Your Comprehensive Mortgage Glossary

Amortization refers to the total timespan over which a mortgage loan is scheduled to be fully paid off. While a mortgage term represents the duration of your current agreement with a lender, the amortization period covers the entire life of the loan. For instance, a common amortization period is 25 years, meaning your payments are calculated to clear the loan balance within that timeframe.

An appraisal is a professional assessment of a property's market value, conducted by a certified appraiser. This valuation is a crucial step in the mortgage lending process, as it helps the lender determine the appropriate loan amount. The appraised value is based on a physical inspection of the property, its features, and a comparison with recently sold properties in the same area.

An assumable mortgage is a type of home loan that can be transferred from the seller to a qualified buyer. If interest rates have risen, assuming a mortgage with a lower rate can be a significant advantage for the buyer. However, the new borrower must still meet the lender's criteria to be approved for the mortgage transfer.

When applying for a mortgage, you will be required to provide bank statements, typically for the most recent 90-day period. This documentation serves to verify the source and availability of your down payment funds, ensuring that you have sufficient capital for the purchase and that the funds are from legitimate sources, as required by government regulations.

Taking your existing mortgage and adding to the term and combining the old and new rate into a blended rate on a weighted basis.  It can be a good way of avoiding prepayment penalties if you are moving and increasing the size of your mortgage.

A blended payment is a regular mortgage payment that includes both the principal (the amount you borrowed) and the interest (the cost of borrowing). While the total payment amount remains consistent, the proportion of principal and interest changes over time. In the early stages of a mortgage, a larger portion of the payment goes towards interest, while in the later stages, more of it goes towards paying down the principal.

Borrowell is a Canadian fintech company that provides free access to your Equifax credit score and report. Monitoring your credit is an essential part of preparing for a mortgage application, and services like Borrowell allow you to do so without affecting your credit rating. They also offer personalized financial product recommendations.

The Canada Child Benefit (CCB) is a non-taxable monthly payment from the federal government to assist eligible families with the costs of raising children. For mortgage qualification purposes, some lenders may consider CCB payments as part of your total income, which can increase your borrowing capacity. Lenders will require your CCB statements to verify the income amount.

Closing costs are the various expenses incurred by both the buyer and the seller at the final stage of a real estate transaction. These costs can include legal fees, land transfer taxes, appraisal fees, and property insurance. It is important to budget for these additional expenses, as they are separate from the property's purchase price.

The Canada Mortgage and Housing Corporation (CMHC) is a Crown corporation that provides mortgage loan insurance to lenders. This insurance protects lenders against borrower default and is mandatory for mortgages with a down payment of less than 20% of the property's value. The cost of CMHC insurance is typically passed on to the borrower as a premium.

A co-signer is an individual who agrees to share responsibility for a mortgage loan, including making payments if the primary borrower is unable to do so. By co-signing, they add their financial strength to the application, which can help the primary borrower qualify for a larger loan amount. A co-signer also holds a legal share in the property's title.

A mortgage commitment, also known as a loan commitment, is a formal document from a lender approving a mortgage application. It outlines the loan amount, interest rate, term, and any conditions that must be met before the funds are released. These conditions often include providing proof of income, a property appraisal, and other necessary documentation.

A conventional mortgage is a home loan that requires a down payment of at least 20% of the property's purchase price. Because of the larger down payment, this type of mortgage does not require mortgage default insurance, which can save the borrower a significant amount of money. These loans are considered lower risk by lenders.

The CRA Proof of Income Statement, also known as an Option 'C' Print, is an official document from the Canada Revenue Agency that summarizes a taxpayer's income and tax information for a specific year. Lenders often request this document as a reliable way to verify an applicant's income during the mortgage approval process.

The CRA Statement of Account provides a detailed record of a taxpayer's transactions with the Canada Revenue Agency, including payments and outstanding balances. If a mortgage applicant's tax documents show a balance owing, lenders will require this statement to confirm that the debt has been paid and the account is in good standing.

A credit bureau is a company that collects and maintains credit information on consumers. In Canada, the two main credit bureaus are Equifax and TransUnion. They provide credit reports and scores to lenders, which are used to assess a borrower's creditworthiness and risk level when applying for a mortgage or other loans.

Credit Karma is a popular online platform that offers free access to your TransUnion credit score and report. It allows you to monitor your credit health without impacting your score, which is a valuable tool when preparing to apply for a mortgage. The platform also provides educational resources and personalized financial recommendations

The debt-service ratio is a calculation used by lenders to determine a borrower's ability to manage their debt payments. It compares the borrower's total monthly debt obligations, including the proposed mortgage payment, to their gross monthly income. A lower debt-service ratio indicates a lower risk for the lender.

A deposit is a sum of money paid by the buyer upon entering into a purchase agreement for a property. It demonstrates the buyer's commitment to the transaction and is held in a trust account until the closing date. The deposit amount is then applied towards the total purchase price of the home.

A mortgage discharge is the legal process of removing a mortgage from a property's title after the loan has been paid in full. This is typically handled by a lawyer or notary and is a necessary step to clear the title of any encumbrances related to the mortgage, confirming that the property is free of the lender's claim.

Equity is the difference between the current market value of your home and the outstanding balance of your mortgage. As you make payments and your property value increases, your equity grows. This equity can be a valuable financial asset, which can be leveraged for other investments or expenses through a home equity loan or line of credit.

For self-employed individuals or business owners applying for a mortgage, financial statements are a critical component of the application. These documents, which include a balance sheet and income statement, provide a comprehensive overview of the business's financial health and are used by lenders to assess the applicant's income and ability to repay the loan.

First-Time Home Buyer Programs are government initiatives designed to make homeownership more accessible for new buyers. These programs can include tax credits, grants, and other incentives that help reduce the financial burden of purchasing a first home. Eligibility criteria and benefits vary by province and program.

A fixed-rate mortgage is a type of home loan where the interest rate remains the same for the entire term of the mortgage. This provides borrowers with the stability and predictability of a consistent payment amount, making it easier to budget and plan for the future. Fixed-rate mortgages are a popular choice for those who prefer to avoid the risk of fluctuating interest rates.

Foreclosure is a legal process in which a lender takes possession of a property after the borrower has defaulted on their mortgage payments. This is a last resort for lenders and can have serious consequences for the borrower's credit and financial future. It is important for homeowners facing financial difficulties to communicate with their lender to explore alternatives to foreclosure.

The Gross Debt Service (GDS) ratio is a calculation used by lenders to assess a borrower's ability to afford their housing costs. It measures the percentage of a borrower's gross monthly income that will be used to cover mortgage payments, property taxes, and heating costs. A lower GDS ratio indicates a more manageable housing expense.

A guarantor is an individual who agrees to be legally responsible for a mortgage loan if the primary borrower defaults on their payments. Unlike a co-signer, a guarantor does not have a legal claim to the property's title. Their role is to provide additional security for the lender, which can help the borrower qualify for the loan.

A high-ratio mortgage is a home loan where the down payment is less than 20% of the property's purchase price. These mortgages are considered higher risk for lenders and therefore require mortgage default insurance, such as that provided by CMHC. The insurance premium is typically added to the total mortgage amount.

A holdback is a portion of the mortgage funds that a lender retains until certain conditions are met. This is common in situations where a property requires repairs or renovations. The lender will release the holdback funds once the work has been completed to their satisfaction, ensuring that the property's value is maintained.

The interest adjustment date (IAD) is the date on which the mortgage term officially begins. If there is a gap between the closing date of the home purchase and the first scheduled mortgage payment, the borrower will be required to pay interest on the advanced funds for that period. This one-time payment is known as the interest adjustment.

An Interest Rate Differential (IRD) penalty is a fee charged by lenders when a borrower breaks their mortgage contract before the end of the term. The penalty is calculated based on the difference between the borrower's current interest rate and the lender's current rate for a similar mortgage. This is one of the two common methods for calculating prepayment penalties.

Interim financing, also known as bridge financing, is a short-term loan that covers the financial gap between buying a new home and selling an existing one. This type of loan allows homeowners to use the equity in their current home as a down payment for their new property before the sale of their old home is finalized.

Joint tenancy is a form of property ownership where two or more individuals hold an equal share in the property. A key feature of joint tenancy is the right of survivorship, which means that if one owner passes away, their share of the property automatically transfers to the surviving owner(s), bypassing the deceased's estate.

A letter of employment is a document from an employer that confirms an individual's employment status, income, and length of service. This letter is a standard requirement for mortgage applications, as it provides the lender with verification of the borrower's income and employment stability, which are key factors in the approval process.

Manufactured homes in Canada are required to have a certification label from the Canadian Standards Association (CSA). This label indicates that the home has been built to meet national safety and quality standards. Lenders will require confirmation of the CSA label when considering a mortgage application for a manufactured home.

The maturity date is the final day of your mortgage term, at which point the outstanding balance of the mortgage is due. On this date, you will need to either pay off the remaining balance in full or renew your mortgage for another term. The maturity date marks the end of your current mortgage agreement with the lender.

Mortgage insurance, also known as mortgage default insurance, is a type of insurance that protects lenders from losses if a borrower defaults on their mortgage payments. In Canada, this insurance is mandatory for high-ratio mortgages, where the down payment is less than 20% of the home's purchase price. The premium is usually paid by the borrower.

A mortgage statement is a regular summary from your lender that provides details about your mortgage loan. It includes information such as the outstanding principal balance, the interest rate, the payment amount, and a breakdown of how your payments have been applied to principal and interest. It is an important document for tracking your mortgage progress.

The mortgage term is the length of time you are committed to your current mortgage agreement with a lender. Terms can range from a few months to several years, with five years being a common choice. At the end of the term, you will need to either renew your mortgage for another term or pay off the remaining balance.

In a mortgage agreement, the mortgagee is the lender (such as a bank or credit union) who provides the funds for the loan. The mortgagor is the borrower who is responsible for repaying the loan. These are the two primary parties involved in a mortgage transaction, and their roles and responsibilities are outlined in the mortgage contract.

A Notice of Assessment (NOA) is an annual statement from the Canada Revenue Agency (CRA) that summarizes a taxpayer's income tax return. It confirms the amount of tax paid, any refunds or balances owing, and other important tax information. Lenders require the NOA as a key document for verifying a mortgage applicant's income.

An open mortgage is a type of home loan that offers the flexibility to make extra payments or pay off the entire mortgage at any time without incurring a prepayment penalty. This can be an attractive option for borrowers who anticipate having extra funds to put towards their mortgage. Open mortgages typically have higher interest rates than closed mortgages.

A pay statement, also known as a pay stub, is a document provided by an employer that details an employee's earnings for a specific pay period. It includes information such as the gross pay, deductions, and net pay. Lenders will request recent pay statements as part of the mortgage application process to verify the borrower's income and employment.

A pay stub is another term for a pay statement, which is a document that outlines an employee's earnings and deductions for a pay period. It is a critical piece of documentation for mortgage applications, as it provides lenders with a clear and current record of the borrower's income.

Payment frequency refers to how often you make your mortgage payments. Common options include monthly, bi-weekly, and weekly payments. Choosing a more frequent payment schedule, such as bi-weekly or weekly, can help you pay off your mortgage faster and save on interest costs over the life of the loan.

Porting a mortgage allows you to transfer your existing mortgage, including its current interest rate and terms, from one property to another. This can be a valuable option if you are moving and have a favorable mortgage rate that you want to keep. Porting can help you avoid prepayment penalties and the need to apply for a new mortgage.

A prepayment charge, also known as a prepayment penalty, is a fee that a lender may charge if you pay off all or part of your mortgage before the end of the term. The amount of the charge is calculated based on the terms of your mortgage agreement and is designed to compensate the lender for the interest they would have earned.

Prepayment privileges are features of a mortgage that allow you to make extra payments towards your principal balance without incurring a penalty. These privileges can include the ability to increase your regular payment amount or make lump-sum payments. Taking advantage of prepayment privileges can help you pay off your mortgage sooner and save on interest.

The principal is the amount of money you originally borrowed from a lender to purchase a home. Your mortgage payments are applied to both the principal and the interest. As you make payments, the principal balance decreases, and your equity in the property increases.

P.I.T. stands for Principal, Interest, and Taxes. This refers to the three main components of a typical mortgage payment. The principal and interest portions go towards repaying the loan, while the tax portion is collected by the lender and held in an escrow account to pay the property taxes on your behalf.

A property tax notice is an official statement from your municipality that details the amount of property taxes you owe for the year. Lenders will require a copy of this notice to verify the property tax amount, which is used in the calculation of your total housing costs and debt service ratios.

Refinancing is the process of replacing your existing mortgage with a new one. Homeowners may choose to refinance for various reasons, such as to obtain a lower interest rate, switch to a different type of mortgage, or access the equity in their home for other financial needs. Refinancing can be a strategic way to manage your mortgage and overall finances.

At the end of your mortgage term, you will need to renew your mortgage for another term. This involves negotiating a new interest rate and terms with your current lender or switching to a new lender. The renewal process is an opportunity to review your mortgage and ensure it still meets your financial goals.

A rent-to-own agreement is a contract that allows a tenant to rent a property for a specific period with the option to purchase it at a later date. A portion of the rent payments is typically credited towards the future down payment. This can be a viable path to homeownership for those who need more time to save for a down payment or improve their credit.

A Statement of Adjustments is a document prepared by a lawyer or notary that outlines the final financial details of a real estate transaction. It includes the purchase price, deposit, and all closing costs, providing a clear summary of the funds that need to be exchanged between the buyer and seller to complete the sale.

A Statement of Disbursements is a document that details how the funds from a mortgage loan are distributed. It is typically prepared by a lawyer and shows where the money from the lender is going, such as to the seller, to pay off existing debts, or to cover legal fees and other closing costs.

The T1 General is the primary form used by individuals to file their personal income tax return in Canada. It reports all sources of income and calculates the amount of tax owed or the refund to be received. Lenders will request copies of your T1 General forms as part of the mortgage application to verify your income.

A T4 slip is a tax document that an employer issues to an employee each year. It summarizes the employee's total earnings and deductions for the year. Lenders require T4 slips as a key piece of documentation for verifying an applicant's employment income when they are applying for a mortgage.

Tenants in common is a form of property ownership where two or more individuals hold a share in the property. Unlike joint tenancy, the shares can be unequal, and there is no right of survivorship. If one owner passes away, their share of the property is transferred to their designated heir or beneficiary, as specified in their will.

The mortgage term is the duration of your current mortgage agreement with a lender. At the end of the term, you must either renew the mortgage for another term or pay off the remaining balance. The term is different from the amortization period, which is the total time it will take to pay off the entire mortgage.

The Total Debt Service (TDS) ratio is a calculation that lenders use to assess a borrower's overall debt load. It compares the borrower's total monthly debt payments, including housing costs and all other loans, to their gross monthly income. A lower TDS ratio indicates a stronger financial position and a lower risk for the lender.

A variable-rate mortgage is a type of home loan where the interest rate can fluctuate throughout the term of the mortgage. The rate is tied to the lender's prime rate, which can change based on market conditions. While variable-rate mortgages can offer lower initial rates, they also come with the risk of payment increases if interest rates rise.

A void cheque is a cheque that has been marked as

void to prevent it from being used for payment. It is often requested by lenders or employers to set up direct debits or deposits, as it contains all the necessary banking information, including the institution number, transit number, and account number.