Glossary of Terms

• Adjustable Rate Mortgage (ARM)

  Also known as variable rate, an ARM is a mortgage with interest rates that may fluctuate up and down periodically, according to the index upon which it is based.

•  Amortization

  The amount of time over which the entire debt will be repaid. The longer the amortization, the lower your scheduled mortgage payments, but the more interest you pay in the long run.

• Annual Percentage Rate

  The true rate of interest, stated as a yearly percentage, for a loan over its projected life.

• Appraisal

  An official estimate of value of an asset as determined by a qualified, independent part. Appraisal of property is typically based on facts such as recent sales of comparable properties, replacement cost, and ability to produce income.

•  Appreciation

  Increase value of a property, not including increases from improvements.

•  As-Is Agreement

  An agreement in which a property is sold without warranty in whatever condition it is in at the time the contract is signed.

•  Assessed Value

  The value placed on land and building by a government agency for tax purposes.

•  Assessment

  Tax or charge levied against a property by the government, typically to pay for local improvement, e.g. sidewalks, curbs, sewers, etc.

•  Assets

  What the borrower owns. This could include real estate, savings, vehicles, RRSPs, GICs, stocks, bonds, household goods, etc.

•  Assumption

  The process of taking over the existing mortgage and assuming liability for the payments when purchasing a property. If the purchaser defaults, both buyer and seller are responsible for repaying the debt.

•  Balloon Payment

  Final payment on a mortgage that is larger than preceding payments and pays the loan in full.

•  Bankruptcy

  A legal proceeding, which offers protection from creditors to a debtor who is unable to pay debts.

•  Book Value

  The value of an asset as shown in the financial records of an individual or corporation.

•  Borrower

  An individual, organization or company that is using funds, materials or services on credit. See also borrowing, lender, loan.

•  Closed Mortgage

  Loan agreement that does not allow a borrower to repay the loan before its maturity date.

•  CMHC

  Canada Mortgage and Housing Corporation (CMHC) is Canada's national housing agency. Established as a government-owned corporation in 1946 to address Canada's post-war housing shortage, the agency has grown into a major national institution. CMHC is Canada's premier provider of mortgage loan insurance, mortgage-backed securities, housing policy and programs, and housing research.

•  Collateral

  Assets pledged by a borrower to secure a loan or other credit, and subject to seizure in the event of default. Also called security.

•  Condominium

  Housing consisting of a complex of dwelling units (as an apartment house) in which each unit is individually owned

•  Conventional Mortgage

  A mortgage loan up to a maximum of 80% of the lending value of property. Typically, the lending value is the lesser of the purchase price and market value of the property. Ratio of monthly housing costs (principal, insurance, taxes, and interest) plus regular monthly payments to gross monthly income used by lender to evaluate an applicant's qualification for a loan. Lenders will typically allow a back ratio between 32 and 45 percent.

•  Fixed Interest

  An interest rate which is set, and will not change over a given period.

• High-Ratio Mortgage

  A mortgage loan higher than 80% of the lending value of the property. This type of mortgage may have to be insured - by CMHC, for example - against payment default.

•  Interest Rate

  A rate which is charged or paid for the use of money. An interest rate is often expressed as an annual percentage of the principal. It is calculated by dividing the amount of interest by the amount of principal. Interest rates often change as a result of inflation and Federal Reserve policies. For example, if a lender charges a customer $5000 in a year on a loan of $100,000, then the interest rate would be 5000/100,000 *100% = 5%.

•  Mortgage

  Conveyance of the conditional right of ownership (lien) on an asset or property by its owner (the mortgagor) to a lender (the mortgagee) as security for a loan.

•  Open Mortgage

  This type of mortgage is flexible and can usually be pre-paid by any lump sum or paid off at any time without penalty In general, lenders do not like open mortgages because the early payoff reduces the interest they earn.

•  Pre-Qualification

  A mortgage Pre-Approval is an important first step toward getting a mortgage for 2 reasons.

  • The pre-approval will give you a good idea of how much a mortgage you can afford.
  • The pre-approval will hold a rate for up to 120 days thus protecting you from any sudden rate increases.

•  Principal

  The amount borrowed, or the part of the amount borrowed which remains unpaid (excluding interest). Here also called principal amount.

•  Term

  The length of time that the agreed-upon mortgage contract conditions, including interest rate, will be fixed. It can vary from six months to 10 years.

• Variable Interest Rate

  An interest rate that changes according to the underlying or benchmark interest rate index, such as the prime rate.