Mortgage Glossary

Although they are often used interchangeably, there is actually one key difference between an adjustable-rate mortgage and a variable-rate mortgage.

The interest rate on an ARM will fluctuate over time because the interest is pegged to a benchmark short-term interest rate, typically the prime rate. As the prime rate changes, the ARM rate will also change. What does that mean for you, the Borrower? It means if interest rates increase, not only will the cost of your debt increase but so will your monthly mortgage payment.

There are some ARM products that offer fixed-payments. This means your payment stays the same for the term even when interest rates change. In this case, your payment would stay the same but the amortization period could change.

A written contract between a purchaser and a seller for the sale of a property from the seller to the purchaser.

The amortization period is the length of time it will take you to completely pay off a mortgage. The most common amortization period in Canada is 25 years.

If your down payment is less than 20%, the maximum amortization period allowed is 25 years. Since most mortgages have a 5-year term, this gives you flexibility at the end of the 5 years to either continue with the amortization period remaining at that time or change it.

Your amortization period affects the size of your mortgage payment. The longer the amortization period, the smaller the monthly payment but, the longer it will take you to pay off your mortgage.  While a longer amortization period can make your monthly payments more manageable, it also means that you will pay more interest over the life of your mortgage.

A shorter amortization period results in a larger mortgage payment but will save you money in the long run because you’ll be paying less interest over the life of your mortgage. It will also allow you to be mortgage-free sooner.

The APR is calculated by taking the contractual interest rate on the Mortgage and adding any non-interest finance charges. This rate must be disclosed to Borrowers as per the Business Practices and Consumer Protection Act. So, always make sure this rate is shared with you!

The appraised value is the fair market value of a property as determined by an accredited appraiser. Appraisals are often required when obtaining financing secured by a house and typically paid for by the Borrower.

The Bank of Canada is Canada’s central bank. It is responsible for Canada's monetary policy and for the promotion of the economic and financial welfare of Canada and is the sole issuing authority of Canadian banknotes. It also provides banking services and money management for the government, as well as loans to Canadian financial institutions.

Interest rates are often stated in basis points which can be confusing. But, a basis point is simply one-hundredth of a percent, or 0.01%.  Here’s an example: a Variable Rate Mortgage rate could be quoted at 20 basis points below the Prime Rate. This means the VRM rate would be the Prime Rate minus 0.20%.

An existing mortgage can often be renegotiated to extend the term.  Lenders will typically ‘blend’ the penalty for breaking the existing term with the rate for the new extended term.  A Borrower is typically motivated to do this for one of two reasons; to take advantage of lower rates in the market or to protect themselves against a potential rate increases in the future.

Blended payments are a way of repaying a loan with a fixed monthly payment made up of principal and interest (blended) over an agreed-upon amortization period. The Principal component of the monthly payment increases over time while the Interest component decreases.

A person that takes out a loan from a bank or other lender under an agreement to pay it back later, typically with interest.

Let’s say you currently own a home and you’re purchasing a new home. You need to put a down payment on the home you want to purchase before you are able to sell your existing home. A bridge loan is a short term loan that could often be used in this situation. In order to qualify, you would need a signed, unconditional sale offer on your existing home.

Canada Guaranty is a private mortgage insurance company and the second largest private provider of Mortgage Default Insurance in Canada (Sagan is the first).

The Canada Mortgage and Housing Corporation (CMHC) is a crown corporation of the Government of Canada and the largest provider of Mortgage Default Insurance in Canada. CMHC acts as Canada’s national housing agency and provides Mortgage Default Insurance to protect lenders if a Borrower defaults on their mortgage.

When you purchase a home you’ll probably find the need for a little more cash flow than you might have expected. From new furniture to closing costs there are expenses galore. Enter the cash-back mortgage. If you have a cash-back mortgage, you will receive a certain percentage of the mortgage principal balance in cash. The downside? The interest rates on these mortgages may be higher than on some other mortgages.

Overachiever looking to pay off your mortgage early? Then, a closed mortgage might not be right for you. The interest rate for a closed mortgage is generally lower than the interest rate for a comparable open mortgage. However, this type of loan restricts the Borrower’s ability to pay off their mortgage early by imposing penalties. Most contain some form of prepayment privilege but they are limited. For a variable-rate closed mortgage (or ARM) the penalty is typically equal to 3 months of interest.  For a fixed-rate closed mortgage the penalty is typically the greater of 3 months interest or the Interest Rate Differential.

Closing costs are a not-so-fun surprise to a lot of first time homebuyers. So, let’s make sure you’re prepared. Closing costs are the expenses you will need to pay when closing the purchase of your home and obtaining your mortgage. Typical closing costs you can expect include fees for lawyers, title insurance, appraisal, home inspection, the PST on Mortgage Default Insurance as well as land transfer taxes. As a general rule of thumb, it is recommended to have funds totalling at least 1.5% of the property value to account for closing costs.

An even bigger surprise to a lot of people is that the seller has closing costs too. These include real estate commission (if applicable), their own legal fees and any costs related to discharging a mortgage they may have had on the property.

The closing date is an exciting (and expensive day). On your closing date, you will pay the balance of the home purchase price to the seller, and the seller transfers title or ownership of the property to you. This is handled by your lawyers and the seller’s lawyers. Your lender will work with your lawyer to ensure all of the legal documents are in place and the requirements of the lender have been met in order to make sure the mortgage funds are available on the closing date.

When there is more than one borrower on a mortgage, the lead borrower is referred to as the Primary Borrower.  Any other borrowers are considered Co-Borrowers, or Co-Applicants during the mortgage application process. The Co-Borrowers share the legal obligations of the mortgage.

A mortgage charge that is secured by a borrower’s property where the registration on title can be for an amount higher than the mortgage amount. The charge is registered as a lien on the property financed by the mortgage. The result is often a re-advanceable mortgage where the lender has a claim against the property for more than the amount of the original mortgage. If the borrower fails to make the required payments, the lender can take legal action to enforce their rights under the mortgage charge and recover the amounts that are owed. Their legal remedies include a right to sell the property.

Your commitment letter is a legal agreement between you and a lender that confirms that the Lender is prepared to loan you the necessary funds and outlines both the terms of the mortgage and a list of conditions that need to be met by you in order for your mortgage to be funded on a specific date.

A conditional offer is an offer to purchase a property that contains certain conditions that must be met before the purchase can occur. Common examples include an offer being conditional on the purchaser obtaining financing, or the property passing a home inspection, or on the buyer selling their current home by a certain date.

If you live in a big city you’re probably more familiar with condos than homes. A condo is a form of property ownership in which the owner has title to a dwelling unit that is part of a larger property and owns a share of the common elements (such as elevators, hallways and the land).

A mortgage that provides financing for up to 80% of your property’s value.  A Conventional Mortgage does not require mortgage default insurance. However, borrowers will be happy to know that if a lender decides to insure a Conventional Mortgage, the cost is borne by the lender, not the borrower.

Your credit report is a summary of your credit history dating back to the very first time you applied for credit. Lenders of all types share your credit and payment information with credit reporting agencies. The data on your credit report includes current and past financial debts for up to the prior 7 years, and a record of debt payment history.

A lender uses the information from a credit report, together with other information you have provided, to decide whether to accept or deny your mortgage application. Lenders get credit reports from third party credit reporting agencies, like Equifax and TransUnion.

Ah, the golden ticket to a great mortgage. A credit score is a three-digit number that is calculated using a person’s prior credit history. Lenders use this number as an indication of a potential borrower’s capacity to repay a loan.  So, what gets factored into your credit score? Things like your track record for making debt payments on time, the length of your credit history, the amount of debt you have and your utilization rate. Third party credit reporting agencies, like Equifax and Transunion, perform these calculations.

The better you manage your credit the higher your credit score. Your credit score will change over time as current activity is updated.  Looking to improve your credit score? Focus on consistently making payments on time, paying down debts and avoiding taking on too much debt.

Credit scores range between 300 and 900 and are generally grouped as follows:

Excellent (741-900) – rare late payments, generally pay down debts, and low credit utilization;

Good (681-740) – very few late payments and low utilization;

Average (641-680) – several late payments combined with a higher overall debt load.  Possibly defaulted on a loan in the past;

Below Average (575-640) – have experienced serious credit trouble in the past including defaults on more than one loan;

Poor (300-574) - have experienced serious credit trouble in the past including defaults on more than one loan with high debt loads and possibly prior bankruptcy.

Lenders in the Canadian market generally consider 680 and above to be prime credit scores and borrowers with these scores often qualify for the best rates.  A credit score of 620 or lower is generally considered a poor credit score and borrowers with these credit scores can often find mortgages from B-lenders that charge higher rates.  A mid score between 620 and 680 is still considered ok but the outcomes for borrowers in this range can vary.

Also referred to as mortgage critical illness insurance, mortgage disability insurance or mortgage life insurance, Creditor Life Insurance helps you prepare for the unexpected. This type of insurance can cover your mortgage payments or reduce or pay off your mortgage in the event of death, critical illness, disability or job loss. Creditor Life Insurance is typically offered to Borrowers whenever they take out a new mortgage.

Your Debt Service Ratio is a number lenders will look at to assess your ability to repay a mortgage.  The objective is to ensure debt payments don’t exceed a certain percentage of your income. There are two types of Debt Service Ratios - Gross Debt Service ratio (GDS) and Total Debt Service ratio (TDS).

A Default occurs when a borrower fails to meet their legal obligations in the mortgage contract. The most common cause of default is when a Borrower fails to make their monthly payments on a mortgage.

So, what happens if you default on your mortgage? Your lender can take possession of the property, either via Foreclosure or Power of Sale, and recover the amounts owing to them under the Mortgage.

Occurs when a Borrower fails to make their mortgage payments on time.

Once you are ready to pay off your mortgage in full (yay!) a discharge statement will be provided by your Lender.  This statement details the amount required to pay off a mortgage as well as any terms and conditions that must be met before the lender will release the Borrower (and any Guarantors) from their obligations under the mortgage agreement and release the lender’s claim on the borrower’s property. Once the remaining amount has been paid off and all of the conditions have been met, the Lender will discharge the mortgage from title to the property of the Borrower.

To obtain a mortgage, you need to provide certain documentation to the Lender. This documentation will be used by the lender to confirm your identity, employment, income and other material factors in your mortgage application.  Any information you provided to the lender or broker for the mortgage application must be confirmed in the documentation provided.  Here are some examples of the types of information you might be required to provide:

To obtain a mortgage a Borrower must provide an upfront cash payment called a Down Payment.  How much will the down payment be? That depends on the type of mortgage product and the customer profile.

There are three broad categories:

What if you don’t have the money for a down payment? You should be aware that borrowing a down payment will make you ineligible for some mortgage products.  Many first-time home buyers receive a gift from family for some, or all, of their Down Payment.  This is acceptable to most lenders as long as the Borrower provides a letter from the giftor showing whether the funds are repayable or not. How would a lender even know where the funds for your down payment came from? Borrowers are required to provide documentation proving the source of the funds.

A firm offer is an offer to purchase a home without any conditions attached. If you need financing to complete the purchase of a home, do not opt for a Firm Offer until your mortgage financing is fully approved by your Lender.

A savings account that is a registered plan that allows first-time homebuyers to contribute up to $8,00 per year, with a total limit of $40,000. When money is deposited in a FHSA you get the benefit of tax deductibility like an RRSP and amounts withdrawn for a house purchase are tax-free, like with a TFSA.

This is the mortgage registered in first position on title against a property. Why does your position on a mortgage matter? Because, the first mortgage has priority over other claims in the event of a sale or default. This means it would be paid first ahead of the other claims.

You will be considered to be a first-time home buyer if you did not, at any time in the current calendar year or at any time in the preceding four calendar years, live in a home as your principal place of residence that either you owned or jointly owned, or your current spouse or common-law partner owned or jointly owned.

With a fixed-rate mortgage, your interest rate and monthly payments stay the same for the entire mortgage term. The downside of a fixed-rate mortgage? They tend to have higher interest rates than Variable-Rate or Adjustable-Rate Mortgages. However, there is a potential upside, if mortgage interest rates go up during the term, you're protected because your rate stays the same.

Typically, the longer the term of the mortgage, the higher the mortgage rate. For instance, a 5-year mortgage will typically have a higher interest rate than a 2-year mortgage.

If you miss enough mortgage payments to be considered to have gone into Default, your Lender can take legal action called Foreclosure. Foreclosure is a lengthy legal process that involves the court system. In most jurisdictions, your Lender can take over your property under a legal process called Power of Sale that takes less time to complete. You will be notified by your lender, providing you the chance to bring the Mortgage back into good standing. If you are unable to do so, the Lender can sell your property to recover the money owing on your Mortgage, including principal, interest, legal fees and other charges.

The percentage of gross annual income that is needed to pay all costs associated with housing. The most common formula is:

mortgage payment + property taxes + heating + 50% of condo fees (if applicable) / gross household income.

The GDS ratio is capped by most lenders at 39% for the best borrowers.

The total income a person earns each month before taking into account expenses or deductions.

A person that is not a Borrower on the mortgages but promises to make the mortgage payments in the event the Primary Borrower is unable to pay off the loan. Why might a lender require a guarantor? Usually, because the person applying for the mortgage has sufficient income to support the mortgage but doesn't have sufficient credit strength/history to qualify for the mortgage on their own.

A mortgage is considered a high-ratio mortgage when your down-payment is less than 20% of the home value/purchase price. If you have a high-ratio mortgage, you need Mortgage Default Insurance. This is a hard and fast rule because financial regulations do not permit regulated lenders to have high-ratio mortgages on their balance sheets unless they are insured. If you Default on the mortgage, the insurance will pay the lender for certain covered losses.

The Home Buyers' Plan is a federal government program that allows eligible first-time homebuyers to withdraw up to $35,000 from an individual's RRSP savings, tax free, to buy, build or maintain a qualifying home. So, what’s the catch? To avoid paying income tax on the funds, you must repay the full amount you withdraw from your RRSP over the next 15 years.

You are considered an eligible first-time home buyer if, in the four years prior to your home purchase you did not live in a home that you owned, or one that your current spouse or common-law partner owned.

The federal HBA may provide a non-refundable tax credit for first-time home buyers that allows you to claim up to $5000 in the year you purchase a home if you are eligible. In order to qualify:

Your home equity is the value of your home, minus the total amount of debts (most likely mortgages) and other liens registered against title to the property.

Your home equity will increase (yay!) if;

A HELOC is a lot like a credit card. It is a revolving source of funds a borrower can draw from up to a set credit limit. Again, much like a credit card, you are required to pay interest monthly on the aggregate balance drawn. HELOCs do not have a set amortization schedule.

Up to 65% of the purchase price or appraised value of the property may be borrowed with a HELOC. However, if a HELOC is combined with a Mortgage, the combined amount can go up to 80% of your home's value. The additional 15% is an amortizing portion. This means, it must be repaid in regular monthly instalments, similar to the payments on a regular Mortgage.

A detailed inspection of the mechanical, plumbing, roofing, electrical systems of a home, and other details of a house.

A monetary charge paid by a Borrower to a Lender for borrowing money.  Interest is generally expressed as an annual percentage rate.

The interest adjustment amount is a one-time interest expense that is typically paid on the Closing Date of your Mortgage. It occurs whenever you receive mortgage funds (ie. close your mortgage) before the Interest Adjustment Date (IAD).

Most borrowers set their mortgage payments to be monthly on the first of the month. If you buy a home on another day of the month, your lender calculates interest from your Closing Date to the IAD. The interest amount that covers this short period is called the Interest Adjustment amount.

Let’s take a look at an example:

You may also pay an Interest Adjustment amount if you change your mortgage payment date or mortgage payment frequency during the mortgage term.

The date on which the Mortgage Term will commence. It is most commonly the first day of the month after Closing.

Please see Prepayment Penalties.

One of those sneaky closing costs many buyers forget to account for. A land transfer tax is a form of tax paid to the government on the closing of a property purchase. This tax is paid by the purchaser of a property and is calculated based on the property's purchase price. Land transfer taxes are typically a Provincial charge and can vary by Province, but some municipalities also charge a land transfer tax. First-time home buyers are sometimes exempt from part of the cost.

In Ontario, B.C. and PEI a first-time homebuyer may be eligible for a rebate on land transfer taxes if they meet certain conditions. There is also a land transfer tax rebate available to first-time homebuyers in the City of Toronto.

A type of Mortgage on a home where the building is on leased (rented) land. The lender typically takes a security interest in the lease. If you are considering a leasehold property, it’s important to know that most prime lenders in Canada do not provide mortgages on leasehold property.

Another one of those tricky closing costs! Buyers and sellers need to have their own lawyers and pay these legal fees and disbursements to close a purchase, sale or mortgage transaction. These fees vary by province and are subject to GST or HST. Make sure you get a quote from your lawyer for these charges before engaging them and do your due diligence so that you understand what other disbursement charges are likely to be incurred.

So, who is actually giving out these mortgages to home buyers? Mortgage lending in Canada is done by a variety of financial institutions including, but not limited to, banks, credit unions and unregulated lenders.

Lenders fall into two major categories.

During the Underwriting process, Lenders typically require that a Letter of Employment be provided by the employer of the mortgage applicant.  In your Letter of Employment, your employer will verify that you work at their company, share how long you have worked there and how much you make. Your Lender may also request additional information from your employer that they should include in your letter.

A lien is a claim or a legal right against assets that are being used to secure a debt. In the case of a mortgage, your lender places a lien on your house to secure your mortgage debt. This means they have a right to maintain possession of your home until your mortgage has been paid off in full.

The LTV is one factor lenders use in evaluating the risk of a mortgage. The ratio, expressed as a percentage, is calculated by taking the amount of the mortgage loan and dividing it by the value of the property.  In Canada, if the LTV is greater than 80%, the mortgage usually needs to be insured against default.

Definition coming soon.

The Maturity Date is the date when your current Mortgage Term ends. On this date you will either renew your mortgage for a new term, if your lender agrees, or pay it off completely. Lenders will notify you a couple of months before the Maturity Date of the need to either renew or pay off your mortgage on the Maturity Date.

To pledge a property to a lender as security for a loan. A mortgage loan is a loan secured by a lien registered on title to your property.

is required by Lenders if you’re buying a home with less than a 20% down payment or attempting to finance your home with a mortgage greater than 80% of the property’s value. (i.e. a High-Ratio Mortgage).

This insurance compensates mortgage lenders for losses they may incur if you were to stop making payments and default on your Mortgage (see Mortgage Default).

Who provides this insurance? Mortgage Default Insurance is offered by a number of mortgage insurers, primarily CMHC, Sagan, and Canada Guaranty.  While this insurance protects your lender from losing money if you default, it also has benefits to you as the borrower because it allows you to buy a home with a down payment as low as 5%.

There are a few things that are important for you to know when it comes to Mortgage Default Insurance:

When you pay off your mortgage in full, you need your lender to remove the lien they have placed on your property. In order to do this, your lender will provide you with a Mortgage Discharge Statement that gets registered on title to your property. It certifies the property is completely free from that mortgage debt. Time to celebrate!

Preparing to buy a home quickly? A mortgage pre-qualification can be provided after an expedited assessment process. The assessment looks at your financial information, including debt, income and assets. Upon completion, you receive an estimate on the mortgage amount you may be approved for as well as a rate that you may qualify for. Typically, the Rate Hold Period is between 60 and 120 days. After the Rate Hold Period ends your Pre-Qualification will expire.

It’s important to note that a pre-qualification is not an official mortgage approval. Rather, it is a preliminary assessment of your qualifications. To receive an official mortgage approval, known as a Commitment Letter, a completed Agreement of Purchase and Sale for your property is required. An appraisal may be required and the approval is subject to a thorough Underwriting review of your income, employment, property details, purchase agreement and Down Payment. You will be required to provide documents and more financial details before getting a final approval for a mortgage.

Your Mortgage Principal is the amount borrowed from your lender that must be repaid. At any point in time your outstanding Mortgage Principal can be calculated by subtracting the amounts paid to the lender from the original amount borrowed. As monthly mortgage payments are made, the mortgage principal is reduced. So keep it up! You’ve got this!

The rate of interest charged by a mortgage Lender to the Borrower. The Mortgage Rate can be either fixed or variable (see Fixed-Rate Mortgage and Variable-Rate Mortgage).

You can refinance your mortgage by replacing it with a new mortgage that has different terms than the original mortgage. Why would a Borrower be motivated to do this? It is often done to get a lower Mortgage rate or to increase the amount borrowed. You should be aware that Borrowers will usually need to pay a Prepayment Penalty for breaking the original mortgage but this can often be incorporated into the balance of the new mortgage.

When the mortgage term has concluded, your mortgage is up for renewal unless you repay the remaining balance in full. If your mortgage contract is with a federally regulated financial institution, such as a bank, the lender must provide you with a renewal statement at least 21 days before the Maturity Date. Your lender must also notify you 21 days before the Maturity Date if they have decided that they will not renew your mortgage. Unregulated lenders tend to follow the same practice.

There are pros and cons to renewing with your existing Lender but Borrowers should be prepared to look around for alternatives for their renewal mortgage in order to negotiate the best rate. Be sure to compare the renewal offer from your existing Lender to what is available in the market. One advantage of renewing with your existing Lender is a simplified Underwriting process. If you renew with a new Lender, that Lender will need to conduct a full Underwriting to approve you as a new Mortgage customer.

>> Is your mortgage coming up for renewal?

A mortgage statement is a document prepared by your Lender that they provide to a Borrower typically once per year. It should show the current mortgage balance, current interest rate, payment history, amount remaining on the mortgage term and amortization and contact information. Be sure that you are checking these statements and cross-referencing with your own documents to ensure they are accurate.

This is the length of time covered under the financing contract whereby you commit to a specific mortgage rate and conditions with a lender.  The most common is 5 years, but other terms are available, typically ranging from a 1-year term to a 25-year term.

The person or institution lending money using a Mortgage.

A person who borrows money using a Mortgage.

A Notice of Assessment (NOA) is an annual tax statement provided by the Canada Revenue Agency (CRA). It includes information about an individual’s taxable income for the most recent tax year, any taxes owed, taxes paid, tax refund amount and RRSP contribution room.

Lenders usually request the last two years of NOAs for Borrowers who are Self-Employed or earning commission income.

A mortgage that does not contain any prepayment restrictions and is prepayable, in part or in full, without penalty. Open mortgages tend to have higher interest rates than closed mortgages.

Represents the principal, interest, taxes and heat expenses for a property. P.I.T.H. is also referred to as a monthly housing expense. Lenders use input the P.IT.H. when calculating the debt service ratios to determine how much a Borrower can qualify for.

The payment frequency refers to how often a Borrower makes their mortgage payments. There are a few available options; every week, bi-weekly, twice a month or monthly, with monthly being the most common.

A mortgage that allows you to transfer an existing mortgage from your current home to a new home if you move.

The posted rate is a lender's standard advertised interest rate for a mortgage. Hot tip - you may be able to negotiate to obtain a lower interest rate. The Posted Rate is primarily used for calculating Debt Service Ratios and Prepayment Penalties.  Not many mortgages are originated at the Posted Rate.

provides a mortgage lender with the ability to evict the property occupants and sell the property if the Borrower is in Default of the mortgage. The Lender has a duty to sell the property at a fair market value. Once the property is sold, the former homeowner has the right to any profits from the sale after deducting debt repayment and fees. Lenders do not profit from a Power of Sale. Most lenders would rather the borrower pay off their debt than sell the property under Power of Sale. Power of Sale is a much faster process (can often be completed within six months, depending on the jurisdiction) than Foreclosure and requires less involvement from the court system.

So you want to speed up your mortgage repayment? It’s important to know that, unless you have an Open Mortgage, penalties are charged if you prepay more principal than is permitted by the Prepayment Privilege in the mortgage contract. The amount of the penalty charged depends on many factors including:

For Variable-Rate Mortgages, the prepayment penalty is usually three months of interest on the balance owing.  For Fixed Rate Mortgages, the prepayment penalty is usually the greater of i) three months of interest on the balance owing, or ii) the Interest Rate Differential (or IRD).

The Interest Rate Differential may matter if the interest rate on your Mortgage is higher than the equivalent current mortgage rate offered by the Lender.

There is no one market standard calculation of the IRD but it is used to assess the difference between the amount of interest that would be collected using the existing rate on your Mortgage and the current Lender mortgage rate for the term remaining of your Mortgage.

The calculation can vary between Lenders so it’s a good idea to review your mortgage contract in order to understand how it is calculated by your Lender. The differences between Lenders are most often due to:

A.    differences in the rate they use for your current contract:

B.   differences in the rate they use for the Lender’s current market rates:

The right to repay periodically more than the scheduled principal payment without triggering a prepayment charge.

Typical prepayment privileges include:

In general, the more restrictive the Prepayment Privilege, the lower the Mortgage Rate.  So, if you’re not expecting to have lump sum cash amounts available over the life of your mortgage, you may be better off taking a Mortgage with more restrictive Prepayment Privileges.

A lender's prime rate is a variable interest rate provided by banks that changes over time. It is usually based on the interest rate the Bank of Canada sets each night. Banks base the interest charge for their variable-rate mortgages on their own Prime Rate. On the other hand, non-bank lenders will base the interest charge for their variable-rate mortgages on the Prime Rate provided by select banks.

provide pools of capital that are lent out for terms of 1 year at high rates within a private lending market. A and B lenders do not generally participate in this private lending market.

A property insurance policy is required whenever you have a mortgage. Prior to closing a new mortgage, the property insurance provider needs to identify the lender on the policy and you need to provide a copy of the policy to your lender. Property Insurance provides coverage if you experience certain types of damage to your property, your home or its contents.

A legal description of your property including its dimensions and location. An up-to-date property survey may be required by your lender. If it is not available from the seller, your lawyer can obtain the property survey for a fee.

Property owners pay property tax to the municipality for services like garbage collection, policing and fire protection. The property tax amount is based in part on the property's value.

It is good to be aware that sometimes lenders require a mortgage borrower to add the property tax to their regular mortgage payments. In this case, the lender pays the taxes to the municipality.

If you are required to have Mortgage Default Insurance on your Mortgage (ie. you have a High-Ratio Mortgage) you will need to pay an insurance premium to the insurance provider. This premium is often added to the Mortgage balance on closing. However, certain Provinces charge Provincial Sales Tax (PST) on Mortgage Default Insurance premiums. These taxes cannot be included in your Mortgage balance and need to be paid by you on the Closing Date (included in your Closing Costs).

The provinces that currently require this, and the tax rate they charge, are Ontario (8%), Quebec (9%) and Saskatchewan (6%). So, if you are buying in one of these provinces be sure to factor in that tax as you prepare yourself for closing costs.

Federal regulators have imposed new requirements on the mortgage lending industry in recent years. This includes the need for prospective Borrowers to pass a stress test to qualify for a Mortgage with a Federally Regulated Financial Institution. Credit unions and other lenders that are not federally regulated do not need to use this mortgage stress test but because many depend somewhat on banks for their own financing, most (but not all) have adopted the stress test.

So, what on earth is a stress test? It’s not as scary as it sounds. The stress test requires you to prove you can afford payments at a qualifying interest rate which is typically higher than the actual rate on your mortgage. The qualifying interest rate your lender is required to use for the stress test depends on whether you need to get Mortgage Default Insurance.

If you need Mortgage Default Insurance, the Lender must use the higher interest rate of either;

If you don’t need Mortgage Loan Insurance, the Lender must use the higher interest rate of either;

As of today, the Bank of Canada conventional five-year mortgage rate is 5.25%

Borrowers who are being underwritten for mortgages with terms longer than 5-year, good news, you will not be subject to the stress test.

A mortgage that closes in a short period of time, typically within 30-45 days.  Lenders can often offer lower rates on Quick Close Mortgages. This is because they will have lower origination costs as a result of not having to pay as much to hedge the shorter-term Rate Hold Period.

The number of days the lender will guarantee the mortgage rate on a mortgage pre-qualification or mortgage pre-approval. This will vary between lenders and between mortgage product types, but the typical range is between 30 and 120 days.

The legal right to demand compensation or repayment.

Fees paid to registry offices run by provincial governments for recording a title transfer, mortgage registration or other instrument such as a Lien. These fees are part of those pesky closing costs for obtaining a Mortgage.

A private mortgage insurance company, owned by Brookfield. Sagan is the largest private provider of Mortgage Default Insurance in Canada and competes with CMHC for this business.

Taxes may be applied based on the purchase price of a property. Many properties are exempt from sales tax (GST and/or PST).  For instance, residential resale properties are usually exempt.  However, others, like newly built properties are not exempt and require the buyer to pay GST. Before signing your offer, be sure you understand the tax implications.

A mortgage registered on title to a property but ranking in priority immediately below a first mortgage. If the borrower defaults and the property is sold, the second mortgage does not get paid until after the first mortgage is paid off in full.

Being self employed generally means you own and operate the business where you work. Many borrowers who are self-employed have good credit and strong finances but cannot provide the traditional means of income verification often required by lenders. Don’t worry, most lenders offer mortgages to Self-Employed Borrowers, but the Underwriting process requires additional documentation (usually tax documentation and company documentation) to verify the Borrower’s income.

A type of mortgage where the mortgage lender has a claim against the property for the amount of the mortgage. The charge is registered as a lien on the property financed by the mortgage. This is the most common type of lien used by Canadian mortgage lenders. If the borrower fails to make the required payments, the lender can take legal action to enforce their rights under the mortgage charge and recover the amounts that are owed. Their legal remedies include a right to sell the property.

When you have a variable-rate mortgage with a fixed payment amount you have a Static Payment. The mortgage payment amount is fixed for the term of the mortgage and does not change when interest rates change.

The most common Sub-Prime Mortgage is a mortgage that is made to a less credit-worthy Borrower. For example, someone who may have poor credit, insufficient income or a lack of documentation. Sub-Prime Mortgages carry higher interest rates to compensate for the additional risk.

To transfer an existing mortgage from one financial institution to another.

A legal document showing the ownership of a property. Title documents are registered with the land registry offices in each respective Province. Lenders providing a first mortgage require ‘clean’ title to a property before providing the mortgage. This means they have full, unrestricted and authentic ownership of the property. Mortgages are legally registered on title to protect the lender's financial interest in the property.

A certificate of insurance, provided by a title insurance company, that provides protection against title defects such as errors in the title search, fraud, zoning violations, encroachments and other issues. It also ensures that no other mortgages can be registered without acknowledgment and permission from a lawyer and the originating financial institution.

The percentage of the borrower's income that is needed to cover housing costs (as included in the GDS) plus any other monthly obligations that an individual has, such as credit card payments and car payments. The most common formula is:

mortgage payment + property taxes + heating + 50% of condo fees (if applicable) + other debt payment obligations / gross household income.

TDS is capped by most lenders at 44% for the best borrowers.

For a variable-rate mortgage, the Trigger Point will be reached if the outstanding principal balance (including any capitalized interest) is higher than the original principal balance of your mortgage. If this happens, your bank will contact you to discuss possible solutions. The most likely solutions will be either 1) you make a lump sum payment of principal to bring your mortgage balance back below the original balance, 2) you increase your monthly payment amount to pay down principal according to your original amortization schedule, or 3) you convert your mortgage to a fixed ate mortgage.

For a variable-rate mortgage, this is the rate at which the static payment no longer covers the interest portion of a mortgage payment. This means that your mortgage payment is not paying down any principal, and the principal balance of your mortgage can increase. You may not be required to do anything if your Trigger Rate is reached but your lender will likely contact you to discuss solutions. It may be advisable to increase your mortgage payment so you can continue to amortize your mortgage and avoid potentially reaching the Trigger Point.

is the process undertaken by a Lender to assess the risk of lending to a particular Borrower. During the underwriting process, lenders will review the borrower’s income, employment, credit history, Debt-Service Ratios, Down-Payment and property details, among other things. A Borrower will not receive a firm approval for their Mortgage until the Lender has completed their underwriting.

A mortgage where the interest rate the Borrower pays will change over time.  The mortgage rate will be benchmarked against an underlying rate, most commonly the Prime Rate. The lender will set the variable mortgage rate at the Prime Rate plus or minus a margin. The margin to the Prime Rate will be fixed, but if the Prime Rate moves up or down the variable mortgage rate will likewise move up or down. The payment generally stays the same unless rates increase so much that your current payment is not covering all of the interest.

Definition coming soon.

A cheque with the word “void” written across the front, which indicates that it shouldn't be accepted for payment. The cheque can be used by a lender to get the information needed for electronic payments.