Common Mortgage Words & Terms
Mortgage jargon can be tricky! Use this easy resource to better understand the words and terms you may hear while buying, selling or refinancing.
Accelerated Weekly Payment – A weekly mortgage repayment plan in which the borrower makes 52 payments per year (every 7 days). If for example your mortgage payment was $1000 per month and you choose the monthly repayment plan, you would be paying back $12,000 per year. If you chose the accelerated weekly you would take the monthly payment of $1000 and divided it by 4 you would pay back $250 x 52 payments = $13,000 per year. The extra $1000 would go directly to pay down your principle mortgage amount, thus accelerating the overall time it would take to pay back your mortgage and you would pay less interest.
Accelerated Bi-Weekly Payment – A bi-weekly mortgage repayment plan in which the borrower makes 26 payments per year (every 14 days). If for example your mortgage payment was $1000 per month and you choose the monthly repayment plan, you would be paying back $12,000 per year. If you chose the accelerated bi-weekly you would take the monthly payment of $1000 and divided it by 2 you would pay back $500 x 26 payments = $13,000 per year. The extra $1000 would go directly to pay down your principle mortgage amount, thus accelerating the overall time it would take to pay back your mortgage and you would pay less interest.
Accredited Appraiser Canadian Institute (AACI) – The highest level of designation bestowed by the Appraisal Institute of Canada. It allows the holder to conduct appraisals and consultations on various types of property.
Accredited Mortgage Professional (AMP) – Launched in 2004, AMP is Canada’s only national designation for mortgage professionals. The AMP designation sets a single national proficiency standard for Canada’s Mortgage professionals and is issued by the Canadian Accredited Association of Mortgage Professionals (CAAMP).
Accrued Interest – The interest charged for the period of time that has elapsed since the last interest date.
Adjustable Rate Mortgage (ARM) – This is a floating rate mortgage rate that may be closed for a 3 or 5 year term. The interest rate and payment amount are “adjusted” either monthly, every 3 months, or every 6 months based on the Bank of Canada’s Prime Rate minus a predetermined percentage(usually .25% to .85%). A “variable” rate mortgage is different because the payment is not adjusted by the lender; rather the borrower is responsible to make the change should it be necessary.
Adjustment Date – Date on which the Vendor and Purchaser have agreed to share any liabilities which may be attached to the property. The most common example is property taxes, which are paid yearly. In most situations, the Vendor is responsible for the portion of the taxes from January 1 up to but not including the adjustment date. The purchaser is responsible for the taxes from the adjustment date to the end of the year.
Agreement of Purchase and Sale – A written agreement between a vendor and a purchaser in which the purchaser agrees to buy a certain real property and the vendor agrees to sell upon the terms and conditions as set out in that agreement.
Amortization – This refers to the process of paying off a mortgage in regular payments composed of both interest and principal.
Amortization Period– The time over which the mortgage is to be completely repaid, assuming equal payments. For example, if you have a 25 year amortization period, it would take 25 years to reduce the balance to zero if all regular monthly payments were made on time the terms (payment amount and interest rate) remained the same.
Anniversary Date – The Same date in each calendar year during the term of the mortgage. The first anniversary date occurs one year from the date interest is adjusted and the periodic repayments begin.
Appraisal – The assessment of a property’s value by a certified professional. Once a buyer has an accepted offer, the mortgage broker will arrange for an appraisal on the property. The lender will review the appraisal report before giving the final mortgage approval.
Appraisal Institute of Canada (AIC) – The national professional organization that designates and represents professional real estate appraisers. The AIC sets the standards and requirements necessary to earn the designation of Accredited Appraiser Canadian institute (AACI) and Canadian Residential Appraiser (CRA).
Arrears – An overdue payment (in reference to a mortgage for the purpose of this text).
Assessment – The “assessed” value of a property is a historical, static estimate of the value of a property by municipal (local) government as a basis for calculation of annual property taxes. An “assessment notice” from the municipality contains the “assessed value” and when multiplied by the current “mill rate” the property taxes for the year can be calculated.
Assets – Goods of value, either tangible on not, that a borrower or business owns.
Assignment – The act of transferring rights held by one party, the assignor, to another party, the assignee.
Assignment of Rents – A charge registered against a title allowing a lender to collect rent directly from a tenant if there is a default under a mortgage.
Assignee – (Transferee) person who receives interest in a property in exchange for legal consideration (payment).
Assignor – (Transferor) person who gives interest in property in exchange for legal consideration (payment).
Assumable Mortgage – A mortgage which a qualified buyer can take over from the current owner upon the sale of the property. “Assuming a mortgage may provide a buyer with a below market interest rate (if rates are now higher), as well as savings on the legal costs on creating or registering a new mortgage.
Automated Property Valuation – Computer programs that provide real estate market analysis and estimates of value based on specific attributes of a property as well as sales information.
Bank Act – The Canadian Bank Act regulates al Canadian banking activity conducted through a ferderaly chartered institution. This includes banks, trust companies, and insurance companies.
Bank Rate – The rate at which the Bank of Canada charges loans to the chartered banks. This is the rate on which lending institutions base their prime lending rate.
Basis Points – One one-hundredth of one percent. Used to describe the amount of change in yield in money debt instruments, including mortgages.
Beacon Score – The term used for your credit score. Your credit score is a calculation derived from the timeliness of your payments, amount of the available credit currently in use, the number of credit inquires, number of open accounts, history of bankruptcies, judgments and collections.
Blend & Extend – A closed mortgage can often be “opened” for the purpose of extending the term. Most lenders will blend the penalty for breaking the term (usually an Interest Rate Differential) with the rate for the new extended term. The idea is to get a lower rate and protect against rate increases in the future.
Binder Insurance – A temporary agreement where one party agrees to insure another party while awaiting receipt of, and final action on, the application for insurance.
Blanket or Inter-Alia Mortgage – A single mortgage registered against two or more individual parcels of real property.
Blended Payment – A typical Canadian mortgage payment that includes a principal and interest amount. It is paid regularly during the term of the mortgage. The payment total remains the same, although the principal portion increases over time and the interest portion decreases.
Blended Rate – The rate that results from the blending of an existing mortgage and a new mortgage with differing interest rates into one consolidated mortgage. The calculation to determine the final rate takes into account the time remaining on the existing loan, as well as the interest rates and the amount of principal for each loan.
Bridge Financing – A loan provided to borrowers to provide financing for purchase, pending closing of the sale of their existing property.
Broker – One who acts as an intermediary between two parties in a transaction.
Builder’s Loan – A loan designed for borrowers who need financing for construction projects. These differ from normal loans as the funds are received in stages (also know as draws) during the building process to protect the lender form construction abandonment.
Builder’s Risk Insurance – Fire and extended coverage insurance for a building under construction. Coverage increases automatically as the construction progresses and terminates at completion.
Building Code – A set of minimum regulations respecting the safety of buildings with reference to public health, fire protection and structural sufficiency.
Buy Down – A lump sum payment as consideration for the reduction in the interest charged on a loan from that which would normally be charged.
Buyer’s Agent – A Realtor who works contractually on behalf of the buyer. A listing agent is A Realtor who acts contractually for the seller. A listing agent may represent both the seller and the buyer with a Buyer’s Agency Agreement. This agreement gives full disclosure to the sellers or their agent that they will negotiate on behalf of the buyer, with no legal conflict of interest. The seller still pays the Buyer’s Agent fees, but this is always spelled out and acknowledged on the Offer of Purchase.
Canadian Accredited Association of Mortgage Professionals (CAAMP) – CAAMP is the only national organization representing Canada’s mortgage industry. With over 10,500 mortgage professionals, its membership is drawn from every province and from all industry sectors. This diversified membership enables CAAMP to bring together key players with the aim of enhancing professionalism.
Canada Mortgage and Housing Corporation (CMHC) – A Crown Corporation which was initially created to administer the National Housing Act and is Canada’s only public sector mortgage insurer. CMHC is charged with administering government housing initiatives and works with community organizations, the private sector, non-profit agencies and all levels of government to help create innovative solutions to today’s housing challenges.
Capped rate – The highest rate that the borrower will pay within a defined time period. Some floating rate mortgages will have a capped rate, so the borrower’s payments are guaranteed not to increase over a predetermined rate during the term.
Cash Back – A mortgage feature that provides the borrower with cash back, as a percentage of the mortgage principal. It is generally used to cover closing costs.
Certificate of Occupancy (Permit) – A certificate provided by the municipality that a property has been constructed under the authority of the issued building permit and has met the requirements of the building code, and is now suitable to be occupied.
Certificate of Pending Litigation – A document registered against title to a property which indicates that a law suit has been commenced. The person who started the law suit and filed the Certificate of Pending Litigation is claiming an interest in the property.
Civic Address – Street address of the property.
Claim of Builder’s Lien – Claim for materials supplied and / or work done by a contractor. The claim is registered against the property and is valid for one year from the date of registration.
Clear Title – A property that is not subject to any financial encumbrances. There is no money owing against the property.
Closing Costs – These are costs, in addition to the purchase price of the home – such as; legal fees, disbursements, GST(on new properties only), property transfer tax, fire insurance, and survey(for houses only), and appraisal fees. These costs are payable on or just prior to the completion date.
Closed Mortgage – A mortgage whose terms state that it cannot be paid out until its maturity date. In most cases the lender agrees that the mortgage may be paid out early, with a 3 month interest penalty or Interest Rate Differential (IRD) which ever is greater.
Conditional Offer – An offer to purchase that is subject to specified conditions. For example: the arranging of a mortgage. There is usually a stipulated time limit within which the specified conditions must be met.
Collateral Mortgage – A mortgage which secures a loan by way of a promissory note. The money which is borrowed can be used to buy a property for another purpose such as a home renovation or for a vacation home.
Commitment Letter / Mortgage Approval – A written notification from the mortgage lender to the borrower that approves the advancement of a specified amount of mortgage funds under specified conditions.
Completion Date – The date when the documents necessary to transfer title must be registered in the Land Title Office. Also called Closing Date. This is also the date when money changes hands.
Contract of Purchase and Sale – The Agreement executed by the vendor and the purchaser outlining the terms upon which the property is to be transferred. This is a binding Contract containing the conditions of sale.
Conventional Mortgage – A mortgage loan up to a maximum of 80% of the lending value of the property. Mortgage loan insurance is generally not required for this type of mortgage.
Conveyance – The process involving the transfer of ownership of property from the Vendor to the Purchaser (including the preparation, execution and registration of documents to affect the transfer.
Covenant – A clause in a legal document which, in the case of a mortgage, gives the parties to the mortgage a right or an obligation. For example: a covenant can impose the obligation on the borrower to make mortgage payments in certain amounts on certain dates. A mortgage document consists of covenants agreed to by the borrower and the lender.
Credit Report – A record of an individual’s payment history available at a credit bureau. Individuals may order a copy of their own report by contacting their local bureau. The 2 main bureaus in Canada are Equifax and Trans Union.
Debt Ratio – The borrowers total debt compared to their total income, expressed as a percentage. The debt ratio is one criteria used when qualifying for a mortgage.
Deed – A legal document which is signed by both the vendor and purchaser, transferring ownership. This document is registered as evidence of ownership.
Default – Failure to make monthly mortgage payments as agreed, or to meet certain other terms of a mortgage agreement.
Deposit – Money placed in trust by the purchaser when an Offer to Purchase is made, or on the subject removal date. The sum is generally 5% of the purchase price and is held by the real estate representative or lawyer until the sale is complete, and then it is paid to the vendor.
Discharge of Mortgage – A document signed by the lender and given to the borrower when a mortgage loan has been repaid in full.
Double-Up – This feature (not offered by all lenders) allows the borrower to double up their mortgage payments anytime without penalty. This feature is often associated with the ability to “skip” an equivalent number of payments. This can be used either to accelerate the pay-off of a mortgage (as it is an enhanced pre-payment privilege) or to manage a volatile cash flow. For example; commission-based individuals such as Realtors could “double-up with each commission cheque and “skip” a payment during low cash flow periods.
Down Payment – The amount of cash towards the purchase transaction by the buyer of a home. This is also known as the purchaser’s initial “equity” in the property. The full balance is due on the completion date.
Easement – A benefit or right which owners of one piece of property have over another adjoining piece of property. This may be for access to, over, or for use of another person’s land for a specific purpose, such as a driveway or public utilities.
Encumbrance – A registered claim for a debt against a property, such as a mortgage.
Equity – The amount of money left over after subtracting the amounts owing on all financial charges registered against the property from the fair market price.
Foreclosure – A law suit commenced in Supreme Court by a mortgagee (lender) once a default occurs. This legal procedure allows the lender to get ownership of the property.
Form B (Mortgage) – This is the part of the mortgage which shows the details of the mortgage. This is where the terms of the mortgage (names, amounts borrowed, length of term, interest rate etc.) are displayed.
Form B (Strata Property Act) – The Form B Information Certificate is a form required to be issued by a strata corporation pursuant to section 59 of the Strata Property Act. It must be issued within one week of a request by an owner, a purchaser or a person authorized by an owner or purchaser. The purpose of the Form B is to disclose a variety of information about the financial and other affairs of the strata corporation and the particular strata lot to which it relates. The Form B is typically requested by a prospective purchaser of a strata lot as part of the due diligence process, or by a lender before agreeing to advance a loan to the owner.
First Mortgage – A mortgage registered before all others on title. A “First Mortgage” gives the lender a primary lien/charge against the property that has precedence over all other mortgages. Priority is determined by the date and time registered, so a first mortgage was literally registered “first”.
Fixed Rate Mortgage – A mortgage loan which has an interest rate that is the same for the entire length of the term. There is no fluctuation as with a floating mortgage rate.
Genworth Mortgage Insurance Corporation – Canada’s only private mortgage insurer. Mortgage insurance is the insurance to protect the lender from financial loss in the event the borrower defaults on the loan. The borrower will pay a one time premium if they have less than 25% equity in the property. Although the borrower pays the premiums, there is no benefit other than allowing them to purchase or refinance a higher loan to value ratio.
Gross Debt Service Ratio (GDS) – The percentage of the borrower’s gross monthly income that will be used for monthly payments of principal and interest, property taxes, heating costs and half of any condominium maintenance fees. This is used by most lenders as yardstick by which to measure the ability of a borrower (or borrowers) to make mortgage payments. Most lenders as well as CMHC and Genworth Insurance require that this ratio be no more than 32%. Today, there are alternative options which will allow higher GDS ratios.
Guarantor – One who promises to pay a debt or perform an obligation contracted by another in the event the original borrower fails to pay or to perform as contracted.
High Ratio Mortgage – A mortgage loan in excess of 80% of the lending value of the property. This type of mortgage must be insured by either CMHC or Genworth Insurance.
Holdback – The withholding of or non-advancement of a portion of a mortgage loan to maintain adequate security;
- Pending achievement of a performance requirement, or
- As protection against liens.
Interest – The charge for using the lender’s money.
Interest Adjustment Date (IAD) – The date from which interest on the mortgage advanced is calculated up until your regular payments start. For example; if your completion date was March 21st, but you want to have your regular monthly payment payments start on April 1st, the later would be your interest adjustment date. You would have one irregular payment to cover from March 21st to April 1st.
Interest Only Loan – A loan which the borrower only pays regularly scheduled payments on the interest to the lender and the principal remains the same during the life of the loan. The principal is repaid in ful at the end of the loan’s term.
Interest Rate – Interest rate is the percentage charged on outstanding loan balances.
Inter-Alia Mortgage or Blanket Mortgage – A single mortgage registered against two or more properties.
Interim Financing – Also known as bridge loan. A loan provided to borrowers to provide financing for a purchase, pending the closing of the sale of their existing property.
Investment Property – Property which is rented out to individuals who do not own the property, and pay rent to the owner of that property. The opposite of an owner occupied property.
Joint Tenancy – An ownership of property by two or more people, each of whom has an undivided interest subject to the right of survivorship. This title is most common with married or common law couples. (See Tenants in Common).
Judgment – The official and authentic decision of a court of justices upon the respective rights and claims of the parties to an action or suit being litigated and submitted to its determination.
Land Title System – This is a system of land registration under which the registrar, passes on the validity of the mortgage instrument, and determines its legal effect.
Land-use Regulations – Municipal level regulations that restrict and regulate the types of buildings and uses allowed on a property.
Lease – A contract between landlord (lessor) and tenant (lessee) for the occupation or use of the landlord’s interest in a property by tenant for a specified period of time and for a specified consideration (rent).
Leasehold – An estate or interest in an estate in real property held by virtue of a lease for a term of years. A lease hold is considered personal property.
Lending Value – The purchase price or market value of a property, whichever is less.
Letter of Instruction – A letter of instruction will call for the lawyer to act for the lender and administer the distribution of the mortgage loan.
Lien – A claim against a property for money owning. A lien may be filed by a supplier or a subcontractor who has provided labor or materials but has not been paid. A properly filed lien must be a claimant. If not paid, the lien holder may force the sale of the property to pay off the debt.
Liquidity – The readiness or ease with which an asset can be converted to cash.
Listing Agreement – The contract between a seller and a real estate agent or broker. It usually includes length of the listing period, sales price, and amount of commission.
Loan to Value Ratio (L/V) – This is the ratio of the loan amount to the value of the property expressed as a percentage. For example, the loan-to-value for $90,000.00 on a home which costs $100,000.00 is 90%.
Lump Sum Payment Option – A clause that may be included in an mortgage allowing the borrower to prepay a portion of the principal if desired and accordance with specific terms of the mortgage.
Maturity – The end of the mortgage’s term.
Maturity Date – The last day of the term of the mortgage agreement. On this day, the mortgage loan must be either paid in full of the agreement or renewed.
Maximum Loan Amount – The maximum dollar amount that a lender is willing to fund based on a certain interest rate.
Mortgage – A mortgage is a security for a loan on a property. It is a personal guarantee to repay the loan as well as a pledge of the property as a security for the loan.
Mortgage Broker – A registered agent who negotiates with lenders on behalf of a borrower to obtain the best overall mortgage for that borrower’s circumstances. Mortgage Brokers are particularly useful in financing “non-standard” situations which cannot be funded by a national lender. This is possible because a Mortgage Broker has access to lenders who do not advertise nationally or operate local retail locations.
Mortgage Insurance – This type of insurance protects the borrower, by relieving the borrower of the need to make mortgage payments should unforeseen circumstances make it impossible for them to do so (eg. Critical illness, disability or death).
Mortgage Default Insurance – A type of insurance which protects the mortgage lender in case the borrower defaults on the mortgage.
Mortgage Fraud – Any material misstatement, misrepresentation, or omission relied upon by a lender or insurer to underwrite, approve, fund or insure a mortgage loan.
Mortgage Life Insurance – This insurance guarantees that if you die, your mortgage will be paid in full. This insurance is optional and for the sole benefit of the borrower’s family. Portability is a beneficial feature. There is also insurance to help in the event of a critical illness or disability.
Mortgage Originator – A mortgage professional engaged in the acceptance, completion and / or submission of the mortgage loan applications to an underwriting lender.
Mortgagee – The lender.
Mortgagor – The borrower.
Multiple Listing Service (MLS) – A service of a local real estate board which publishes and exchanges details of properties registered with them. The majority of properties sold in Canada are sold through the local MLS.
Net Worth – Your total financial worth, calculated by subtracting your total liabilities form your total assets.
No – Doc – Refers to ‘no documentation necessary’ when confirming past income earnings.
No Fault – Title insurance claims are paid on a no-fault basis, which means that the insurer cannot argue negligence in order to deny coverage.
Non-Conforming Use – A property that is being used to contravention of current zoning by laws but is permitted to remain because it pre-dates the enactment of these zoning by-laws.
Offer to Purchase – A written contract setting out the terms under which the buyer agrees to buy. If accepted by the seller, it forms a legally binding contract subject to the terms and conditions.
Open Mortgage – This type of mortgage may be paid back without notice or penalty. An open mortgage is generally more expensive than a closed mortgage, which would have a penalty to pay off early.
Owner Occupied – The owner of the property also resides in that property.
Property Disclosure Statement (PDS) – A signed statement that discloses, in writing, several aspects of a specific property. For example, it answers whether the walls of the property are insulated or if they contain asbestos.
PITH – Principal, Interest, Taxes, Heating and ½ of condo fees, if applicable. Also, known as “shelter expenses”, this is a basic component of the ratios used to determine whether or not a borrower qualifies.
Portable Mortgage – A mortgage which allows you to transfer the mortgage amount upon sale of a property to a new property. There is no cost or penalty to do this. The mortgage will be registered on title of the new property.
Possession Date – The date in which the new owner takes the keys and gains access after the completion date.
Power of Attorney – A written instrument, duly signed and executed by an individual, that authorizes someone to act on his or her behalf, to the extent indicated in the instrument.
Prepayment Privileges – The right to repay periodically more than the scheduled payment amount. Most lenders allow lump sum payments throughout the year that total no more than 10%-25% of the original mortgage amount each year. In addition to the lump sum payments most lenders will also allow the borrower to increase their regular payment by 10%-100% (double-up). All extra payments are applied directly to the principal and will accelerate the mortgage.
Prepayment Penalty – If your mortgage is not fully open, you may be charged a penalty if you wish to pay off all or part of your mortgage before the fixed term. The normal prepayment penalty on a closed fixed rate mortgage is the greater of 3 months’ interest or the Interest Rate Differential IRD) on the amount to be repaid. For a closed floating rate mortgage, the borrower would generally pay 2-3 months interest penalty.
Pre Approval – A mortgage loan which is approved at a specified amount pending on the satisfactory appraisal of the property.
Pre Qualifying – The process of determining how much a person can potentially borrow based on income, credit score, liabilities and assets prior to actually having chosen a property to purchase.
Prime Rate – The interest rate used as the gage in which to price consumer loans, lines of credit, and floating mortgages.
Principal – The unpaid balance of your mortgage loan.
Private Mortgage – Mortgages provided by private corporations or individuals.
Property Transfer Tax (PTT) – This is a tax payable to the provincial government by the purchaser upon the transfer of title from a seller. First time buyers may be exempt from paying this tax if they meet certain criteria.
Realtor – A real estate representative who is a member of an organization of persons engaged in the business of buying and selling real estate.
Refinance – To pay off an existing mortgage or other registered encumbrances and arrange for a new mortgage, sometimes with a different lender. The borrower may want to obtain a new larger mortgage with a better rate or terms.
Registration Fees – Fees paid to the provincial government for recording a title transfer, mortgage registration, or other instrument such as an assignment or lien with local authorities.
Registered Retirement Savings Plan (RRSP) – A Federal plan which allows a taxpayer to contribute approximately 18% of earned income – to a maximum of $13,500.00 into a retirement plan “tax free”. If the tax payer has already paid tax on a personal income, then the RRSP contribution (which can be made until March 1st of the following year in which the income was earned and taxed) can result in a significant tax rebate.
Renewal Agreement – An agreement through which the lender may agree to extend the mortgage loan, possibly on revised terms as to principal repayments and interest rate.
Rent Roll – A statement listing the tenants in occupancy, the area or unit occupied by each, their lease expiry dates and rent payable as well as other leasing details that may be required.
Reverse Mortgages – This type of mortgage allows older consumers to convert their home equity into monthly cash payments, generally for living expenses. A homeowner’s equity is gradually drawn down by a series of monthly payments from the lender to the homeowner – the borrower. At the end of the loan period, or upon death of the borrower, the loan balance is due, which is usually settled by the heirs who sell the property to meet the outstanding obligation.
Second Mortgage – A mortgage placed on a property which is already encumbered with one mortgage. Determination of first, second, third mortgage etc. is determined by property of registration time and date.
Simple Interest – Interest which is computed only on the principal balance only. It is not compounded by calculating interest payable on accrued interest. Most mortgage payments are calculated using compounded interest payments not simple interest. Most lines of credit and private mortgage payments are calculated using simple interest.
Skip-A-Payment Option – This is a mortgage clause that allows the borrower to skip a monthly payment, when an extra payment has been paid in advance.
Step Mortgage – A mortgage product that has several products under one mortgage, such as a line of credit, a short term loan and a longer term loan. Each product has its own terms and renewal date.
Subject Removal – Generally when a buyer writes an offer to a seller, they will include specific subjects that must be met prior to making a final commitment to the purchase. An example would be “subject to financing…” that would allow the buyer time to get final approval from his lender. It is very common to allow about 5 business days for this process to be complete. Once the buyer and seller have met all subjects, the buyer will remove those subjects and be bound by the contract.
Subprime Mortgage – This is a loan that has been granted, even though it is at a much higher risk of not being paid back as agreed. The borrower may have a poor credit history and /or little on no verifiable income. Generally the interest rate would be higher than on a prime loan. Also known as B or C mortgages.
Survey – The legal written and/or mapped description of the location and dimensions of a piece of land. The survey will also show the dimensions and placement on the lot of any structure, including additions such as pools, sheds and fences. A survey will also indicate any easements or encroachments on the property. A survey is often required by the lender as part of the mortgage transaction when purchasing a house.
Switch – (Also known as a TRANSFER) A switch is when you change lenders either during the term of an existing mortgage or at a time of renewal. The mortgage amount stays the same. In the event the borrower changes lenders and changes the mortgage amount, it would become a “refinance” and fees may apply.
Term – The length of time during which a mortgagor pays a specific interest rate on the mortgage loan. The entire mortgage principal is usually not paid off at the end of the term because the amortization period is normally longer.
Tax Account – An account that the lender creates to hold property taxes collected as part of the mortgage payments on behalf of the homeowner. The lender will then pay the taxes from this account when due.
Tax Certificate – At the time of sale, the lawyer for the buyer must confirm that the local taxes have been paid up to date. If they are, a Tax certificate is issued, from which any adjustments can be made – usually requiring the buyer to compensate the seller for any prepaid taxes. If they are not paid up to date, the municipality requires that the seller pay them off from the proceeds of the sale. If there are insufficient proceeds, then the buyer will need to pay them.
Term – In a mortgage, term is the actual length of time for which the money is loaned. The term is usually shorter than the amortization period. At the end of the term the outstanding debt must either be paid off in full or renewed for another term.
Tenants in Common – An ownership of property by two or more people, each of whom has an interest in the property. Tenants in common may have different shares in the property. Unlike a joint tenancy, a tenancy in common does not end because one party sells her interest or dies. Instead the new party or heir becomes the new tenant in common. This is most common with business partners, rather than married or common law couples.
Title – A freehold title gives the holder full and exclusive ownership of land and building for as indefinite time. In condominium ownership, land and common elements of buildings are owned collectively by all unit owners, while the residential units belong exclusively to the individual owners. A leasehold title gives the holder right to use and occupy land and buildings for a defined period of time.
Title Insurance – Insurance offered by the title companies to protect a landowner to his right of ownership in real property. This insurance protects against a variety of problems such as fraud and forgery on the title, defects in title, survey problems, inability to market the property at a later date, or invalidity of the insured mortgage. Separate policies may be purchased to protect the lender and the borrower.
Total Debt Service ratio (TDS) – The percentage of gross income required to cover all monthly payments for housing and all other debts, such as car payments and credit card payments.
Undertaking – This is a promise by a lawyer to ensure that certain conditions, usually of the lender, are met. These conditions may be met shortly after closing, due to time constraints. The best example is the undertaking to register a discharge of an old first mortgage after the new one has been registered, because there is simply not enough time at closing. It also governs closing dynamics such as releasing funds before a new mortgage document is registered.
Underwriting – This is a process of deciding whether or not to lend an applicant the money, and/or how much they will be approved for. Every lender has a different underwriting process and lending criteria.
Variable Rate Mortgage – The interest rate fluctuates with the prime rate and is usually compounded monthly.
Vendor Take Back Mortgage – Mortgage financing arranged between the seller of the property and the buyer. The title is transferred to the buyer. Often this type of loan is a second mortgage which the seller is willing to arrange at below market rates to ensure the buyer can purchase the house.
Verification of Employment – The lender will usually want to verify the applicant’s income. Generally, they will want a letter from the employer, stating status (such as full/part time), and length of time with the company, rate of pay and job title. Additionally, the lender will usually want a recent pay stub and a Notice of Assessments for personal taxes. There are different requirements for self-employed borrowers.
Verification of Down Payment – The lender will require the borrower to verify where the down payment is coming from with a 3 month history via bank statements, investment accounts, RRSP and/or a gift letter (signed by a relative confirming that the money does not have to be paid back. Confirmation it has been deposited into the borrower’s bank or lawyer’s account is required).
Warranty – Brand new homes and multi-family buildings must have a warranty in place to qualify for bank financing.