Get Educated

Before you start seriously looking at homes, you should understand the financial options available to you. Here you will find information on buying your first home, tips on how to avoid common mortgage mistakes, and advice on getting a pre-approval, plus a glossary of terms to help you through the process!

First Time Home Buyer:

Buying A Home:

Refinancing:

Mortgage Buzz:

Glossary:

50-50 MORTGAGE

A mortgage combining the features of a fixed rate mortgage with the features of a variable rate mortgage.

ABANDONMENT

When the condition of ownership for a property becomes a burden, the owner may choose to become a non-payer and abandon the property. In the event of “abandonment,” creditors can seek to recover their money as the property is no longer part of the estate.

ACCELERATED BI-WEEKLY MORTGAGE PAYMENTS

Mortgage payments that are made every two weeks (the date of which won’t always fall on the first day of a month). If you choose accelerated bi-weekly payments, you will make 26 payments a year.

ACCREDITED MORTGAGE PROFESSIONAL (AMP)

A professional designation created by the Canadian Association of Accredited Mortgage Professionals. Essentially, it demonstrates commitment to ongoing education and ethical behavior in the mortgage industry.

ADJUSTABLE RATE MORTGAGE (ARM)

A mortgage where the payments change and the interest rate is periodically adjusted based on an index. In Canada, the index is the prime lending rate.

ADJUSTMENT DATE

Also known as interest adjustment date. The date on which the interest will begin to accrue on your mortgage before payment is made on the mortgage.

AMORTIZATION PERIOD

This is the number of years it will take to pay down the principal balance of your mortgage in full. The most common amortization period is 25 years. However, you can choose an amortization period of up to 35 years.

AMORTIZATION SCHEDULE

A table of periodic payments made to a mortgage, showing the amount paid, the amount applied to interest, the amount applied to principal, and the remaining balance after the payment is made.

APPRAISED VALUE

The fair market value of a piece of property as determined by a licensed and qualified appraiser.

ARTICLES OF INCORPORATION

A document filed with the government by a corporation’s founders describing the purpose, name, place of business, and other details of the corporation. Usually, these will also include a certificate of incorporation as well.

ASSET

Something you own that has value or use. Example: RRSPs, vehicle, savings, home, etc.

ASSUMABLE MORTGAGE

A mortgage that may be transferred without changing the terms of the original mortgage.

BRIDGE LOAN

Also known as interim financing. A second mortgage that is paid off immediately following the closing date of the buyer’s current home. Typically, they are used when the sale of the buyer’s current home closes after the purchase of their new home closes.

CLOSED MORTGAGE

A mortgage that, for a specified term, locks you into paying the mortgage for a certain period of time. It also locks in a mortgage rate, which doesn’t increase or decrease. Generally, if you break a closed mortgage, you will be required to pay three months’ interest payments as a penalty. The most common term for a closed mortgage is five years.

CLOSING COSTS

Costs that are associated with completing the mortgage transaction. Examples of closing costs are lawyer fees, title insurance, appraisal fees, fire insurance and home inspection fees.

CLOSING DATE

The day that ownership of a home transfers from the seller to the buyer. This must be stated and agreed to by all parties on the sale contract.

COLLATERAL

A security or guarantee pledged for the repayment of a loan if an individual does not have enough funds to repay. In respect to mortgage loans, the collateral is the property being mortgaged.

COMPOUND PERIOD

The number of times per year that the interest rate is compounded. In Canada, mortgage interest rates are compounded semi-annually, or twice per year.

CONDO FEE

The monthly payments collected that cover a resident’s shared expenses for the upkeep of all common areas.

CONVENTIONAL MORTGAGE

A mortgage loan that is up to 80% of the home’s appraised value or purchase price (whichever is less).

CREDIT BUREAU

A credit reporting agency that gathers credit information and compiles it into a credit report. The two credit bureaus in Canada are Equifax Canada and Trans Union of Canada.

CREDIT REPORT

History of an individual’s credit. To read more about credit reports and how to understand them, please click here.

CREDIT SCORE

The grade given to your credit situation and credit history.

DEBT CONSOLIDATION

A means of combining several debts into one debt that has one monthly payment.

DEFAULT

Failure to pay a debt as agreed. In respect to mortgages, failure to pay mortgage payments.

DOWN PAYMENT

This represents the amount of cash that the buyer can initially invest in the property. The down payment is the difference between the purchase price and the value of the mortgage loan.

EQUITY

The value of the property beyond any amounts being owed. In other words, the difference between the price that a home could be sold for and the amount still owing on any mortgages.

EQUITY LOAN

A loan secured by real estate.

EQUITY TAKE OUT MORTGAGE

An equity take out mortgage is a mortgage loan used to ‘take out’ equity from a property for a variety of reasons.

FAIR MARKET VALUE (FMV)

The price a ready, willing and able buyer, with knowledge of all pertinent facts, is willing to pay for a certain property.

FIRST MORTGAGE

The mortgage whose holder has the first place claim on assets in the event of default.

FIXED RATE MORTGAGE

A mortgage for which the interest rate is fixed for a certain period of time (generally the length of a mortgage term).

FORECLOSURE

The legal process in which the mortgage lender sells the mortgaged property because the borrower has defaulted on his or her mortgage loan.

GDS RATIO

Stands for Gross Debt Service. This is the percentage of annual gross income that is required to cover mortgage principal payments, mortgage interest payments, property taxes, and heat payments. If the property is a condominium, condo fees will also be worked into this ratio.

GIFT LETTER

This is a letter stating that the gift giver (an immediate family member) is making a gift of a certain amount for the down payment of a home. It also states that the gift is genuine and that the gift receiver (or home buyer) is not required to pay back the gift.

HELOC

An acronym standing for Home Equity Line of Credit.

HIGH-RATIO MORTGAGE

A mortgage that is more than 80% of the home’s appraised value or purchase price (whichever is less). High-ratio mortgages must be insured to protect the lender against default.

HOME INSURANCE

Provides payment to the homeowner in the event of loss due to fire, theft, or damage through certain natural elements such as hail, tornado, lightning and flooding.

HOME INSURANCE POLICY

An insurance policy covering your physical home in the event of fire or other casualty. Also covers the contents of the home and other losses you may suffer due to destruction of the property, in whole or in part.

HIGH YIELD MORTGAGE

Mortgages with a higher than average interest rate. The yield refers to the compound interest charged on the mortgage, also known as the Annual Percentage Rate (APR).

INTEREST RATE

The percentage of the mortgage loan charged by the lender for use of the lender’s money. In Canada, this mortgage rate is compounded semi-annually, or twice per year.

INTERIM FINANCING

Also known as a bridge. Interim financing is a second mortgage that is paid off immediately following the closing date of the buyer’s current home. Typically, it is used when the sale of the buyer’s current home closes after the purchase of his or her new home closes.

JOB LETTER

A letter from your employer stating your length of employment, guaranteed number of hours worked per week, and income amount.

LIABILITY

A financial obligation of an individual. For example, credit card debt, car payments, mortgage payments, etc.

LICENSED MORTGAGE ASSOCIATE

The most common person within a brokerage to deal with clients. A mortgage associate will take clients’ applications on behalf of the brokerage, and walk them through the mortgage process.

LIEN

Refers to a claim against a property to secure the payment of a debt or other obligation.

LOAN

A borrowed amount of money that is generally repaid in full as well as with a certain amount of interest.

LOAN TO VALUE RATIO (LTV)

The ratio of the value of the mortgage loan to the appraised value or purchase price of the property (whichever is less). For example, if someone purchased a home for $100,000 and had $20,000 as a down payment, the mortgage would be $80,000, or 80% of the value of the home. Therefore, it has an 80% LTV.

LOANS OFFICER

An employee of a lending institution that functions as the liaison between the lender and the customers that are applying for a loan.

MARKET VALUE

The highest price a buyer would pay and the lowest price a seller would accept on a property. Market value could differ from the price that the property could be sold for at a given time.

MATURITY DATE

The date that your mortgage term ends. At this point, you can either pay off your mortgage or renew it.

MORTGAGE

To pledge a property to a lender as security on a loan.

MORTGAGE AFFORDABILITY

The amount of money a mortgage borrower can make on a monthly basis towards a mortgage. This figure is based on their income, expenses, and the proposed monthly payment.

MORTGAGE AMORTIZATION

The process of repaying a mortgage loan.

MORTGAGE APPLICATION

First step in obtaining financing for a real estate purchase.

MORTGAGE BALANCE

The full amount owed at any period of time during the duration of the mortgage. It is also the sum of the remaining principal owing and accrued interest.

MORTGAGE BROKER

A mortgage brokerage must employ a mortgage broker to oversee the brokerage employees. Generally, brokers are responsible for the management role within the brokerage. They are also responsible for ensuring that the brokerage complies with the Real Estate Act. An individual must be a Licensed Mortgage Associate for two years before being eligible to become a broker.

MORTGAGE BROKERAGE

A legal identity licensed to trade in mortgages. Mortgage Brokers and Licensed Mortgage Associates must be licensed under a brokerage.

MORTGAGE COMPANY

A business with the principal activity of providing or servicing mortgage loans. Also may be a chartered bank, a credit union, a trust company or other financial institution providing mortgage loans.

MORTGAGE DEED

A document in which the mortgagor transfers an interest in real estate to a mortgagee for the purpose of providing a mortgage loan.

MORTGAGE HOLDER

The individual or entity who owns the mortgage loan that was extended to a homeowner, and is the party entitled to enforce the terms of the mortgage.

MORTGAGE INSURANCE

Required for high-ratio mortgages. It protects the lender in the event that a borrower defaults on a mortgage. The three mortgage insurers in Canada are CMHC(Canadian Mortgage and Housing Corporation), Genworth, and AIG. Prior to the creation ofCMHC, Canadians could not purchase a home without a 25% down payment.

MORTGAGE LEAD

A generic term referring to a potential mortgage borrower or a potential mortgage customer for a mortgage lender or mortgage broker.

MORTGAGE LENDER

An entity that provides financing for the purchase of real estate.

MORTGAGE LIFE INSURANCE

This is insurance that pays off the mortgage in the event of death or disability. To read more about mortgage life insurance, please click here.

MORTGAGE LOAN

A loan secured by real estate owned by the borrower.

MORTGAGE PAYMENT

A periodic amount paid to a mortgage holder for repayment of a mortgage loan.

MORTGAGE PRINCIPAL

The outstanding balance of your mortgage.

MORTGAGE QUALIFICATION

The process of applying for a mortgage, having an underwriter review your mortgage application, and submitting mortgage documents to a mortgage lender for review. The qualification is the standard by which the lender will lend money on a mortgage loan.

MORTGAGE RATE

The interest that a mortgage borrower will pay for money borrowed against a mortgage.

MORTGAGE REFINANCING

The process of replacing your mortgage or mortgages on your property with a new mortgage.

MORTGAGE RENEWAL

A new agreement to extend or renew mortgage terms with your mortgage holder. Only found in Canada

MORTGAGE STATEMENT

Usually from from your mortgage lender. It includes such information as property address, outstanding principal balance, monthly payment, interest rate, mortgage term, etc.

MORTGAGE TERM

The length of time in which the parameters of a mortgage have legal effect. Usually stated in years.

MORTGAGEE

The party that advances the funds for a mortgage loan; the lender.

MORTGAGOR

The party that uses their home as a security for the mortgage; the borrower.

NOTICE OF ASSESSMENT (NOA)

The summary form that Revenue Canada sends you after your income tax has been filed. It specifies what you claimed on your taxes last year, as well as the amount of taxes you owe, or the amount of money that you will receive as a tax refund.

OPEN MORTGAGE

This is a mortgage with no term, which means that you can pay off your mortgage either fully or partially at any time with no penalty. Open mortgage rates are usually higher than closed mortgage rates.

OVERNIGHT RATE

The interest rate at which large banks borrow money, short-term, among themselves.

PAY STUB

Usually a document you receive from your employer on your pay day stating, for that pay period, your gross earnings, the amount of CPP payments deducted, the amount of EI payments deducted, the amount of income income taxes deducted, net income, etc. Your pay stub should also state the year-to-date amounts of all the aforementioned income and payments.

PORTABLE MORTGAGE

A mortgage that permits the mortgage borrower to transfer their mortgage balance to a new property and with the same lender without penalties.

PORTABILITY

A feature of a mortgage that allows the borrower to “port” their mortgage to a new property if they move before their mortgage term is up (with no penalty).

PRE-APPROVED MORTGAGE

Qualifies you for a loan amount before you start looking for houses. It also acts as a rate hold, guaranteeing you today’s interest rates until up to 120 days in the future.

PREPAYMENT PENALTIES

If you “break” (or pay off) your mortgage before your term is up, you’ll have to pay a prepayment penalty. The penalty is generally three months’ interest payments.

PREPAYMENT PRIVILEGE

Some mortgages allow you prepayment privileges. Examples of these are doubling up payments, paying off a certain percentage of your mortgage principal a year, or increasing your monthly mortgage payments by a certain percentage.

PRINCIPAL

The amount of money borrowed or still owing on a mortgage. Does not include the amount accrued through interest.

PRIME RATE

Also known as prime lending. It refers to the lowest commercial interest rate charged by a banks at a particular time.

PROPERTY TAX ASSESSMENT

A method of placing value on real estate for the purpose of taxation.

PURCHASE CONTRACT

A legally binding document stating the buyer’s intention to purchase a home from the seller. It usually has certain conditions (such as condition of financing, condition of a home inspection, etc.)

RATE LOCK

Refers to an agreement between a mortgage lender and a borrower to fix a certain interest rate for a number of days between the issuance of a mortgage approval and closing of the real estate purchase and mortgage loan.

READVANCEABLE MORTGAGE

A feature of some mortgage lines of credit, including home equity lines of credit (HELOC).

REAL ESTATE AGENT

A person acting as an agent for the sale of real estate on behalf of the property owner.

REAL ESTATE APPRAISAL

Indicates a report prepared by a real estate appraiser that estimates the value of a home and that states the features of the home. Lenders generally require appraisals to verify that the buyer has purchased the home for a fair market price, to determine what the market rents are for the home, to ensure that the home meets the lender’s standards, to determine how much equity the home owner has in the home, etc.

REALTOR

A real estate agent who is a member of a local real estate board, the Canadian Real Estate Association, and a provincial association.

REFINANCING

Paying off the existing mortgage and arranging a new one with a different lender, or re-negotiating a new term, interest rate, etc. of an existing mortgage.

RENEWAL

The re-negotiation of the terms, interest rates, etc. of a mortgage at the end of the term. Only applies to Canadian mortgages.

REVERSE MORTGAGE

A type of mortgage loan available in Canada for homeowners 60 years and older.

SALE CONTRACT

A written agreement between a buyer and seller of real estate, setting forth the terms of the sale, and specifying the rights and duties of the parties in the real estate transaction.

SECOND MORTGAGE

The mortgage whose holder has second place claim on assets in the event of default.

SECURITY

The property that will be pledged as collateral for a loan. See Collateral.

SEMI-MONTHLY MORTGAGE PAYMENTS

Structured for the borrower to make payments 2 times per month. For instance, on the 1st and 15th of each month.

SWEAT EQUITY

Equity that comes from a purchaser or homeowner performing work on a property that is up for purchase or refinancing.

TAKE OUT MORTGAGE

A mortgage loan that allows you to “take out” equity for other purposes.

TDS RATIO

Stands for Total Debt Service Ratio. This is the percentage of annual gross income that is required to cover mortgage principal payments, mortgage interest payments, property taxes, and heat payments, plus monthly payments of any other debt the borrower holds. If the property is a condominium, condo fees will also be worked into this ratio.

TERM

The length of time the interest rate is fixed. The end of the term is also the time when the borrower must either pay the outstanding mortgage balance, or re-negotiate a new mortgage with the lender. If the borrower pays off his or her mortgage before the term is up, prepayment penalties may apply.

THIRD MORTGAGE

A lien on property subordinate or junior to the first and second mortgages.

TITLE

Legal ownership in a property.

TITLE INSURANCE

Insurance that protects the owner or mortgagee of the property from any lawsuits or claims arising from a defective title.

UNDERWRITING

The process of deciding whether or not to provide a mortgage loan to a home buyer based on credit, employment, assets and other factors. In addition, it is also the matching of the home buyer to a mortgage lender, mortgage product, interest rate, mortgage term, etc.

VARIABLE RATE MORTGAGE

A mortgage that has fixed payments, but whose principal portion of the payment fluctuates with interest rate changes. Variable rate mortgages generally fluctuate in respect to the prime lending rate. For example, Prime Rate minus 0.09%.

VOID CHEQUE

A personal, pre-printed cheque with “void” written across it. Given to the lender for the account your mortgage payments will be coming out of as proof that the account is, indeed, yours.