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Glossary of Terms

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Amortization Period
The number of years that it takes to pay back the whole mortgage.

Appraisal
An assessment of the current market value of the property.

Assignment of Mortgage
The transfer of ownership of a mortgage from one lender to another.

Assumable Mortgage
A mortgage held on a property by the seller that can be taken over by the buyer, who then accepts responsibility for making the mortgage payments.

Balance Due Date
The date when the mortgage must be either paid in full or another term negotiated through a renewal agreement. Also called Maturity Date.

Blended Mortgage
A combination of two mortgages, one with a higher interest rate than the other, to create a new mortgage with an interest rate somewhere between the two original rates.

Blended Payments

Payments made up of principal and interest components.

Bridge Financing

Money borrowed against a homeowner’s equity in a property, usually for a short term, to help finance the purchase of another property or to make improvements to a property being sold.

Charge

Another name for the mortgage.

Closed Mortgage

A mortgage with a fixed term that cannot be paid off without penalty until the term expires.

Collateral Mortgage

A loan, often for something other than the purchase of your main home
(e.g., home renovations, the purchase of a second home, or a business
venture) that is secured against your home. Often, a collateral mortgage
is registered to secure a line of credit.

Commitment Letter

Written approval from the mortgage lender, indicating how much money will be advanced under the mortgage and what conditions must be met for the mortgage. Also called Mortgage Approval.

Conventional Mortgage

A first mortgage issued for up to 80% of the property's appraised value or purchase price, whichever is lower.

Credit Report
A report based on your credit history, including credit cards, debts and/or late payments. It is used by the lender when they are deciding whether or not to give you a loan.

Debt Service Ratio

The percentage of a borrower's gross income that can be used for housing costs, including mortgage payment and taxes (and condominium fees, where applicable).

Discharge

Once the mortgage has been completely paid, the lender registers a Discharge on title to the property. It has the effect of removing the lender’s registered interest in the property.

Equity
The difference between the price for which a property can be sold and the total of the mortgage(s) and other loans on the property. Equity is the owner’s financial “stake” in the property.

First Mortgage

The mortgage that takes priority over all other mortgages.

Fixed-Rate Mortgage

A mortgage with an interest rate that does not change for the term of the mortgage. The result is that your mortgage payment is the same amount for each month of the term.

Foreclosure
A legal process by which the lender takes possession and ownership of a property when the borrower defaults on the mortgage obligation.

Guarantor
A person who agrees to be legally responsible for paying your mortgage if you default on your payments. A guarantor is only required by the lender in certain circumstances (e.g., you are new to the work force and do not have much money saved).

High Ratio Mortgage

A mortgage for more than 80% of a property's appraised value or purchase price.

Independent Legal Advice

A requirement set out by the mortgage lender that a person who is not the borrower and who is taking on legal responsibility for a mortgage loan (e.g., a Guarantor) consult with an independent lawyer to discuss the commitment that they are making and the risks that they are undertaking.

Interest Rate

The percentage of the principal charged by the lender for borrowing money.

Lender

The company (e.g., bank) or person that loans money in exchange for your agreement to repay the money and a mortgage on your property.

Lien
Any legal claim against a property, filed to ensure payment of a debt.

Line of Credit

A loan that is usually used for something other than the purchase of a home (e.g., home renovations). It may be secured (e.g., with a “collateral mortgage”) or unsecured. You can “withdraw” the full amount at one time or use smaller amounts up to the full amount of the loan. The lender charges interest on the total amount withdrawn and not yet repaid.

Maturity Date
The date when the mortgage must be either paid in full or another term negotiated through a renewal agreement. Also called Balance Due Date.

Mortgage

A loan secured against your home (and property). You agree to repay the full amount of the loan, plus interest.

Mortgage Approval

Written approval from the mortgage lender, indicating how much money will be advanced under the mortgage and what conditions must be met for the mortgage. Also called Commitment Letter.

Mortgage Broker

A person who, for a fee that is usually paid by the lender, can help you arrange a mortgage.

Mortgage Commitment
A document setting out that a lender has agreed to lend a buyer a certain amount of money at a certain rate of interest for a specific period of time. It may contain conditions and a date by which the loan must close.

Mortgage Insurance

Government-backed or private-backed insurance protecting the lender against the borrower's default on high ratio (or other types) of mortgages (e.g., Canada Mortgage and Housing Corporation (CMHC), Genworth Financial Inc.).

Mortgage Lender
The mortgage lender provides money for purchase in return for getting a mortgage or charge on the land and future interest/payments.

Mortgagee

The lender. Also called Chargee.

Mortgagor

The borrower. Also called Chargor.

Open Mortgage

A mortgage with no penalty if the borrower wants to repay the entire mortgage before the end of the term.

P.I.T.

Principal, interest and taxes. If you choose to include property taxes in your mortgage payments, these three components will make up the regular payment on your mortgage.

Pre-approval of a Mortgage

This is usually given in advance of the formal mortgage application. In pre-approving a mortgage, a lender tells a potential buyer approximately how much money the buyer can afford to borrow.

Pre-payment Penalty
An interest penalty imposed in accordance with the terms of the mortgage when a mortgage is paid off before it comes due.

Pre-payment Privilege

A mortgage feature that allows the borrower to repay a portion or all of the principal balance with or without penalty. This privilege is frequently restricted to specific amounts as a percentage of the principal and times (e.g., once per year).

Principal

The mortgage amount initially borrowed, or the portion still owing on the mortgage. Interest is calculated on the principal amount.

Refinance

Taking out a new mortgage loan to pay off an existing mortgage and/or to take equity out of your property.

Second (and Third) Mortgages

A mortgage registered on title after the first mortgage, so the second mortgage lender’s rights are secondary to the rights of the first mortgage lender.

Term
The length of time that the mortgage agreement exists. At the end of the term, a new term can be negotiated or the mortgage loan is due in full.

Variable-rate Mortgage
A mortgage for which payments are fixed, but whose interest rate changes in relationship to fluctuating market interest rates. If market rates go up, a larger portion of the payment goes to interest. If rates go down, a larger portion of the payment is applied to the principal.



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