Mortgage Terms

Adjustable Rate Mortgage: The Adjustable Rate Mortgage (ARM) is a closed mortgage that offers borrowers the ability to take advantage of potentially lower, short-term interest rates while offering them the peace of mind knowing that they can convert to a Fixed Rate Mortgage at any time during the term.

Amortization Period: The number of years it takes you to pay off your loan in regular payments of principal and interest.

Appraisal: The process of determining the value of property, usually for lending purposes. This value may or may not be the same as the purchase price of the home.

Appreciation: The increase of an asset’s value over time, such as your home.

Approved Lender: A lending institution recognized and authorized by the Government of Canada.

Assumable Mortgage: New owners of a property can take over your existing mortgage of your property, at the same terms, subject to qualification.

Assumption Agreement: A legal contract signed by a homebuyer that holds them responsible for the obligations of a mortgage by the builder or the former owner.

Blended Payment: A mortgage payment including both principal and interest. Blended payments are paid regularly throughout the mortgage term. While the total payment remains the same, the principal increases as the interest amount decreases over time.

Canada Guaranty: One of MERIX’s three insurer partners, Canada Guaranty is a private mortgage default insurance provider.

Canada Mortgage and Housing Corporation (CMHC): The National Housing Act (NHA) authorized Canada Mortgage and Housing Corporation (CMHC) to operate a Mortgage Insurance Fund which protects NHA Approved Lenders from losses resulting from borrower default.

Carriage Home: Carriage homes are joined by garages or carports which grant access to the property’s front or back yards. These types of houses could cost less than detached single-family homes.

Certification of Location: Document that details property measurements and boundaries, specifying the location of the property’s buildings, states easements and encroachments.

Closed Mortgage: A closed mortgage limits your prepayment options but usually offers a lower interest rate than an open mortgage. A closed mortgage cannot be prepaid, renegotiated, or refinanced before the end of the term without paying a prepayment charge.

Closing Costs: Various expenses associated with purchasing a home. These costs can include, but are not limited to, legal/notary fees and disbursements, property land transfer taxes, as well as adjustments for prepaid property taxes or condominium common expenses, if any.

Closing Date: The date on which the sale of a property becomes final and the new owner usually takes possession.

Commitment Letter (Mortgage Approval): Letter from the mortgage lender to the borrower which approves the conditional advancement of a specific mortgage fund amount.

Compounded Interest: Interest on both the principal and the accrued interest.

Condition Of Financing (COF): An offer to purchase subject to conditions. These conditions may relate to financing, or the sale of an existing home. Usually a time limit in which the specified conditions must be satisfied is stipulated.

Conditional Offer: Offer to purchase made with specific conditions that must be met before the purchase is finalized. The specified conditions are generally required to be met with an imposed time constraint.

Conventional Mortgage: A mortgage that does not exceed 80% of the purchase price of the home. Mortgages that exceed this limit must be insured against default, and are referred to as high-ratio mortgages (see below).

Counteroffer: An offer issued by the vendor in response to a buyer’s original offer, usually including amendments to the price or closing date. The buyer then has a certain window of time to accept or reject the counteroffer.

Credit Bureau: An office that collects data from various sources and provides credit-related information on an individual’s borrowing and bill-paying history for lenders to determine whether to approve a loan.

Credit History: The principal report a lender will use to determine an applicant’s creditworthiness. This report includes information about the individual’s ability to handle potential and current outstanding debt obligations.

Custodian: A custodian is legally responsible for ensuring that an item or person is safe and secure. In investment terms, a custodian is the financial services company that maintains electronic records of financial assets or has physical possession of specific securities. The custodian’s client may be another institution, such as a mutual fund, a corporation, or an individual. Computershare is used by MERIX Financial for all mortgages.

Debt-Service Ratio: The percentage of the borrower’s gross income that will be used for monthly payments of principal, interest, taxes, heating costs and condominium fees.

Deed: Also known as a Certificate of Ownership, a deed is the final document prepared by your solicitor. This document is to be signed by the vendor transferring ownership of the property to the purchaser.

Default: Occurs when a borrower fails to make a mortgage payment.

Delinquency: Occurs when a borrower fails to make a mortgage payment on time.

Depreciation: The decrease of an asset’s value over time, such as your vehicle.

Discharge Statement: A document that is prepared outlining the costs of paying out an existing mortgage. Items listed on the statement include (but are not limited to) the balance, interest accumulated since last payment, per diem, penalty and discharge fee.

Down Payment: The difference between the purchase price and the mortgage amount as a result of money paid.

Easement: A person’s right to access another person’s land for specific purposes, such as public utilities or a driveway.

Equity: Home Equity is the difference between a home’s fair market value and any outstanding mortgages on the property.

Estoppel Certificate: Certificate outlining the legal and financial state of a condominium corporation. With the exception of Quebec, fees may vary and be capped by law across provinces.

Fire Insurance: Fire insurance is a specialized form of insurance beyond property insurance, and is designed to cover the cost of replacement, reconstruction or repair beyond what is covered by the property insurance policy.

Fire Insurance: Fire insurance is a specialized form of insurance beyond property insurance, and is designed to cover the cost of replacement, reconstruction or repair beyond what is covered by the property insurance policy.

First Canadian Title (FCT): FCT offers many services such as instructing, processing, management and reporting of mortgage documents. There are a variety of ways that we use FCT as a lender. Primarily they are used to assist us in the closing process and are used to order Lenders Title Insurance Coverage on every mortgage.

First Canadian Title (FCT): FCT offers many services such as instructing, processing, management and reporting of mortgage documents. There are a variety of ways that we use FCT as a lender. Primarily they are used to assist us in the closing process and are used to order Lenders Title Insurance Coverage on every mortgage.

Fixed Rate: The interest rate remains fixed, or locked in, for the term of the mortgage.

Foreclosure: A legal process wherein a lender takes possession of a borrower’s property and sells it to cover debts the borrower has failed to pay. If a borrower defaults on their loan and the lender determines they are unable to make payments, the borrower may lose their home to foreclosure.

Freehold: The ownership of land and buildings by one or two people (in the event of joint ownership by spouses) who can do whatever they like with their property, within reason. Freehold owners must still obey legislation by their municipality or sub-division, building codes, and provincial or federal governing bodies. Examples of freeholds can include detached and semi-detached houses, duplexes, and townhouses.

Gross Debt Service (GDS) Ratio: The percentage of gross income required to cover monthly payments associated with housing costs. Most lenders recommend that the GDS ratio be no more than 32% of your gross (before tax) monthly income.

High Ratio Mortgage: If you don’t have 20% of the lesser of the purchase price or appraised value of the property, your mortgage must be insured against payment default by a Mortgage Insurer, such as CMHC or Genworth Financial.

Insurable Mortgage: An Insurable Mortgage is a mortgage transaction that is portfolio-insured at the lender’s expense. The property must fit the insurer’s rules and be valued at less than $1 million. The homeowner qualifies using the greater of the mortgage contract interest rate or the Bank of Canada’s 5-year conventional mortgage interest rate (BOC Rate).

Insurance Premium: Mortgage insurance insures the lender against loss in case of default by the borrower. Mortgage insurance is provided to the lender by CMHC or Genworth and the premium is paid by the borrower. The premium will depend on the loan-to-value and product you are applying for.

Insured Mortgage: An Insured Mortgage is a mortgage transaction where the insurance premium is paid by the homeowner. Generally, the homeowner has a down payment/ equity of less than 20% to apply to their home. The client qualifies using the greater of the mortgage contract interest rate or the Bank of Canada’s 5-year conventional mortgage interest rate (BOC Rate).

Interest Rate Differential Amount (IRD): An IRD Amount is a prepayment charge that may apply if you pay off your mortgage principal prior to the maturity date or pay the mortgage principal down beyond the prepayment privilege amount. The IRD amount is equivalent to the difference between your annual interest rate and the posted interest rate on a mortgage that is closest to the remainder of the term less any rate discount you received, multiplied by the amount being prepaid, and multiplied by the time that is remaining on the term.

Land Registration: Legal document that keeps record of the ownership of land and property.

Land Survey: Document outlining property boundaries and dimensions, specifying the location of buildings on the land and easement or encroachment states.

Lien: A claim made against a property for owing money. For instance, a lien can be filed by a supplier or a sub-contractor who provided labor or materials but was not compensated.

Loan to Value (LTV): Loan-to-value (LTV) is a ratio used in mortgage lending to determine the amount required for a down-payment. This ratio determines whether a lender will extend credit to a borrower.

Lump Sum Prepayment: An extra lump-sum payment made to reduce the principal balance of a borrower’s mortgage, without penalty.

Maturity Date: The last day of the term of the mortgage agreement.

Mortgage Loan Insurance: Mortgage Loan Insurance is a practice that stabilizes the housing market and allows you to secure a mortgage for up to 95% of a home’s purchase price. Mortgage Loan Insurance is essential if you are purchasing a home with a down payment of less than 20%.

Mortgage Term: The number of years or months over which you pay a specified interest rate. Terms usually range from six months to 10 years.

Mortgagee: The lender who holds the mortgage.

Offer to Purchase: Legal agreement formally offering a certain price for a specified property. The offer may or may not include conditions to fulfill. Once accepted, it forms a contract that outlines the rights and obligations of both the buyer and seller.

Open Mortgage: With an open mortgage, you can make additional payments or pay off your mortgage without penalties. However, interest rates are usually higher for these loans.

Payment Frequency: The choice of making regular mortgage payments every week, every other week, twice a month or monthly.

Portable Mortgage: A mortgage that allows you to transfer the amount and terms over to a new property without cost or penalty, subject to qualification.

Prepayment: Paying extra payments or a lump sum to pay down your mortgage faster.

Prepayment Penalty: Money charged for extra payments or lump sum payments on the mortgage. A prepayment clause in your mortgage agreement allows you to make extra payments without incurring a penalty.

Prepayment Penalty: The amount of money borrowed for a new mortgage.

Principal: A mortgage principal is the amount owed to a lender at any given time, excluding interest. The principal represents your total amount borrowed minus the amount already repaid. As you make monthly mortgage payments, your mortgage principal is reduced.

Refinancing: Renegotiating your existing mortgage agreement. May include increasing the principal or paying out the mortgage in full.

Renewal: At the end of a mortgage term, the mortgage may “roll over” on new terms and conditions acceptable to both the lender and the borrower. This is known as renewing a mortgage. Otherwise, the lender is entitled to be repaid in full. In this case, the borrower may seek alternative financing.

Sagen Canada: One of our three insurer partners, Sagen Canada (formerly Genworth) is a private mortgage default insurance provider.

Solidifi: Solidifi is a web-based property valuation marketplace which provides us with access to the largest list of appraisers’ and the required tools to order an appraisal, track its process and delivery.

Term: The length of the current mortgage agreement. A mortgage may be amortized over a long period (such as 30 years) with a shorter term (six months to five years or more). After the term expires, the balance of the principal then owing on the mortgage can be repaid or a new mortgage agreement can be entered into at the then current interest rates. Visit our Renewal site.

Title insurance: Lender Title insurance: All our mortgages require lender title insurance policies which protect only the lender against losses arising from defects in title, unmarketability of the title, and title to the property not being vested in the borrower. In addition, depending on the nature and amount of the policy, losses due to certain off-title matters such as zoning, work orders, and taxes are covered. The lenders title insurance is a cost that you will incur. If you refinance at a later date a new lenders policy will be required.

Borrower Title insurance: As a borrower you can talk to your lawyer about obtaining your own title insurance to cover you as a borrower. Title insurance is protection against loss arising from problems connected to the title to your property. Before you purchase a home, the property may go through several ownership changes. Having title insurance in place can protect against a forged signature in transferring title, unpaid real estate taxes or other liens. Title insurance covers the insured party for any claims and legal fees that arise out of such problems.

Total Debt Service (TDS) Ratio: The percentage of gross income needed to cover monthly payments for housing and all other debts and financing obligations. The total should generally not exceed 40% of gross monthly income.