provided that certain conditions are met. These conditions are usually things like the condition of the property, ability to get financing, home inspection results, etc.

Also known as a rate hold, a rate lock is the agreement by the mortgage lender to hold or lock in the interest rate between the time of pre-approval and the closing of the sale of the property. The rate lock is typically guaranteed for any time between 30 and 120 days. If rates go down during this time period, lenders generally honour the lower rate. 

A readvanceable mortgage is a feature of some mortgage lines of credit or home equity lines of credit (HELOC). With a readvanceable mortgage, the borrower’s line of credit is increased with every payment that reduces the principal of the mortgage. 

The increase in the line of credit can either be automatically updated or require the borrower’s approval.

A real estate agent is also known as a realtor. This is the professional who helps you find the property you want to buy or helps you to sell the property you currently own. The realtor is authorized to act as an agent for the buying and selling of real estate. 

A real estate appraisal is an estimate of the market value of a piece of property. The report may also include the features of the property. Lenders usually ask to see an appraisal report for a number of reasons: to verify that the buyer has purchased the home for a fair market price; to determine what the market rents are for the property; to ensure that the home or property meets the lender’s standards; and to determine how much equity the home owner has in the home. 

Refinancing is the process of paying out your existing mortgage with funds received from a new mortgage. Refinancing is often done in order to secure additional funds using home equity, extend the amortization of a mortgage, or to secure a lower interest rate. 

Renewal is the renegotiation of the terms and interest rates of a mortgage at the end of a term. Renewal must be done if the balance of the mortgage cannot be repaid at the end of the mortgage term. 

A reverse mortgage is a type of mortgage loan that is available in Canada to homeowners that are 55 years of age or older. In this type of mortgage, the homeowner will give a mortgage to the lender for up to 40% of the home equity. The lender pays the proceeds of the mortgage to the homeowner in one lump sum payment or in periodic installments.

These payments are not taxable, and the homeowner retains a number of rights: to make mortgage payments, if desired; to not make mortgage payments for as long as they reside in the home; to live in the home for life, provided property taxes are paid.

If the reverse mortgage is not repaid earlier, then it must be repaid either when the homeowner sells the property or the homeowner dies. If the property is worth more than the mortgage balance, then the homeowner or the heirs of the homeowner receive the difference. If the mortgage balance is greater than the proceeds from the sale of the house, the homeowner or heirs owe nothing to the mortgage company.

A sale contract is the agreement between the buyer and seller of a property, outlining the terms of the sale and specifying the rights and duties of the parties in the transaction.

A second mortgage refers to an additional mortgage loan on a property that already has one mortgage registered on its title. The second mortgage is the mortgage that is in second position on the property that is used to secure your mortgage loan. If you take a second mortgage, you continue to make payments on the first mortgage, but you are now required to make payments on the second mortgage as well.  

If you sell your property, the lawyers will use the proceeds of the sale to pay off your mortgages in sequence - the first position mortgage is paid out first, and the second position mortgage is paid out second.

Security refers to the property that will be pledged as collateral for a mortgage. If the mortgage is not repaid, the property that is pledged as security will be claimed by the lender to repay the debt.

Semi-monthly mortgage payments are set up so that the borrower can pay the monthly mortgage payment in two portions. For example, instead of paying $1500.00 on the first of each month, the borrower would pay $750.00 on the first of the month and $750.00 on the fifteenth of the month.

Debt service ratios are two ways that lenders use to determine your ability to pay back a loan, and therefore, how much a lender will give to you. There are two ratios that are used by mortgage lenders: the Gross Debt Service ratio (GDS) and the Total Debt Service ratio (TDS). 

The TDS ratio calculates how much of your income is used to cover the costs of owning a home, but also includes other debt payments such as car loans, student loans, credit card and line of credit payments. 

A third mortgage is a lien on a property that is subordinate to the first and second mortgages. If there is a default on the mortgages or the property is sold, the third mortgage will be paid only after the first and second mortgages are paid.

Third mortgages are usually taken out through private financing, secured for a short period of time, and at a very high interest rate as compared to the first and second mortgages. 

Title is the legal document that shows who is the rightful owner of a property.

Title insurance is an insurance policy taken to protect both the mortgage lender and the purchaser from mistakes or omissions in the title of a property, as well as fraudulent deeds, mortgages, or unpaid liens against the property. These kinds of unknown claims on the property can affect your ownership rights. 

Not only is this an insurance policy, but title insurance acts as a disclosure statement since it identifies any outstanding problems or potential problems with regard to the title of the property.

Underwriting is the process of determining the potential risk of providing a mortgage loan to a prospective borrower on a particular piece of property. Underwriting is done prior to issuing a mortgage and takes into account the borrower’s ability to repay the mortgage and the value of the property that will be held as collateral until the mortgage is repaid.

A variable rate mortgage is a mortgage that has an interest rate that is not fixed for the duration of the term, but changes as the prime rate increases or decreases. A variable rate will be set by the lender in relation to the prime rate. For example, the lender may state that the variable rate will be prime +/- 0.5%. 

As the prime rate changes, so does the interest rate on the loan. This is similar to an adjustable rate mortgage. However, with a variable rate mortgage, the monthly payment remains the same. If the interest rate rises, the portion of the monthly payment allotted to interest increases and the portion allotted to the principal decreases.

A void cheque is a personal, pre-printed cheque that has the word “VOID” written across it. 

Typically, you can now generate this information via online banking. Lenders require a copy of a void cheque so they can debit the mortgage payments directly from your bank account.