Mortgage Glossary

A-C        D-F        G-L        M-P        Q-Z

- A-C

Accelerated Payments
This 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 monthly payments, however, most lenders will usually agree to some other payment frequency. You can make bi-weekly or weekly accelerated payments.

Bi-weekly
You will pay one half of the monthly payment every two weeks. In essence, you are making one extra monthly payment per year, causing your mortgage to be paid off more quickly.

Weekly
You will pay one quarter of a monthly payment every week and get the same benefit.

Amortization
The period of time it takes to pay off your mortgage in full. An Amortization can be as low as 5 years or high as 25, the most commonly chosen period.

Appraisal
An Appraisal is a comprehensive report, complete with photographs of the home, produced by a professional appraiser indicating the market value of property.

Assumable
If a mortgage is assumable, a buyer may take over the sellers’ existing mortgage. This may be advantageous to a buyer if the interest rate is below current market rates. However, approval must be obtained from the lender before the mortgage can be assumed.

Blended Payment
A blended payment is a mortgage payment includes both principal and interest. The interest portion of the payment reduces while the principal amount increases, but the payment remains constant.

Closed Mortgage
A closed mortgage may not be paid off during the term without penalty. Be aware that there are mortgages that cannot be paid off before the maturity date, even with the payment of a penalty.

Closing Costs
Expenses that are payable on or before the possession date of the property. These costs may include appraisal, legal, survey costs, etc., as well costs specific to each province (e.g., land transfer tax in Manitoba).
 
Commitment letter
This document is written notification from the lender that the mortgage has been approved. It will include the amount of the mortgage, interest rate, payment amount and frequency, as well all the terms and conditions of the mortgage.

Conventional Mortgage
A conventional mortgage is any mortgage up to a maximum of 75% of the purchase price/appraised value.

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 - D-F

Damages
A financial solution determined by a court to compensate one party for injury by another party. Damages are intended to restore the parties to the state that would have existed if the contract had been performed.

Debt Service Ratios
Ratios that are used to compare borrowers’ debts to their incomes to determine if they can afford loans

Debt-to-Assets Ratio
This ratio identifies how much of a company’s operations are funded through borrowing. It is calculated by dividing total liabilities by the total assets.

Debt-to-Equity Ratio
Another ratio (see debt-to-assets) which assesses how much of a company’s operations are funded through borrowing, compared to the amount of money provided by the owners. It is calculated by dividing total liability by owners’ equity.

Debtor
One who owes a debt.

Dedication
The granting of land by the owner for some public use and its acceptance for such use by authorized public officials.

Deed
A legal document in writing, duly executed and delivered, that conveys title or an interest in real property.

Default
Failure to fulfill contractual obligations.

Deficiency Judgement
A court order to pay the balance owed on a loan or mortgage if the proceeds from the sale of the security are insufficient to pay off the loan.

Deficiency Settlement
A monetary settlement by a mortgage lender or insurer when the net proceeds under a Power of Sale or Judicial Sale is less than the lender’s total claim.

Demand Letter
A letter sent by the lender to the borrower demanding immediate payment of all arrears, together with costs.

Demographic
Characteristics of a population such as size, growth, age, etc.

Depreciation
The loss of value of an asset over time.

Direct Comparison
This type of appraisal, also referred to as the market data approach, bases property value on the current selling prices of similar properties.

Discharge Document
Once the receipt (acknowledging the completion of payment) has been processed and registered to the title, it becomes the discharge document.

Discharge of Mortgage / Charge
A legal document executed by the lender, and given to the borrower when a mortgage loan has been repaid in full, releasing him or her from all obligations and covenants contained in the mortgage.

Disclose Defects
To make known current or past imperfections. Failure to disclose defects will not affect consent, but will have the same effect as a misrepresentation.

Disclosure Statement
A written statement disclosing information about a specific loan and potential conflicts of interest required under various consumer protection acts.

Doctrine of Estates
It is the concept that specifies the various rights to land ownership in common law countries.

Doctrine of Privity
Also known as the “third party rule”. The doctrine of privity states that only parties to a contract are entitled to enforce a contract; third party beneficiaries do not have the right to take action.

Dollar Adjustments
These are estimates of the dollar amount allocated to each factor being compared to the subject property in an appraisal. For example a dollar adjustment would reflect how much extra a buyer would pay for a home with a finished basement compared to one with an unfinished basement. See percentage adjustment.

Dominant Tenement
The land which derives benefit from an easement over a servient tenement, as in a Right-of-way.

Double Up Option
A clause that may be included as part of an open mortgage contract, giving the borrower the opportunity to double the scheduled principal and interest payments.

Draft Mortgage Document
The foundation of the document is to specify all terms and conditions of the agreement. A lawyer must ensure its contents accurately list loan amounts, interest rates, proper legal descriptions, repayment contract and other factors that affect the loan agreement. The draft mortgage document is a last check on the mortgage required by some lenders.

Draws
The stages in which the borrower receives a partial loan disbursement in a builder’s loan.

Duress
The threat of force, false imprisonment or threats upon individuals to result in action or lack of action contrary to their wishes or interests. If duress is used to enter a contract, courts may find the agreement void and null.

Easement (Servitude)
A right enjoyed by one landowner over the land of another.

Economic Life
The estimated period over which it is anticipated that a property or asset may profitably be used.

Economic Obsolescence
A loss of value over time resulting from external determinants such as heavy traffic, crime and unfavourable non-residential land uses.

Effective Gross Income (Income Property)
The annual income from a property, if fully leased, less an annual allowance for vacancies and bad debts.

Effective Interest Rate (for Mortgages)
The actual rate that the borrower must pay on a loan after the effects of compounding are considered. It is also known as the true rate. It differs from the nominal interest rate.

Egress
Going out (access to exit).

Electronic Funds Transfer (EFT)
The automatic transfer of funds from one account to another. Mortgage repayments can be made electronically directly to the lender.

emili by CMHC
The automated mortgage insurance evaluation system of the Canada Mortgage and Housing Corporation (CMHC).

Empirica Score
The name given to the credit score published by TransUnion. See also Beacon Score.

Encroachment
An improvement such as a wall, fence, or building that intrudes illegally upon another’s property.

Encumbrance
Outstanding claim or lien recorded against property, or any legal right to the use of the property by a person who is not the owner.

Equity (for Mortgages)
The difference between lending value (the purchase price or market value) and indebtedness.

Equity
A court system that applied the principle of equity to decisions, emphasizing fairness and de-emphasizing technicalities.

Equity Financing (Lending)
Investment in the equity in leveraged or unleveraged real estate by investors. These investors are usually institutional and may or may not have provided the mortgage financing.

Equity of Redemption
The right of a borrower to repay a loan that was in default and retain possession of the property.

Error and Omissions Insurance
Insurance for professionals with respect to claims regarding mistakes and absences that occur when acting on behalf of a consumer.

Escrow
Securities, instruments, money or other property deposited by two or more people with a third person, to be delivered on performance of a certain event.

Estates
An abstract legal right. Estates are interests and rights of ownership.

Estoppel Certificate
Legal certificate usually issued by a condominium corporation. It indicates details of the project and is given to the lender / purchaser or tenant. Delivery of the certificate prevents anyone from claiming a different set of facts at a later date.

Excel by Genworth Financial Canada
The automated mortgage insurance evaluation system of Genworth Financial Canada.

Existing Mortgage
A mortgage loan that is already in-place when the property is being sold. The buyer may have the option of taking over assuming the mortgage or taking out a new one, depending on whether or not the mortgage is assumable.

Expandability
This is a feature available in some mortgages. It allows the borrower to increase or expand the principal on a first mortgage at the lender’s agreed upon interest rate.

Expert Software
This software, offered by Filogix, dominates the electronic mortgage delivery system market in Canada.

Expropriation
Expropriation involves taking private property for public use, with fair compensation to the owner, through the exercise of the right of eminent domain.

Extended Coverage Endorsement
An endorsement that may be attached to fire insurance policies. It generally includes coverage against the peril of windstorm, hail, explosion, riot, civil commotion, damage by aircraft or vehicles and smoke.

Extension Agreement
An agreement extending a loan past the original maturity date.

Extent of Title
The quantitative factors that determine and affect ownership of land. They include boundaries, improvements, area of land, etc. See chain of title.

Exculpatory Clause
A clause in a contract holding one party harmless in the event of some default.

Face Rate
The contractual interest rate stated in a mortgage document or other financial instrument. Also known as the nominal rate.

Face Value
The face value of the loan is the amount of money the borrower promises to repay (at the contract rate of interest).

Fair Market Value
Fair market value, also known as market value, is the highest price reasonably expected for an interest in land when sold by a willing seller to a willing buyer after adequate time and exposure to the market.

Fee
The right of ownership of a property. In real estate, this is an inheritable estate in land.

Fee Simple
The highest estate or absolute right in real property. In common practice, fee simple is thought of as absolute ownership.

Fellow of the Real Estate Institute (Appraisal Specialist)
Awarded by the Real Estate Institute, the FRI(A) signifies quality and experience in appraisals and valuation of properties up to triplexes.

Fiduciary
An individual or a trust institution charged with the duty of acting for the benefit of another party as to matters coming within the scope of the relationship between them. The relationship between a trustee and a beneficiary is an example of a fiduciary relationship. The implication in this type of relationship is that the fiduciary must act solely for the other person’s benefit, because of the trust placed in him or her.

Final Order of Foreclosure
A judgement which extinguishes the borrower’s (defendant’s) equity of redemption and beneficial title goes over to the lender.

Financial Institutions Commission of British Columbia (FICOM)
An agency of the British Columbia provincial government that administers the Real Estate and Mortgage Brokers Department, the Credit Unions and Trust Companies Department, the Insurance Department and the Pensions Department.

Financial Services Commission of Ontario (FSCO)
FSCO regulates insurance, pensions, credit unions, caisses populaires, cooperatives, mortgage brokers and loan & trust companies in Ontario.

Finder’s Fee
A fee or commission paid by a lender to a mortgage professional for referring a mortgage loan.

First Mortgage
A mortgage registered before all others on title.

Fiscal Year
A business’ operating year. Some companies do not use the calendar year for their bookkeeping but run over a 12 month cycle, beginning and ending at another point in the year.

Five Cs of Credit
The ability and willingness of a borrower to pay is determined by five criteria:

* Capacity - The ability of a borrower to repay a loan
* Capital - The amount of money the borrower has invested into the property
* Character - The overall feeling regarding a borrower’s credibility to repay a loan; the borrower’s length of employment is a key measurement
* Collateral - Guaranteed support for a loan, generally consisting of funds or real estate, that ensures added security to the lender. Collateral can also take the form of guarantees provided by third parties, i.e. guarantors.
* Credit - The repayment history of the borrower

Fixed Assets
Fixed assets are typically long term in nature. The value of fixed assets to a company lies in their use in producing goods and services, rather than in their sale value. Fixed assets wear out over time or otherwise lose their usefulness.

Fixed Rate Mortgage
In a fixed rate mortgage the interest is determined and is set for the term of the mortgage. Fixed rate mortgages are most desirable when current interest rates are low.

Fixtures
Chattels that have been attached to the land or building so as to lose their character as chattels.

Forbearance
The waiving of a covenant in a mortgage document.

Foreclosure
A legal remedy available to a lender when there is default under any of the covenants in the mortgage. It deprives the borrowers of their equitable right to redeem.

Foreigners
In law, a foreigner refers to an individual who cannot read or speak the language of the contract. Foreigners are bound to agreements if they understand the nature of them. However, if an agreement is fraudulently interpreted by another party, then the contract is void.

Freehold Estate
An estate, or interest, in land or real property of uncertain duration, which is either of inheritance or for the life of the tenant. There are three (3) freehold estates, or interests: fee simple, fee tail and life estate.

Full Review
The most comprehensive type of appraisal, it includes a review of both the internal and external features of the property as well as an assessment of neighbourhood factors.

Fully Amortized Mortgages
A mortgage that requires the constant regular payments, including both principal and interest components, for the life of the mortgage.

Fully Open Mortgage
An open mortgage that allows principal payments to be made in any amount, at any time, in addition to regular mortgage payment, without penalty.

Functional Obsolescence (in Real Estate)
A loss of value over time due to some characteristic(s) of a building becoming less valuable as styles change. A building with no central air conditioning will suffer from functional obsolescence as air conditioning becomes “the norm” for new buildings.

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 - G-L

Gross Debt Service Ratio (GDS)
The percentage of gross income used to pay the mortgage payment (Principal & Interest - PI), including property taxes and heat (PITH). See Total Debt Service ratio (TDS).

High Ratio Mortgage
A High Ratio Mortgage is any mortgage where the downpayment is less than 25% of the purchase price. This type of mortgage must be insured against default by an outside company, namely CMHC & Genworth.

Interest Adjustment Date
The date from which the lender will start collecting interest. Your regular payments will start one payment period after this date. For example, if you will be making bi-weekly payments, your first payment will be two weeks after the Interest Adjustment Date. Your lawyer will collect an “Interest Adjustment” amount from you. This is the amount of interest from the Possession Date to the Interest Adjustment Date.

Loan to Value Ratio (LTV)
The amount of the mortgage as a percentage of the value of the home. For example, if you want to borrow $150,000 on a home with a value of $300,000, the Loan to Value Ratio is 50%.

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 - M-P

Maturity Date
The last day of the term of your current mortgage. On the Maturity Date the mortgage you have three options. It must be paid in full, renewed with the same lender or transferred to a new lender.

Mortgage
A mortgage is the document that is registered in Land Titles Office. It evidences that you gave your home as collateral to a lender to secure a loan.

Mortgagee
The lender who provides a loan secured by a real property mortgage.

Mortgagor
A person who takes out a loan which is secured by a real property mortgage.

Net Worth
The difference between what you own (assets) and what you owe (liabilities).

Open Mortgage
An open mortgage will usually have a higher interest rate than a closed mortgage, but allows you to repay the mortgage in full or in part at any time without penalty.

Portable
A portable mortgage can be transferred from one property to another.

Prepayment Penalty
Closed mortgages (see above) may not be paid off before the Maturity Date without paying a Penalty. Prepayment Penalties, as a rule are the greater of 3 months interest or the Interest Differential (the amount of interest at the mortgage rate vs. the current interest rate due for the balance of the term).

Prepayment Privilege
Most mortgages allow prepayment privileges such as an annual prepayment of a percentage of the mortgage amount or an annual increase in the mortgage payment.

Principal
The amount of money actually borrowed.

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 - Q-Z

Real Property
Land and any improvements permanently affixed to it, such as buildings.

Survey
A Survey is shows the location of buildings relative to the property boundaries.

Term
The length of time that the lender guarantees the interest rate. The mortgage must be re-negotiated at the end of the term.

Total Debt Service Ratio
The percentage of gross income used to pay the mortgage payment (Principal & Interest - PI), including property taxes and heat (PITH) and all other debt payments such as credit cards and loans. See Gross Debt Service ratio (GDS).