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A mortgage is the pledge of a property to a lender for security of a loan. In colloquial use, a mortgage usually refers to a mortgage loan, which is comprised of the payments of principal and interest that a borrower owes to a lender.


Mortgage Default Insurance

If you have less than 20 per cent of the home's purchase price for your down payment, your lender will have to obtain mortgage default insurance on your behalf. The law requires it of federally regulated lenders. As a high-ratio borrower, you will have to pay for the mortgage insurance premium. This premium can be added to your mortgage balance. This insurance protects the lender (not you the homeowner) from losses that may arise. For example, if you default on your mortgage and the lender forecloses on the property, the lender will submit a claim to the insurer if the proceeds of the foreclosure do not cover the lender's losses.


Mortgage Life Insurance

Mortgage life insurance covers the balance of a mortgage in the event the person whose name the loan is under dies. Often recommended additions to mortgage life insurance are mortgage critical illness insurance and disability impairment insurance, which means that if you come down with a life-threatening illness or chronic handicap, the lender will help repay the remaining loan balance.


Mortgage Rate

When you take out a mortgage, you are borrowing money from a lender. The mortgage rate is the percentage interest you will pay back on top of the principal.


Mortgage Term

A term is a specified length of time that a borrower has agreed to certain loan conditions, such as an interest rate and a payment schedule. Terms usually range from six months to 10 years. Once a term is complete, it has matured, and the remaining loan may roll over - be renewed - with new conditions mutually acceptable to both lender and borrower. This is the best time to pay off a large chunk of the mortgage in a lump sum payment without prepayment penalties. If the mortgage is not renewed at the end of a term, the lender is entitled to be paid in full.


Mortgagee and Mortgagor

Legal terms for lender and borrower.


Net Worth

Net worth is total assets minus total liabilities, e.g., the market value of a home minus the outstanding mortgage against it.


No-Documentation Loan

Known in verbal short-hand as a "no-doc loan," a no documentation loan requires little personal information. The mortgage is underwritten based primarily on the applicant's credit history and the size of the down payment on the property in question.


No Money Down Mortgage

Enacted like it is spelled, this type of mortgage requires no down payment. However, the corresponding interest rate tends to be substantially higher when compared to a conventional mortgage.


Open Mortgage

An open mortgage can be prepaid, in part or in full, at any time during the mortgage term, without the penalties associated with a closed mortgage. Interest rates for an open mortgage are typically higher than the rates offered for a closed mortgage.


Payment Frequency

Canadian lenders provide six typical payment frequencies for fixed rate mortgages which allow you to choose when and how often you make your mortgage payments: 1.Monthly (12 payments/year)
2.Semi-Monthly (24 payments/year)
3.Bi-weekly (26 payments/year)
4.Weekly (52 payments/year)
5.Accelerated bi-weekly (26 payments/year)
6.Accelerated weekly (52 payments/year)



P.I.T.H. stands for Principal, Interest, Taxes and Heating. P.I.T.H., which can alternatively be calculated as P.I.T. or P.I., is the summation of principal, interest, taxes and heating costs per month. It is used as a numerical standard when underwriting a mortgage. In Canada, the CMHC will usually not issue a mortgage if the P.I.T.H. exceeds 32 per cent of a borrower's gross annual income.


Percentage Point

Percentage point (or points) is the difference between two sets of percentages. For example, if rates are 1 per cent and they rise to 3 per cent the difference is 2 percentage points.



Porting your mortgage is when you transfer your mortgage from one property to another. If you might wish to move moving during the term of your mortgage, then this feature might be appealing. Some mortgage lenders allow this, and some do not.


Prepayment Option

Mortgage prepayment options outline the flexibility you have to increase your monthly mortgage payments, or pay off your mortgage completely without penalty.


Prepayment Penalties

If you pay off your entire home loan or part of the loan prematurely on a closed mortgage, your lender charges you prepayment penalties, such as an interest rate differential (IRD) or three months' worth of accrued interest. If you want to pay off your mortgage early, you may either opt for an open mortgage, a balloon mortgage or simply refinance your mortgage at the end of the loan's term.


Prime Lending Interest Rate

The prime lending rate governs the interest rate on your mortgage. Most lenders have an index system, often tied to the Bank of Canada, which issues a daily lending rate based on market conditions.



Mortgage lenders determine the loan amount they would lend to a potential homebuyer based on a review of the applicant's credit history.


Prime Rate

The Canadian prime mortgage lending rate is set by the Bank of Canada, and each lender sets its own prime rate based on the rate set by the Bank of Canada.



The amount initially borrowed for a loan.


Quiet Possession

Quiet possession is an important privilege for you, the mortgage owner. Even though you may have not completely paid for the property you claim, you are entitled to use it as if you do own it. A quiet possession clause is standard fare in most mortgage contracts and only ends in the event of default.


Real Estate

Real estate is a building or home, and it often includes the land underneath it. Real estate can also be land, and not contain a building.


Real Estate Broker

A real estate broker is a professional who is licensed to legally represent a buyer during a sales transaction of realty.



Refinancing your loan is the act of renegotiating interest rates, payment schedules and so forth at the end of a term.


Reverse Mortgage

According to the Financial Consumer Agency of Canada, a reverse mortgage is a loan that is only available to homeowners 55 or older. Basically, the way it works is the homeowner borrows against the equity they've built up in their home.


Second Mortgage

A second mortgage is just what it sounds like. It is subordinate to the first mortgage, meaning that in the case of default, the first mortgage must be paid off first. Both mortgages are liens, which is a lender's right to retain secured assets until a debt or obligation is paid.


Several Liability

Several liability means that one party carries the responsibility for a loan, and is the opposite of joint liability.


Shared-Appreciation Mortgage

A shared-appreciation mortgage (SAM) is a mortgage where you can pay back some of your loan by utilizing the appreciation (increase in value) of your home. In other words, the lender agrees to a low interest rate now, speculating that in 10-20 years, the value of your home will have increased enough to compensate for the loss in accrued interest. You speculate the opposite.


Subprime Mortgage

Subprime mortgages are loans made to borrowers with little or no credit worthiness. In Canada, a subprime mortgage is usually defined as a home loan underwritten to someone with a FICO score under 620.


Survey or Certificate of Location

A Certificate of Location, simply a called a survey in short-hand, is a legal statement saying you live in said house, on said land, and no one else does. It is a common prerequisite required by a lender before underwriting a mortgage, and it often includes information describing the building and any structural additions, the condition of the accompanying land and so forth.



A title is a formal document which serves as evidence of property ownership.


Total Income

Total income is all money you earned over the calendar year not including holiday gifts, inheritances and other non-taxable forms of income.


Taxable Income

Taxable income is total income minus non-refundable tax credits, exemptions and other reductions provided by the government. This amount is taxable by the government; which tax rate you pay depends on which tax bracket you fall into.


Umbrella Mortgage

An umbrella mortgage, also called a wraparound mortgage, is a phrase used when you roll up all of your loans into one mortgage. For instance, if you have an auto loan, a home loan and a furniture loan, you can consolidate all of these mortgages into one loan with a single interest rate, term, etc. Umbrella mortgages are usually capped by the value of your home, usually between 75 and 90 per cent of its estimated market value.


Underwater Mortgage

An underwater mortgage is description often used when the loan borrower owes more towards the mortgage than the market value of the home. The home is thus unsellable and usually leaves the homeowner with only two solutions: foreclosure or refinancing.



Underwriting is the process when a lender determines whether to provide a home loan and under what conditions. Underwriting is often guided by the three C's: credit, capacity and collateral. As a borrower, your credit score, TDS, debt-to-equity ratio and a myriad of other factors play into whether or not you are eligible for a mortgage and, if so, under what conditions.


Variable-Rate Mortgage

A variable rate mortgage is a mortgage where the interest rate fluctuates according to changes in the prime lending rate. The payments for a variable rate mortgage do not fluctuate with the fluctuation of the interest rate. Instead, if interest rates go down, more of the payment is applied to reduce the principal; if rates go up, more of the payment is applied to payment of interest. Variable-rate mortgages (VRMs) go by numerous aliases, including adjustable-rate (ARM), floating-rate or tracker mortgages. Every VRM has an adjustment period, a length of time where the interest is guaranteed to remain stable. At the end of the adjustment period, the interest rate may be reset by the lender. Some VRMs have interest rate caps to prevent payments from fluctuating too drastically. Adjustment caps and adjustment periods are often represented in a simple x/y/[z] format. For instance, a 3/2 is for a hybrid VRM with an initial adjustment period of three years, followed by subsequent two-year adjustments. In the case of adjustment caps, the x/y/z format represents initial adjustment cap/subsequent adjustment cap/lifetime adjustment cap. For example, a 2/3/5 means that the interest rate cannot fluctuate more than two percent on the initial adjustment period, three percent on the following periods and five percent over the lifetime of the loan.


Wraparound Mortgage

A wrap-around mortgage is a loan in which the lender assumes responsibility for an existing mortgage. A wraparound mortgage is a form of secondary financing on a real estate loan. In a wraparound mortgage, all outstanding mortgages are amalgamated into a single loan. Payments are then made the new property buyer to the seller, who in turns makes mortgage payments to the mortgagee. This financial tool is also commonly refered to as a "wrap".



A common symbol used in contracts and legal documents to indicate where the signature or signatures of the parties involved must be written.


Zero Down Mortgage

A Zero Down Mortgage is a loan for 100% of the value of the property, with no down payment.