Raoul Carriere
Mortgage Consultant

A Glossary of Mortgage Terms

Amortization:

The number of years it takes to completely pay off a mortgage.

Appraisal:

Usually an independent appraiser using a variety of methods determines an estimated value of the property. An appraisal is normally required by a lender. The fee for the appraisal is normally paid by the buyer.

Assumption (of a Mortgage):

This is when an existing mortgage is assumed by the buyer from the seller. Consent must be in the mortgage contract or given by the mortgage holder for the mortgage to be transferred to the buyer.

Conventional Mortgage:

This kind of mortgage requires that you make a down payment of at least 25 per cent of the appraised value, i.e. if the appraised valued is $100,000, a down payment of $25,000 or more is required for it to be considered conventional.

Closed Mortgage:

Mortgages that are locked in for a specific period. To get out of the mortgage usually requires a penalty payment, often 2 or 3 months of interest.

Completion Date:

The date when the funds must be advanced by the mortgage company for the buyer to the lender.

Compound Interest:

Unlike annual interest, compound interest also charges interest on the interest. When interest is compounded monthly, each month you pay interest on the principal and the previous month's interest.

Conveyance:

This is the transfer of the property title from the vendor (seller) to the purchaser on the records at the Land Titles Office.

Default:

This event occurs when the borrower does not pay the installments as stipulated in the mortgage contract.

Discharge:

Takes place when the mortgage is removed from the title. The house is yours free of that mortgage debt.

Equity:

The difference between the lending value of your property and the money owning on the mortgage. For instance, loan value is $100,000. Remaining money owing on mortgage is $65,000. The equity is $35,000.

Foreclosure:

A legal process by which the lender assumes ownership from the defaulting borrower.

Gross Debt Service Ratio (GDS):

A percentage which is used to see if a person qualifies for a mortgage. There can be some variance but basically it is a figure of less than 32% of the total income of the buyer made up of the principle, interest, taxes and heating. (Percentages must not be higher than lender guidelines, normally 32% for GDS and 40% for TDS).

Lending Value:

The appraised value of property or the purchase price, whichever is the least.

Loan To Value Ratio (LTV):

The amount of the mortgage as compared to the appraised value or purchase price. An example would be:

• Appraised value = $100,000 and the mortgage required is $75,000. You would have a 75% LTV

• Appraised value = $100,000 and the mortgage required is $90,000. You would have a 90% LTV

Mortgagee:

This is the person who is lending the money.

Mortgagor:

This is the person who is borrowing the money.

Offer to Purchase:

This is a legal document specifying the price offered for the property and outlining any conditions to complete the purchase. An example of a condition might be that the offer to purchase might be subject to the purchaser obtaining financing, if they could not the offer would become void.

Open Mortgage:

This is a mortgage that allows the payout of the complete mortgage without penalty.

Penalty:

The money a lender charges to allow you to pay off a mortgage before the end of its term. Often but not always, this amounts to a sum of 2 or 3 months interest.

P.I.:

This stands for the amount of the principal and interest owing on a mortgage.

P.I.T.:

The same as P.I. but also including the properties taxes.

P.I.T.H.:

The same as P.I.T. but also including heating.

Prepayment Options:

The rules that the lender has outlined for the various ways the borrower can prepay some or all of the mortgage.

Principal:

The amount you owe the lender at any given time.

Rate:

The amount of interest as a percentage on a yearly or bi yearly basis the lender receives for giving you the mortgage.

Second Mortgage:

The mortgage next in line after the first mortgage. A second mortgage is normally offered at a higher interest rate than the first mortgage. The amount of the second mortgage is a portion of the difference between the first and the appraised value of the property. It is a method to obtain more money at a later period, or have a lower down payment from the property's value.

Survey:

A certificate indicating the properties boundaries and an accurate sighting of the building and setbacks of your property as it appears in the land title office.

Term:

The period of time for which you have contracted the loan with the mortgage company. Usually it is renegotiated at the end of each term for a further term until the mortgage is completely paid.

Total Debt Service Ratio (TDS):

This is the deductions of the GDS plus all other debt payments normally to a percentage not higher than 40 percent of the borrowers total income. (Percentages must not be higher than lender guidelines, normally 32% for GDS and 40% for TDS).

Underwriting Fees:

A charge levied by money lenders to offset their expenses incurred to set up the mortgage loan.

Variable Rate Mortgage:

This type of mortgage has a floating rate that changes with the market rates. Normally a monthly rate is set. As interest rates rise and fall, more or less of the principal is paid each month. The interest rate is often much lower than fixed term rates. They also normally allow you to lock into a closed rate should interest rates begin to rise.

Lenders/brokers fees may apply.

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