Mortgage glossary

When you're looking for a mortgage, you may see many terms you aren't familiar with during your search. Below is a master list of terms commonly used when talking about mortgages, which we think should help you on your way.



Acceleration is an expression that is usually used when a person chooses to pay a mortgage on a weekly or a bi-weekly basis although it can apply to any repayment program. All mortgages are drawn with a requirement that you make payments monthly; however, the bank will usually agree to administer one half of the required monthly payment each bi-weekly period. You are paying the equivalent to one extra monthly payment per year and, therefore, paying off your mortgage more quickly. If you choose to pay weekly and pay one quarter of a monthly payment each weekly period you get the same benefit. Be sure to arrange your mortgage payment dates to match your pay days.

Agreement of Purchase and Sales

The legal contract a purchaser and a seller go into. It is recommended that you have your offer prepared by a professional realtor that has the knowledge and experience to satisfactorily protect you with the most suitable clauses and conditions.

Amortization Period

The number of years it takes to repay the entire amount of the financing based on a set of fixed payments.


The process of determining the market value of a property.

Appraised Value

An estimate of the market value of the property.


What you own or can use to determine your net worth or to secure financing.

Assumption Agreement

A legal document signed by a buyer that requires the buyer to assume responsibility for the obligations of an existing mortgage. If someone assumes your mortgage, make sure that you get a release from the mortgage company to ensure that you are no longer liable for the debt.

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Calculated from a customer’s Equifax credit file and is used to understand a customer’s likelihood to repay. The score uses a mathematical equation that evaluates information on the customer’s credit file compared to information patterns in millions of past credit files. BEACON scores can range from 300 to 850. The higher the score, the lower the risk to creditors. The TransUnion (Canada’s other main bureau provider) equivalent of the BEACON score is the Empirica score.

Blended Payments

Equal payments of both an interest and a principal amount. Typically, while the payment amount does not change, the principal portion increases, while the interest portion decreases.

Building Permit

A certificate that must be obtained from the municipality by the property owner or contractor before a building can be erected or repaired. It must be posted in a conspicuous place until the job is completed and passed as satisfactory by a municipal building inspector.

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Canada Mortgage and Housing Corporation (CMHC)

CMHC is a federal Crown corporation that administers the National Housing Act (NHA). Among other services, they also insure mortgages for lenders that are greater than 80% of the purchase price or value of the home. The cost of that insurance is paid for by the borrower and is generally added to the mortgage amount. These mortgages are often referred to as “Hi-Ratio” mortgages.

Closed Mortgage

A mortgage that cannot be prepaid or renegotiated for a set period of time without penalties.

Closing Costs

Costs that are in addition to the purchase price of a property and which are payable on the closing date. Examples include legal fees, land transfer taxes, and disbursements.

Closing Date

The date on which the new owner takes possession of the property and the sale becomes final.


An asset, such as term deposit, Canada Savings Bond, or automobile, that you offer as security for a loan.

Commitment Letter/Mortgage Approval

Written notification is provided by the mortgage lender to the borrower that approves the advancement of a specified amount of mortgage funds under specified conditions.

Conventional Mortgage

A mortgage up to 80% of the purchase price or the value of the property. A mortgage exceeding 80% is referred to as a “Hi-Ratio” mortgage and the lender will require insurance for that mortgage.

Credit Scoring

A system that assesses a borrower on a number of items, assigning points that are used to determine the borrower’s credit worthiness.

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Demand Loan

A loan where the balance must be repaid upon request.


A sum of money deposited in trust by the purchaser on making an offer to purchase. When the offer is accepted by the vendor (seller), the deposit is held in trust by the listing real estate broker, lawyer, or notary until the closing of the sale, at which point it is given to the vendor. If a house does not close because of the purchaser’s failure to comply with the terms set out in the offer, the purchaser forgoes the deposit, and it is given to the vendor as compensation for the breaking of the contract (the offer).

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Early Renewal

The renegotiation of mortgage term and rate prior to the maturity date. (A prepayment cost would usually be due if the mortgage is closed).


The difference between the home’s fair market value and the outstanding balance of all liens on the property. The property’s equity increases as the debtor makes payments against the mortgage balance, and/or as the property value appreciates.

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Fire Insurance

Property insurance that the mortgage customer must purchase to protect the property against any damages that may be caused by a fire. Customer must ensure that full replacement value is purchased and that if there is any fire damage the lender will be paid first on the loss.

First Mortgage

A debt registered against a property that specifies a lender as the first to be paid on that property.

Fixed-Rate Mortgage

A mortgage for which the interest is set for the term of the mortgage


A legal procedure whereby the lender eventually obtains ownership of the property after the borrower has defaulted on payments.

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Genworth Financial Canada (Genworth)

A private mortgage insurance company. One potential source of mortgage insurance for high-ratio mortgages.

Gross Debt Service Ratio (GDS)

It is one of the mathematical calculations used by lenders to determine a borrower’s capacity to repay a mortgage. It takes into account the mortgage payments, property taxes, approximate heating costs and 50% of any maintenance fees, and this sum is then divided by the gross income of the applicants. Ratios up to 32% are acceptable.


A person with an established credit rating and sufficient earnings who guarantees to repay the loan for the borrower if the borrower does not.

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High-Ratio Mortgage

A mortgage that exceeds 80% of the purchase price or appraised value of the property. This type of mortgage must be insured. To avoid the cost of the insurance, a mortgage up to 80% is arranged first and a mortgage up to 90% is arranged second.


An amount of money required to be withheld by the lender during the construction or renovation of a house to ensure that construction is satisfactorily completed at every stage.

Home Equity Line of Credit

A personal line of credit secured against the borrower’s property. Generally, up to 80% of the purchase price or appraised value of the property is allowed to be borrowed with this product.

Home Insurance

Insurance to cover both your home and its contents in the event of fire, theft, vandalism, etc. (also referred to as property insurance). This is different from mortgage life insurance, which pays the outstanding balance of your mortgage in full if you die.

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The examination of the house by a home inspector selected by the purchaser.

Interest Adjustment Date (IAD)

The date on which the mortgage term will begin. This date is usually the first day of the month following the closing. The interest cost for those days (from the closing date to the first of the month) is usually paid at closing. That is why it is always better to close your deal towards the end of the month.

Interest-Only Mortgage

A mortgage on which only the monthly interest cost is paid each month. The full principal remains outstanding.

Interim Financing

Short-term financing to help a buyer bridge the gap between the closing date on the purchase of a new home and the closing date on the sale of the current home.

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A mortgage is a loan that uses a piece of real estate as a security. Once that loan is paid-off, the lender cancels the mortgage and the real estate becomes 100% property of the mortgagor.

Mortgage Broker

Someone that negotiates with lenders on behalf of a borrower to obtain the best overall mortgage for that borrower’s circumstances. A mortgage broker has access to lenders who do not advertise their rates nationally.

Mortgage Insurance

If your down payment is less than 20% of the purchase price of the property, the lender is going to require mortgage insurance. The fee is calculated as a percentage of your mortgage.


The financial institution or person (lender) who is lending the money using a mortgage.


The person who borrows the money using a mortgage.

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Net Worth

The difference between what you own (assets) and what you owe (liabilities) is called your net worth.

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Offer to Purchase

A legally binding agreement between you and the person who owns the house you want to buy. It includes the price you are offering, what you expect to be included with the house, and the financial conditions of sale (your financing arrangements, the closing date, etc.).

Open Mortgage

A mortgage that can be repaid at any time during the term without any penalty. For this convenience, the interest rate is between 0.75-1.00% higher than a closed mortgage. A good option if you are planning to sell your property or pay-off the mortgage entirely.

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Principal, interest, and property tax due on a mortgage. If your down payment is greater than 25% of the purchase price or appraised value, the lender will allow you to make your own property tax payments.

Portable Mortgage

An existing mortgage that can be transferred to a new property. You would want to port their mortgage in order to avoid any penalties, or if the interest rate is much lower than the current rates.

Prepayment Penalty

A fee charged a borrower by the lender when the borrower prepays all or part of a mortgage over and above the amount agreed upon. Although there is no law as to how a lender can charge you the penalty, a usual charge is the greater of the Interest Rate Differential (IRD) or 3 months interest.


The lowest rate a financial institution charges its best customers.


The original amount of a loan, before interest.

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Rate Commitment

The number of days the lender will guarantee the mortgage rate on a mortgage approval. This can vary from lender to lender anywhere from 30 to 120 days.


The borrower is interested in obtaining a new mortgage on an existing property. You might be looking for more money, a better rate or different repayment terms.

Registration Fees

Fees paid to the provincial government for recording a title transfer and mortgage registration.


When the mortgage term has concluded, your mortgage is up for renewal. It is open at this time for prepayment in part or in full, then renews with same lender or transfer to another lender at no cost (we can arrange).

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Sales Taxes

Taxes applied to the purchase cost of a property. Some properties are exempt from sales tax (GST and/or PST), and some are not. For instance, residential resale properties are usually GST exempt, while new properties require GST. Always ask before signing an offer.

Seasonal Holdback

Specific amount of funds not advanced (held back) as inspection indicates particular portion of construction has not been completed. This is restricted to exterior work on the property that can’t be completed due to weather conditions. It must be minor in nature and not prevent occupancy.

Second Mortgage

A debt registered against a property that is secured by a second lender on the property.


In the case of mortgages, real estate offered as collateral for the loan.

Service charges

The extra costs incurred when hooking up power, gas, phone, etc. to a new address.

Sweat Equity

If part of the equity is being derived from the customer providing part or all of the “sweat labour” construction and project management expertise, the underwriter must be satisfied that the customer has the necessary skills and time to do the work. An allowance for sweat and project management equity must not exceed half the required minimum equity amount.


The legal written and/or mapped description of the location and dimensions of your property. The survey should also show the dimensions and placement on the lot of any structure, including additions such as a pool, shed or fence. An updated survey is often required by a lender as part of the mortgage transaction. Also known as a Real Property Report.

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Mortgage customers are offered the choice to either pay their own property taxes directly to the municipality or have the lender collect taxes as part of their regular payment and remit it to the municipality on their behalf.


The period of time the financing agreement covers. The terms available are: 6 months, 1, 2, 3, 4, 5, 6, 7, 10 year terms, and the interest rates will be fixed for whatever term one chooses.


A freehold title gives the holder full and exclusive ownership of land and buildings for an indefinite period of time. In condominium ownership, land and common elements of buildings are owned collectively by all unit owners, while the residential units belong exclusively to the individual owners. A leasehold title gives the holder a right to use and occupy land and buildings for a defined period of time.

Title Transfer

When one or more clients on the mortgage are being added, deleted, or being replaced with a new person, or if the mortgagor’s status is being changed to or from co-borrower, or to or from guarantor. This may happen in situations of marriage, divorce, or for tax purposes.

Transfer Mortgage

The process of moving the mortgage debt to a new financial institution. A mortgage may be moved to or from one mortgage company or financial institution to another.

Total Debt Service (TDS) Ratio

It is the other mathematical calculations used by lenders to determine a borrower’s capacity to repay a mortgage. It takes into account the mortgage payments, property taxes, approximate heating costs, and 50% of any maintenance fees, and any other monthly obligations (i.e. personal loans, car payments, lines of credit, credit card debts, other mortgages, etc.), and this sum is then divided by the gross income of the applicants. Ratios up to 40% are acceptable.

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A promise by a lawyer to ensure that certain conditions, usually of the lender, are met. A good example of this is releasing funds before a new mortgage document is officially registered.


The process of deciding whether or not to lend you money based on all the information you have provided to the lender. Every lender has a different underwriting process and lending criteria which may differ from other lenders.

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Variable Rate Mortgage

A mortgage for which the interest rate fluctuates based on changes in the prime interest rate.

Vendor Take Back (VTB) Mortgage

A mortgage provided by the vendor (seller) to the buyer.

Verification of Income

The lender will sometimes contact a borrower’s employer in order to verify information provided in a mortgage application or a job letter; your income structure, length of employment and position.

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Zoning Bylaws

Municipal or regional laws that specify or restrict land use.

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