Canada Home Mortgage & Loan Glossary

This "mini" home mortgage loan glossary is designed to introduce new and experienced investors to some basic home and property mortgage terms. For more specific definitions, please consult a dictionary and/or a banking/mortgage specialist.

Amortization: Retiring debt or recovering a capital investment through scheduled, systematic repayments of principal; that portion of a fixed mortgage payment applied to reduction of the principal amount owed.

Amortization Period: The actual number of years it will take to repay a home mortgage loan in full. An amortization period is normally divided into "terms" like 1 year, 3 years, 5 years and more, even though the amortization of the loan may be 20 or 25 years, or more.

Assumption of Mortgage: Assuming liability for an existing mortgage on a home or real property by the purchaser of that home or property.

Bank Rate: Interest rate the Central Bank charges on loans to Canada's chartered banks. 2) The interest rate at which the chartered banks lend "demand money" to their prime (best) customers. Also known as the prime rate. Often variable rate mortgages are set "slightly above" the bank rate.

Bridge Financing: Bridge (Mortgage) Financing is a term used to describe temporary funds required to "cover the cost" of your new home until the proceeds from the sale of your "old home" are available.

Condominium: A unique form of home ownership in which the property owner has title to a housing unit, and also owns a share in the "common elements" of the property such as: hallways, garage, elevators and land.

Consolidation Loan: The replacement of two or more loans with a new single loan, often with a lower monthly payment and a longer repayment period. Also known as a consolidation loan or debt consolidation.

Equity: (Home) Equity is the difference between the price for which a property (home or land) could sell for, and the total debts (amount owing) against it.

High Ratio Mortgage: A mortgage that exceeds the "normal" loan-value limit of 75% and is therefore required to be insured. With a "conventional mortgage" (25% down payment of more), mortgage insurance is not required.

Interest Rate: A percentage rate which is charged (or paid) for borrowing money. An interest rate is often expressed as an annual percentage of the principal. A typical mortgage interest rate in Canada when inflation is "in check" is 4.00 to 7.00 percent.

Mortgage: A "large" loan usually for a home or real property; or the charge against a property for securing funds or funding.

Mortgage Insurance: Home or property insurance available through Canada Mortgage and Housing Corporation (or private insurers) for coverage against the whole or partial losses of, principal and interest on a mortgage loan.

Offer to Purchase: A formal, legal agreement which offers a certain price for a specified real property. Offers to purchase may be "firm" (no conditions) or "conditional" (certain conditions apply to the offer).

Prepayment Clause: A clause (contained in most mortgages) in which the mortgagor has the privilege of paying all or part of the mortgage debt in advance of the mortgage maturity date. The prepayment amount can be as high as 20% annually of the original mortgage amount. Check with your mortgage company!

Re-Financing: Paying off an existing mortgage with funds from a new loan or mortgage; usually on the same property. In order to decide whether this is worthwhile, the interest savings should be weighed against the fees associated with refinancing. Mortgage re-financing is also popular when trying to reduce the term of a longer mortgage.

Second Mortgage: A mortgage registered against a property, even though another (first mortgage) is registered on the property. In case of default (non-payment of loan), the first mortgage is paid FIRST.

Total Debt Service Ratio: The percentage of gross annual income required to cover a mortgage payment, and all other debts and obligations such as, car loans, heating costs and property taxes.