Mortgage Glossary of Terms

A - H

Agreement of Sale

Formal document between the vendor and you, the purchaser, prepared by a lawyer for registration in the Land Titles Office. It sets out the conditions of the sale.

The title to the home remains in the vendor’s name until the mortgage sale is closed. A Land Transfer is then executed and registered in the Land Titles Office. This transfers title to the property into the name of the purchaser. It is the responsibility of the purchaser to see that this is done.

Amortization Period

The number of years over which the repayment of your mortgage is calculated.

Appraised Value

An estimated market value of the property being held as security for the mortgage.


The value of property, investments, and items you own.

Credit Score

Your credit score is a summary of your credit worthiness, and is used to determine your credit risk. A score ranges between 300 and 900, with a low score representing an increased credit risk, and a high score representing less risk. A credit score between 650 and 750 is generally considered good. Above 750 is considered excellent.

Closing Date

The date on which the sale of the property becomes final and the new owner takes possession; at that time all costs and charge to close the deal are payable.


Canada Mortgage and Housing Corporation, the Federal Crown Corporation administering the National Housing Act for the federal government. CMHC also develops and sells mortgage loan insurance products.

Conventional Mortgage

Available from most lending institutions, usually in an amount not exceeding 80% of the appraised value of the property.

Down Payment

The initial payment made at the onset of a large purchase. The minimum required down payment on a house purchase in Canada is 5%.


The monetary value or interest in a property in excess of claims or liens against it.


Court action taken by the lender to take possession of your home. This action can start when you have failed to make a single payment. However, most lenders will grant a period of time for you to catch up on the payments owing before taking action, providing you have not purposely avoided your commitment.

Once foreclosure is completed , it is the lender’s right to resell the home. From the proceeds of the sale, the lender can recover the outstanding balance of the mortgage and other costs associated with the foreclosure and resale. Any equity you may have had in the property could be lost.

Gross Debt Service Ratio

The monthly mortgage, property tax, and energy payments, plus 50% of condo fees (if applicable) as a percentage of gross monthly income. Normally this ratio should not exceed 32% of your gross monthly income (before taxes and other deductions.)

I - P

Maturity Date

The date on which the term of the mortgage expires; the mortgage must be paid out in full or re-negotiated for another term. When applying for another term, you may be required to pay a renewal fee.


The security you give a company or person for the money loaned to you, usually to buy a home. It is a registered charge on your property and should be removed when the loan has been completely repaid.

Open Mortgage

An open mortgage allows the borrower the option to pay off all or any of the balance owing on the mortgage at any time, without a penalty for doing so. A higher interest rate may be charged for this privilege. Regular monthly payments are required to keep the mortgage in good standing.

Fixed Mortgage

A fixed mortgage allows the borrower to pay off any or all of the mortgage at any time but with an interest penalty. This type of mortgage is usually offered at a lower rate than an open mortgage. (In some contracts, an extra payment of an approved amount is allowed annually).

Closed Mortgage

A closed mortgage does not allow the borrower the right to repay any or all of the mortgage before the end of its term. This type of mortgage is generally offered at the same rate as a fixed mortgage.

With a variable rate mortgage, the interest rate will vary during the term of the mortgage in accordance with established rates of the major chartered banks.

Mortgage Insurance

If the down payment is less than 20% of the purchase price, an insurance premium on the mortgage amount is required (this premium may be added to the mortgage amount).


An individual or institutional lender that holds a mortgage on property as security for a loan.


A person who offers a mortgage on property in exchange for cash consideration.

NHA (National Housing Act)

A mortgage insured under the act allows the purchaser to borrow up to 95% of the purchase price of the property, given that the price is within fair market value of the area.

Pre-payment Penalty

A stipulation that requires the payment of a penalty on the amount being prepaid in the mortgage. In some mortgage agreements, you are allowed prepayment at certain times and in certain amounts, without having to pay a penalty.

P.I.T (Principal, interest and taxes)

These three components make up the regular mortgage payment.


The amount of money borrowed under the mortgage, not including the interest.

Q - Z


The period of time for which the mortgage agreement has been written. The term locks your interest rate for the specified period , except for the case of variable rate mortgage. At the end of the term, you can pay out the mortgage or extend it for another term.

Total Debt Service Ratio (TDS)

The monthly mortgage payments of principle, interest, and taxes, plus all other monthly debt obligations (such as car loans and credit card payments) as a percentage of monthly gross income. The TDS should not exceed 40% of gross income.


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