Mortgage glossary
Mortgage words, translated.
Lenders speak a dialect all their own. Here's every term you're likely to meet, in plain English. If a definition still doesn't land, call us.
A
- Agreement of Purchase and Sale
- The legal contract between a purchaser and a seller for the property.
- Amortization period
- The number of years it takes to repay the entire mortgage based on a set of fixed payments, classically 25 in Canada.
- Appraisal
- The process of determining the market value of a property.
- Assets
- What you own or can call upon; often used in determining net worth or in securing financing.
- Assumption agreement
- A legal document by which a buyer takes over responsibility for the obligations of an existing mortgage.
B
- Blended payments
- Equal payments consisting of both an interest and a principal component; the mix shifts toward principal as the balance falls.
C
- Canada Mortgage and Housing Corporation (CMHC)
- A federal Crown corporation that administers the National Housing Act and insures mortgages for lenders where the loan exceeds 80% of the purchase price.
- Closed mortgage
- A mortgage that cannot be prepaid (beyond its privileges) or renegotiated for a set period of time without penalties.
- Closing date
- The date on which the new owner takes possession of the property and the sale becomes final.
- Collateral
- An asset — a term deposit, Canada Savings Bond, vehicle — offered as security for a loan.
- Conventional mortgage
- A mortgage up to 80% of the purchase price or value of the property; no default insurance required.
- Credit scoring
- A system that assesses a borrower on a number of items, assigning points used to determine creditworthiness.
D
- Demand loan
- A loan where the balance must be repaid upon the lender's request.
- Deposit
- A sum of money placed in trust by the purchaser when making an offer to purchase.
E
- Equity
- The difference between the market value of the property and any outstanding mortgages registered against it. The part that's actually yours.
F
- First mortgage
- A debt registered against a property that has first call on that property if the borrower defaults.
- Fixed-rate mortgage
- A mortgage for which the interest rate is set for the entire term.
G
- Gross Debt Service ratio (GDS)
- A lender's calculation comparing your housing costs (payment, taxes, heat) to your gross income, used to judge capacity to repay.
- Guarantor
- A person with an established credit rating and sufficient earnings who guarantees to repay the loan if the borrower cannot.
H
- High-ratio mortgage
- A mortgage that exceeds 80% of the purchase price or appraised value; must be insured against default.
- Home equity line of credit (HELOC)
- A revolving line of credit secured against your property — typically up to 65% of the value on its own, or 80% combined with your mortgage.
I
- Interest adjustment date (IAD)
- The date on which the mortgage term begins, usually the first day of the month following closing.
- Interest rate differential (IRD)
- A prepayment penalty calculation on fixed mortgages: roughly, the interest the lender loses by re-lending your money at today's lower rate.
- Interest-only mortgage
- A mortgage on which only the monthly interest is paid; the full principal remains outstanding.
M
- Mortgage
- A loan that uses a piece of real estate as security.
- Mortgagee
- The financial institution or person lending the money.
- Mortgagor
- The person borrowing the money — you.
O
- Open mortgage
- A mortgage that can be repaid at any time during the term without penalty, in exchange for a higher rate.
P
- P.I.T.
- Principal, interest and property taxes — the trio lenders use when measuring your carrying costs.
- Portable mortgage
- An existing mortgage that can be transferred to a new property when you move, keeping your rate and avoiding a penalty.
- Prepayment penalty
- The fee charged when you prepay more of the mortgage than your privileges allow — typically three months' interest or the IRD.
- Prime
- The lowest rate a financial institution charges its best customers; variable mortgages are priced relative to it.
- Principal
- The original amount of the loan, before interest.
R
- Rate commitment
- The number of days a lender guarantees the rate on a mortgage approval — commonly 90 to 120.
- Renewal
- When your mortgage term concludes and the balance rolls into a new term. Also your best chance to renegotiate; never sign the first offer.
S
- Second mortgage
- A debt registered against a property behind the first mortgage, secured by a second charge.
- Switch
- Transferring an existing mortgage from one financial institution to another, usually at renewal, usually at little or no cost.
T
- Term
- The period of time the financing agreement covers — 1 to 10 years, most commonly 5. At the end of the term you renew, switch or pay out.
- Total Debt Service ratio (TDS)
- A lender's calculation comparing all of your debt obligations — housing plus loans, cards and support payments — to your gross income.
V
- Variable-rate mortgage
- A mortgage whose interest rate fluctuates with changes in prime.
- Vendor take-back (VTB) mortgage
- A mortgage provided by the seller to the buyer, financing part of the purchase price themselves.
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