Common Mortgage Terminology
MCAP knows that real estate lending and investing comes with some specialized terminology. Here are some common terms and their definitions for residential mortgages, categorized alphabetically.
The length of time that it will take to repay the mortgage in full.
The estimate of the value of the property offered as security for a mortgage. This is completed by an independent appraiser and may or may not match the purchase price.
Equal payments consisting of a principal and an interest component, paid each month during the term of the mortgage. The principal portion increases while the interest portion decreases over the term of the mortgage but the payment remains consistent.
CERTIFICATION OF LOCATION
A document prepared by a qualified surveyor specifying the exact size and location of the property and describes the type and size of building(s), including additions, and the exact location of the building(s) on the property.
CERTIFICATION OF SEARCH
Document stating all transactions registered against the property - e.g. sales, mortgages, etc.
A mortgage that cannot be prepaid, renegotiated or refinanced prior maturity. A lender may allow pay out under certain conditions but will levy a penalty charge for doing so if the certain limits specified in mortgage documents are exceeded.
Costs payable on sale closure. Standard charges include: adjustment for property tax prepayment, utilities and condominium fees, if any, made by the vendor; property land transfer tax; property insurance; and legal fees.
The date on which the sale of the property becomes final and the new owner takes possession and/or the date on which the mortgage funds are advanced OR the date you receive the keys and officially take possession of your new home.
Offer to purchase made with specific conditions that must be met before finalization. Conditions could include arranging satisfactory financing (mortgage), satisfactory inspection, and/or selling the existing residence. There is usually a time limit in which each specified condition must be met.
Ownership in which owner has title to a dwelling unit and owns a share of the common elements - e.g. elevators, hallways and the land.
First mortgage loan which does not exceed 80% of the appraised or purchase price ( whichever is less).
CRITICAL ILLNESS INSURANCE
Affordable and cost-effective insurance that pays out your mortgage balance should you contract a disease/medical condition covered under the policy whether you survive or not.
Certificate of Ownership is the final document prepared by your solicitor, to be signed by the vendor transferring ownership of dwelling to the purchaser. Document is then registered against the title to the property as evidence of ownership.
Sum of money paid by purchaser on making an offer. Usually held in trust by the real estate broker or solicitor until the closing.
Funds (usually cash) paid by the purchaser. Represents the difference between the purchase price and mortgage amount.
Interest the owner holds in a property over and above all claims to the property. It is usually the difference between any outstanding mortgages and the market value of the property.
Provides information on a condominium corporation, including the development's finances, insurance and gives you an overview of the condominium corporation's affairs.
FIRE / PROPERTY INSURANCE
Home insurance typically covers property damage or loss caused by fire, theft, floods, etc. Before closing, the purchaser must have fire and property insurance in place. The mortgagor lender requires evidence of the insurance before funds are advanced.
FIXED RATE MORTGAGE
In a fixed rate term the mortgage interest rate is fixed for a predetermined term, and cannot be renegotiated, except upon payment of penalty.
GROSS DEBT SERVICE RATIO
Percentage of your gross income that will be used for monthly payment of principal, interest and taxes, heating and condominium fees, if applicable.
HIGH RATIO MORTGAGE
Mortgage loan that exceeds 80% of the lesser of the purchase price or appraised value. This mortgage must be insured and borrowers must pay an application fee and insurance premium (which may be added to the mortgage) to the insurer.
Rate of return lender receives for permitting borrower to use mortgage money for specified time. Interest rate is usually expressed as an annual percentage rate, calculated semi-annually, not in advance.
LOAN TO VALUE
Ratio of the mortgage to the appraised value or purchase price of the property (whichever is less), expressed as a percentage.
Last day of the term of the mortgage agreement.
MORTGAGE DEFAULT INSURANCE
A type of insurance which protects the mortgage lender in case the borrower defaults on the mortgage payments. Mortgage insurance is provided by a number of insurers and may be mandatory for some borrowers. The premium is added to the mortgage and paid by the borrower over the life of the mortgage.
MORTGAGE LIFE INSURANCE
Insurance that will payout some or all of your mortgage in the event of your death.
OFFER TO PURCHASE
Formal, legal agreement offering a certain price for a specified property. The offer may be firm (condition free) or conditional (certain conditions to fulfill). Upon acceptance, it forms a contract that determines the rights and obligations of both the buyer and the seller. This includes the legal and/or municipal description, purchase price, closing date, mortgage information and terms of repayment, and lists specific items included and/or excluded from sale.
Mortgage that be prepaid at any time prior to maturity, without penalty.
Principal, interest and taxes.
Fee charged by the lender when borrower pays off all/portion of the mortgage quicker than stated in mortgage documents.
Right to pay specified amounts of the principal prior to the maturity date of the mortgage. Penalties may be payable when a prepayment option is exercised under a closed mortgage.
Amount owed to lender at any specified time, not including interest.
Arrange new mortgage for increased amount. Old mortgage is paid off and discharged from the proceeds of the new mortgage. Also known as "EQUITY TAKE OUT."
Extend a mortgage agreement with existing lender for another term. The length of the terms and conditions (e.g. interest rate) may change.
Length of time during which the specific mortgage agreement is effective. When term expires, the balance of the principal is either repaid in full or mortgage is renegotiated at current market rates/conditions.
Right of ownership of property, and including evidence of such ownership.
TOTAL DEBT SERVICE RATIO
Percentage of the your gross income that will be used for monthly payments of principal, interest, taxes, heating and all other outstanding loans and debts.