Know Your Mortgage Terms And Definitions

Mortgage terms and meanings can be confusing if you aren't used to hearing them everyday. We understand that at Blackburn Lawyers. To help reduce the stress of understanding your mortgage agreement, here are some common terms and definitions:

*As taken from the CMHC web site, which is an excellent resource for homebuyers*

Adjustable or Variable Mortgage Interest Rate

With an adjustable rate, both the interest rate and the mortgage payment vary, based on market conditions.

Amortization

Length of time over which the debt will be repaid.

Appraisal

Process for estimating the market value of a property.

Appraiser

Certified professional who carries out an appraisal.

Approved Lender

A lending institution authorized by the Government of Canada through CMHC to make loans under the terms of the National Housing Act. Only Approved Lenders can negotiate CMHC insured mortgages.

Blended Payment

A mortgage payment that includes principal and interest. It is paid regularly during the term of the mortgage. The payment total remains the same, although the principal portion increases over time and the interest portion decreases.

Closed Mortgage

A closed mortgage cannot be paid off, in whole or in part, before the end of its term. Many closed mortgages limit prepayment options such as increasing your mortgage payment or lump sum prepayment (usually up to 20% of your original principal amount).

CMHC Insurance Premiums

The CMHC Mortgage Loan Insurance premium is calculated as a percentage of the loan and is based on the size of your down payment. The higher the percentage of the total house price/value that you borrow, the higher percentage you will pay in insurance premiums.

Commitment Letter (or Mortgage Approval)

Written notification from the mortgage lender to the borrower that approves the advancement of a specified amount of mortgage funds under specified conditions.

Conventional Mortgage

A mortgage loan up to a maximum of 80% of the lending value of the property. Typically, the lending value is the lesser of the purchase price and market value of the property. Mortgage insurance is usually not required for this type of mortgage.

Credit history or Credit Report

The main report a lender uses to determine your creditworthiness. It includes information about your ability to handle your debt obligations and your current outstanding obligations.

Default On Payment

Failure to make a mortgage payment.

High-Ratio Mortgage

A mortgage loan higher than 80% of the lending value of the property. This type of mortgage may have to be insured - by CMHC, for example - against payment default.

Lump Sum Prepayment

An extra payment, made in lump sum, to reduce the principal balance of your mortgage, with or without penalty. A closed mortgage typically restricts the amount and frequency of the prepayments you can make. With an open mortgage, however, you can make a lump sum prepayment at any time without penalty. Making prepayments can help you pay off your mortgage sooner and ultimately save on interest costs over the life of your mortgage.

Maturity Date

The last day of the term of the mortgage. On this day, the mortgage loan must either be paid in full or the agreement renewed.

Mortgage Approval

Written notification from the mortgage lender to the borrower that approves the advancement of a specified amount of mortgage funds under specified conditions.

Mortgage Loan Insurance

If you have a high-ratio mortgage (more than 80% of the lending value of the property) your lender will probably require mortgage loan insurance, which is available from CMHC or a private company.

Mortgage term

Length of time that the agreed-upon mortgage contract conditions, including interest rate, is fixed.

Open Mortgage

A flexible mortgage that allows you to pay part before the end of its term.

Principal

The amount that you borrow for a loan. Each monthly mortgage payment consists of a portion of the principal that must be repaid plus the interest that the lender is charging you on the outstanding loan balance. During the early years of your mortgage, the interest portion is usually larger than the principal portion.

Term

Mortgage term is the length of time that the mortgage contract conditions, including interest rate, are fixed.

Have More Questions? Call Our Firm

Arrange a meeting at our Richmond Hill, Ontario location by calling 289-809-0996 or sending us an email.