MORTGAGE TERMINOLOGY

At The Mortgage Centre, we have put together some basic information on Mortgage terminology, mortgage costs and some tips on how to make an informed decision on your mortgage needs. While this is not an all-inclusive list, I hope it will help you find the right mortgage for your needs.


Agreement of Purchase and Sale: A contract by which one party agrees to sell and another agrees to purchase.

Amortization: A mortgage is amortized over a period of years. This amortization period is the length of time it takes to pay off the mortgage in full. The amortization period is up to 35 years; however, this can be accelerated to pay off the mortgage more quickly.

Appraisal: Process by which the mortgage lending value of a property is determined.

Assumable: Some mortgages are assumable with qualification. This means that should you sell your house before the term of the mortgage is completed, the purchaser can take over your mortgage if they qualify. This allows you to avoid paying a penalty to break your mortgage.

Blend and Increase: The ability to increase your existing mortgage or the term of the mortgage, with only the increased amount or term at today’s interest rate. The interest rate for the existing mortgage is combined or blended with the interest rate of the increased amount. This is advantageous if you have a good rate on your existing mortgage or if you want to avoid a penalty to pay out an existing mortgage.

Bridge Financing: Interim financing to bridge between the closing date on the purchase of the new home and the closing date on the sale of the current home.

Broker: An intermediary between the buyer and seller who is licensed to carry out such activities.

Commitment Letter: A notice from the mortgage lender to a prospective borrower that states the lender will advance mortgage funds of a specific amount if certain conditions are met. (All conditions must be met prior to the lender advancing funds.) The standard conditions include, but are not limited to: receipt of an appraisal, income verification by way of job letters and income tax returns, as well as verification that the purchaser’s down payment has not been borrowed.

Condition: A condition in a contract calls for the happening of some event or performance of some act before the agreement becomes binding.

Conditional Offer: An offer to purchase subject to specified conditions. These conditions could be the arranging of a mortgage, or the selling of a present home. Usually a time limit in which the specified conditions must be met is stipulated.

Conventional Mortgage: A mortgage loan of up to a maximum of 80% of the lending value of the property for which a lender does not require loan insurance.

Deed: A legal document that conveys (transfers) ownership of a property to a buyer.

Deposit: The amount of money paid by the purchaser at the time of making an offer to purchase. It is usually held in trust by the real estate agent or lawyer/notary until the sale closes.

Discharge: For reasons, planned or unplanned, the borrower may need to sell before the end of the mortgage term. Discharge fees vary widely between lenders, which may result in thousands of dollars in penalties. Worse yet, if the discharge policy is “No Discharge”, the borrower may be locked in for the entire term of the mortgage.

Downpayment: The amount of money put down by the purchaser toward a house purchase. It usually represents the difference between the purchase price of the house, and the amount of the mortgage loan.

Early Payout Penalty: Many people don’t think about breaking their mortgage when they are in the midst of arranging it, however, this possibility cannot be overlooked. An individual’s circumstances can change – transfer of employment, marriage breakup, etc. Some mortgages are fully closed and cannot be broken under any circumstances. Other mortgages have a sales clause allowing for early payout of the mortgage upon an arms length sale of the property, subject to a penalty (for example, three months interest). Some mortgages allow the borrower to break the mortgage, for any reason, upon payment of a penalty.


Easement: The right acquired for access to or over another person’s land for a specific purpose, such as for a driveway or public utilities.

Encumbrance: A legal claim registered against a property. It will not necessarily prevent the sale of the property, but may affect its value.

Estoppel Certificate: See Status Certificate.

Fixed Rate Mortgage: A mortgage for which the rate of interest is fixed for a specific period of time.

Foreclosure: A legal procedure where the borrower loses their right to redeem their mortgage and the lender obtains ownership of the property after the borrower has defaulted on their mortgage payment(s).

High Ratio Mortgage: Loan that exceeds 80% of the property lending value, and which is insured through a mortgage insurance plan.

Interest Adjustment Date: This may apply to mortgages that close on any day other than the requested day of payment. For instance: since some lenders want monthly payments to be made on the first day of the month, they will adjust the interest due on closing so that interest on your mortgage is paid up until the first of the coming month. If you close on the 20th of the month (and the month has 30 days), you will have to pay interest for 11 days so that you are paid up until the first of the coming month. Then your first full mortgage payment will be due on the first of the following month.

Interest Rate: The rate of interest is a key consideration when arranging your mortgage. The interest is the payment to the lender for the use of the mortgage money. The interest rate can be fixed (where the rate remains constant for the term) or floating (where the rate changes at regular intervals). Short term or convertible terms usually have lower interest rates and can be used to a borrower’s advantage in an unstable market. These mortgages allow you to ride out a fluctuating or falling rate market until rates reach a level where you wish to “lock-in” to a longer term. On the other hand, long term rates offer stability and eliminate the need to monitor rates daily.

Interim Financing: When the purchase of your new home closes in 60 days but the sale of your current home closes in 90 days, you will need interim financing. This is because for 30 days, you will own both properties and, of course, have not received the equity out of your old property. If the lender you choose cannot provide you with interim financing, you may find getting it from other lenders will be very expensive. (Also known as bridge financing)

Mortgage: A contract between a borrower and a lender, where the borrower pledges a property to a creditor as security for the payment of a debt. “Charge” is another word for mortgage.

Mortgagee: The entity that lends the money (lender).

Mortgagor: The entity that borrows the money (borrower).

Mortgage Insurance Premium: A premium that is added to the mortgage and paid by the borrower over the life of the mortgage. The mortgage insurance insures the lender against loss in case of default on the part of the borrower.

Mortgage Life Insurance: Life insurance that pays off the balance of the mortgage in the case of the borrowers death (i.e., if a spouse dies, the remaining spouse would not have to worry about mortgage payments – it would be paid in full). The monthly cost of getting this insurance through the lender is typically less costly than similar coverage obtained directly from an insurance company.

Mortgage Payment: The amount of money that the purchaser pays to the lender on an established, regular basis to repay the principle and pay interest on the mortgage loan.

Offer to Purchase: A written contract setting forth the terms under which a buyer agrees to purchase a property. Upon acceptance by the seller, it forms a contract, which will form the basis for the final document to be prepared by a lawyer or notary. It includes the legal and/or municipal description (this may consist of lot numbers as well as street address), purchase price, closing date, mortgage and terms of repayment, and lists specific items included as part of the sale.

Open Mortgage: A mortgage that can be prepaid or renegotiated at any time and in any amount without interest penalty.


P & I & T: Principal, Interest due on a mortgage and Property Taxes due on a home.

P & I: Principal and Interest due on a mortgage.

Payment Frequency Options: You will often have the choice of making payments on your mortgage on a monthly, semi-monthly, bi-weekly, or weekly basis. Increasing the payment frequency, i.e., bi-weekly instead of monthly, can shorten the amortization of your mortgage and save you a considerable amount of interest. By law, all mortgages in Ontario are registered as having monthly payments. Any change to this is done as an amendment to the mortgage. This amendment is a privilege and can be revoked in the event of NSF payments.

Penalty: A sum of money paid to a lender for the privilege of prepaying a mortgage in part or full.

Portable: If you have a good mortgage rate and a number of years remaining on your term, you may want to take your mortgage with you to a new home when you move. This can be done if the mortgage is portable. The property you are moving to will have to be reviewed and approved by the lender before you can “move” the mortgage to the new property.

Power of Sale: The right of a mortgagee to force the sale of the property without judicial proceedings should default occur.

Pre-approved Mortgage: Preliminary approval by the lender of the borrower’s application for a mortgage to a certain maximum amount and rate.

Pre-authorized Chequing/debit: In this computer age, mortgage payments are normally made by pre-authorized chequing or debit where the lender takes your regular monthly,semi-monthly, bi-weekly, or weekly payment out of a predetermined bank account automatically.

Prepayment Privileges: Prepayment privileges allow you to make extra lump sum payments, double your payments or increase your regular payments. Prepayment privileges vary from lender to lender. If you want to be able to pay your mortgage off quickly, check the flexibility of your prepayment privileges. (See graphs Interest vs Principal, page 23.)

Principal: The amount of money borrowed for a mortgage. Purchaser: Buyer of real property.

Purchaser: Buyer of real property.

Rate Guarantee: The period of time, prior to closing of your house purchase (“the completion date”) that a lender will guarantee that the interest rate they have offered will not rise. This is usually for a period between 60 and 120 days – although longer rate holds are available under special conditions. The commitment letter will also state under what conditions (if any) that they will decrease the interest rate if and when rates in general drop prior to your completion date.

Rollover Mortgage: A mortgage loan where the interest rate is established for a specific term. At the end of this term, the mortgage is said to “roll-over” and the borrower and lender may agree to extend the loan. If satisfactory terms cannot be agreed upon, the lender is entitled to be repaid in full. In this case, the borrower may seek alternative financing.

Status (Estoppel) Certificates: Condominium corporations are required to provide a status or Estoppel certificate on request to anyone who pays the fee, which can be $100 and greater, depending on the Provincial Guidelines. The certificate contains information on important topics, such as: common expenses, a copy of the current declaration, by-laws and rules, a copy of the current budget, a list of agreements entered into by the corporation, information about the most recent reserve fund study, any plans to increase the reserve fund, and information about insurance policies.

Survey: A document providing details of a property’s boundaries, measurements and structures. It also describes any easements, rights-of-way, or encroachments made by either your property or adjoining properties.

Tax Holdback: When property taxes are included with your mortgage payments, your lender will hold back funds from your mortgage proceeds to cover interim or final property taxes payable to the municipality. The amount depends on the month the mortgage was funded and on the dates when interim and final taxes are due. Holdbacks are used to pay for the current year’s taxes, while your monthly tax installments are accumulated in the account to pay for the next year’s taxes.

Term: This is the period of time for which the interest rate and the loan are contracted. Terms can vary from 3 months to 25 years.

Title: The legal evidence of ownership to a property.

Title Search: A detailed examination of the ownership documents to ensure there are no liens or other encumbrances on the property, and no question regarding the seller’s ownership claims.

Vendor: The seller in a real estate transaction