MORTGAGE:
A long-term loan primarily for the purpose of buying
a home. A mortgage is a legal agreement in which the borrower pledges the property
being purchased as security for the loan.
PRINCIPAL:
The amount of the loan - the cash you actually borrow.
TERM:
The number of months or years the mortgage covers. Normally,
it will be anywhere from six months to five years.
AMORTIZATION:
The actual number of years it will take to repay the
mortgage in full. This is usually much longer than the term of the mortgage.
EQUITY:
The difference between the amount for which the property
could be sold and the amount you still owe on the loan.
PRE-APPROVED MORTGAGE:
Preliminary approval is given by the lender of the borrower's
application for a mortgage to a certain maximum amount and usually with a guaranteed
rate for a set period of time.
CONVENTIONAL MORTGAGE:
A loan for no more than 75 per cent of the appraised
value or purchase price of the property, whichever is less.
HIGH RATIO MORTGAGE:
A mortgage usually for more than 75 per cent of the
appraised value or purchase price of the property. Such a mortgage is often
referred to as an NHA mortgage because it is granted under the provisions of
the National Housing Act. These mortgages must, by law, be insured through the
Canada Mortgage and Housing Corporation (CMHC) or an approved private insurer.
FIRST MORTGAGE:
The debt registered against your property that has to
be paid first in the event of sale or default.
SECOND MORTGAGE:
A mortgage granted when there is already one other mortgage
registered against the property. If the borrower defaults and the property is
sold, the second mortgage is paid after the first mortgage.
LEASEHOLD MORTGAGE:
A mortgage on a home and/or improvements where the land
is rented rather than owned.
COLLATERAL MORTGAGE:
A mortgage backed by a promissory note and the security
of a mortgage on real property. The money borrowed is usually used for other
purposes, such as home improvements, a vacation or a business investment.
BRIDGE FINANCING:
A special, short-term loan needed to cover the time
gap between completing the purchase of a property as agreed and finalizing arrangements
to pay. This usually occurs when two properties are involved and the closing
dates do not match.
FIXED RATE MORTGAGE:
A mortgage for which the rate of interest is set for
a specific period of time (the term of the mortgage). The regular payment of
the principal and interest remains the same throughout the term.
VARIABLE RATE MORTGAGE:
A mortgage for which the rate of interest changes from
time to time as money market conditions change. The amount of the regular payment
of a variable rate mortgage does not change. The difference lies in the way
the payment is applied. If interest rates go up, more of the regular payment
will be applied toward interest. If interest rates go down, more of the regular
payment will be applied toward the principal.
OPEN MORTGAGE:
A mortgage which allows the borrower to repay the loan more quickly than agreed,
usually with prepayment charges.
CLOSED MORTGAGE:
A mortgage that generally does not allow the borrower
to repay the loan more quickly than agreed.
PORTABLE MORTGAGES:
A mortgage where the principal balance, the term remaining
and the interest rate are transferred to a mortgage on your new property.
BLENDED:
Occurs when you combine the mortgage balance outstanding
on the home you are leaving and adding additional financing to purchase your
new home. The interest rate will change to one that combines the rate on your
old mortgage with the rate in effect at the time you add additional financing.
COMPOUND INTEREST:
Interest charged on interest owing. The more frequent the compounding, the more
interest will be paid.
BUYING DOWN:
A term used when quoting interest rates. It means that
someone, usually the vendor or seller, has arranged with the mortgage lender
to prepay a portion of the interest owing on the mortgage. This allows you,
the new borrower, to assume a mortgage debt at an interest rate lower than the
current or stated rate.