Mortgage Glossary
A | B | C
| D |
E | F | G
| H | I | J | K | L |
M | N | O
| P | Q | R |
S | T | U | V | W
| X | Y | Z
A
Acceleration Clause
A common provision of a mortgage
or note providing the holder with
the right to demand that the entire
outstanding balance is immediately
due and usually payable in the event
of default.
Accrued Interest
Interest earned but not yet paid.
Adjustable Rate Mortgage Loans
(ARM)
Loans with interest rates that are
adjusted periodically based on changes
in a pre-selected index. As a result,
the interest rate on your loan and
the monthly payment will rise and
fall with increases and decreases
in overall interest rates. These
mortgage loans must specify how
their interest rate changes, usually
in terms of a relation to a national
index. If interest rates rise, your
monthly payments will rise. An interest
rate cap limits the amount by which
the interest rate can change; look
for this feature when you consider
an ARM loan.
Adjustment Interval
The length of time between changes
in the interest rate or monthly
payment on an ARM loan.
Agreement of Sale
Contract signed by buyer and seller
stating the terms and conditions
under which a property will be sold.
Amortization
Repayment of a loan with periodic
payments of both principal and interest
calculated to payoff the loan at
the end of a fixed period of time.
Amount Financed
This figure is used to calculate
your APR. It represents your loan
amount minus any prepaid finance
charges and assumes you will keep
the loan to maturity and make only
the required monthly payments.
Annual Percentage Rate (APR)
There are two interest rates applied
to your loan: the Actual Interest
Rate and the Annual Percentage Rate.
The Actual Rate is the annual interest
rate you pay on your loan (sometimes
referred to as the "note rate"),
and is the rate used to calculate
your monthly payments. The amount
of interest you pay, as determined
by your Actual Rate, is only one
of the costs associated with your
loan; there may be others. The Annual
Percentage Rate (APR) includes both
your interest and any additional
costs or prepaid finance charges
you might pay such as prepaid interest,
private mortgage insurance, closing
fees, points, etc. Your APR represents
the total cost of credit on a yearly
basis after all charges are taken
into consideration. It will usually
be slightly higher than your Actual
Rate because it includes these additional
items and assumes you will keep
the loan to maturity.
Application
An initial statement of personal
and financial information required
to apply for a loan.
Application Fee
Fee charged by a lender to cover
the initial costs of processing
a loan application. The fee may
include the cost of obtaining a
property appraisal, a credit report,
and a lock-in fee or other closing
costs incurred during the process
or the fee may be in addition to
these charges.
Appraisal
An appraisal is a written analysis
of the estimated value of your property.
A qualified appraiser who has knowledge,
experience and insight into the
marketplace prepares the document.
It demonstrates approximate fair
market value based on recent sales
in your neighborhood and is required
to purchase or refinance your new
home or property.
Appraisal Fee
A fee charged by a licensed, certified
appraiser to render an opinion of
market value as of a specific date.
This fee is paid to the outside
appraisal company we engage to objectively
determine the fair market value
of your property. This fee varies
based on the location and type of
your property.
APR
See Annual Percentage Rate.
ARM
See Adjustable Rate Mortgage Loans.
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B
Balloon Mortgage
Balloon mortgage loans are short-term
fixed-rate loans with fixed monthly
payments for a set number of years
followed by one large final balloon
payment for all of the remainder
of the principal. Typically, the
balloon payment may be due at the
end of five, seven, or ten years.
Borrowers with balloon loans may
have the right to refinance the
loan when the balloon payment is
due, but the right to refinance
is not guaranteed.
Bankruptcy
A proceeding in a federal court
to relieve certain debts of a person
or a business unable to pay its
debts.
Bequest
A gift of personal property by will.
Blanket Mortgage
A mortgage that covers more than
one parcel of real estate.
Bona Fide
In good faith.
Borrower (Mortgagor)
An individual who applies for and
receives funds in the form of a
loan and is obligated to repay the
loan in full under the terms of
the loan.
Broker
An individual who brings buyers
and sellers together and assists
in negotiating contracts for a client.
Broker Processing Fee
The fee charged to you to have your
file packaged and handed over to
a selected lender.
Buy-Down Mortgage
A mortgage loan with a below-market
rate for a period of time.
Buyer's Market
Market conditions that favor buyers.
With more sellers than buyers in
the market, sellers may be forced
to make substantial price concessions.
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C
Call Option
A provision of a note that allows
the lender to require repayment
of the loan in full before the end
of the loan term. The option may
be exercised due to breach of the
terms of the loan or at the discretion
of the lender.
Cash Out
Any cash received when you get a
new loan that is larger than the
remaining balance of your current
mortgage, based upon the equity
you have already built up in the
house. The cash out amount is calculated
by subtracting the sum of the old
loan and fees from the new mortgage
loan.
For example, if your existing loan
is $100,000, you might refinance
it with a loan of $120,000. After
you pay off your current loan ($100,000)
and any loan-origination costs for
the new loan (for example $2,000
in points), you would be left with
$18,000 cash out.
Cash-out loans may not be available
for all types of property.
Cashier's Cheque (or Bank Cheque)
A cheque whose payment is guaranteed
because it was paid for in advance
and is drawn on the bank's account
instead of the customer's.
Ceiling
The maximum allowable interest rate
of an adjustable rate mortgage.
Certificate of Title
Written opinion of the status of
title to a property, given by an
attorney or title company. This
certificate does not offer the protection
given by title insurance.
Closing
The settlement or closing is the
conclusion of your real estate transaction.
It includes the delivery of your
security instrument, signing of
your legal documents and the disbursement
of the funds necessary to the sale
of your home or loan transaction
(refinance).
Closing Costs
These costs are for services that
must be performed to process and
close your loan application. Examples
include title fees, recording fees,
appraisal fee, credit report fee,
inspection, attorney's fees, taxes,
and surveying fees.
Collateral
Assets (such as your home) pledged
as security for a debt.
Commission
Money paid to a real estate agent
or broker for negotiating a real
estate or loan transaction.
Comparative Market Analysis
An informal estimate of market value
that a real estate agent or broker
calculates based on sales of comparable
properties. An appraisal or a comparative
market analysis are the most accurate
ways to determine what your home
is worth.
Condominium
A real estate project in which each
unit owner holds title to a unit
in a building, an undivided interest
in the common areas of the project,
and sometimes the exclusive use
of certain limited common areas.
The condominium may be attached
or detached. The homeowners’
association dues are included in
the total monthly mortgage payment
for qualifying purposes.
Consumer Reporting Agency
A company that regularly gathers,
files and sells information to creditors
to facilitate their decisions to
extend credit.
Contingency
A condition that must be satisfied
before a contract is legally binding.
Contract of Sale
The agreement between the buyer
and seller on the purchase price,
terms and conditions of a sale.
Conversion Clause
A provision in some ARMs that allows
you to change an ARM to a fixed-rate
loan, usually after the first adjustment
period. The new fixed rate will
be set at current rates, and there
may be a charge for the conversion
feature.
Convertible ARMs
A type of ARM loan with the option
to convert to a fixed-rate loan
during a given time period.
Credit Bureau
A credit bureau is a clearinghouse
for credit history information.
Credit grantors provide the bureau
with factual information on how
their credit customers pay their
bills. The bureau regularly assembles
this information, along with public
record information obtained from
courthouses around the country,
into a "file" on each
consumer.
Credit Report
A report detailing the credit history
of a prospective borrower that's
used to help determine borrower
creditworthiness.
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D
Deed
Legal document with which title
to real property is transferred
from one owner to another. The deed
contains a description of the property,
and is signed, witnessed, and delivered
to the buyer at closing.
Default
Failure to meet legal obligations
in a contract, including failure
to make payments on a loan.
Delinquency
Failure to make payments as agreed
in the loan agreement.
Discount Points (or Points)
Points are an up-front fee paid
to the lender at the time that you
get your loan. Each point equals
one percent of your total loan amount.
Points and interest rates are inherently
connected: in general, the more
points you pay, the lower your interest
rate. However, the more points you
pay, the more cash you need up front
since points are paid in cash at
closing.
Down Payment
The amount of your home's purchase
price you need to supply up front
in cash to get your loan.
Duplex
Owner occupied property for more
than one family
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E
Encryption
This is a procedure used in order
to prevent anyone but the intended
recipient from reading the data.
There are many types of data encryption,
and they are basis of network security.
Common types include (Data Encryption
Standard) and public-key encryption.
Equifax
One of the two major credit bureaus
in Canada.
Equity
The difference between the current
market value of a property and the
total debt obligations against the
property. On a new mortgage loan,
the down payment represents the
equity in the property.
Escrow
A transaction in which a third party
acts as the agent for seller and
buyer, or for borrower and lender,
in handling legal documents and
disbursement of funds.
Estimated Closing Fees
An estimate of the fees that must
be paid on or before the closing
date by the buyer and/or seller
for services, taxes and items necessary
to obtain mortgage. These fees will
average between 2% and 5% of the
loan amount and vary by lender,
property location, and type of mortgage.
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F
Fair, Isaac and Co.
The company that invented credit-scoring
software.
FICO
The most common credit-scoring model
used by lenders, it is also known
as a Fair, Isaac score. Your FICO
can range from 200 to 900. According
to this model, the higher your score,
the less likely you are to default
on your loan.
Filing Fees
The amount charged by public officials
in your area for recording your
mortgage and other documents.
Finance Charge
Your finance charge is the total
of all the interest you would pay
over the entire life of the loan,
assuming you kept the loan to maturity,
as well as all prepaid finance charges.
If you pre-pay any principal during
your loan, your monthly payments
remain the same, but your total
finance charge will be reduced.
First Mortgage
A mortgage that is in first lien
position, taking priority over all
other liens. In the case of a foreclosure,
the first mortgage will be repaid
before any other mortgages.
Fixed Rate
An interest rate that is fixed for
the term of the loan.
Fixed-Rate Loans
Fixed-rate loans have interest rates
that do not change over the life
of the loan. As a result, monthly
payments for principal and interest
are also fixed for the life of the
loan. With a fixed-rate loan, you
will have predictable monthly mortgage
payments for as long as you have
the loan.
Flood Insurance
Insurance that compensates for physical
damage to a property by flood. Typically
not covered under standard hazard
insurance.
Foreclosure (or Repossession)
Legal process by which a mortgaged
property may be sold to pay off
a mortgage loan that is in default.
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G
Grace Period
Period of time during which a loan
payment may be made after its due
date without incurring a late penalty.
The grace period is specified as
part of the terms of the loan in
the Note.
Gross Income
Total income before taxes or expenses
are deducted.
Guideline Ratios
There are two guideline ratios used
to qualify you for a mortgage. The
first is called the front-end ratio,
or top ratio, and is calculated
by dividing your new total monthly
mortgage payment by your gross monthly
income. Typically, this ratio should
not exceed 28%. The second is called
the back-end, or bottom ratio, and
is equal to your new total monthly
mortgage payment plus your total
monthly debt divided by your gross
monthly income. Typically, this
ratio should not exceed 36%.
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H
Home Equity Line of Credit
A home equity line of credit is
a credit line that is kept open
and restored as you pay off what
is owed. An equity line of credit
also has a high credit limit similar
to a credit card that you are allowed
to draw upon as needed.
Homeowners Insurance
Just as you insure your automobile
to protect against theft and damage,
you insure your home. Homeowners
insurance is required by all lenders
to protect their investment, and
must be obtained before closing.
In most cases, coverage must be
equal to the loan balance, or the
value of the home.
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I
Insurance
The type of insurance(s) required
for your loan. Mortgage insurance
may also be required in addition
to what is indicated.
Interest
Charge paid for borrowing money.
Interest Rate
The annual rate of interest on the
loan, expressed as a percentage
of 100.
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J
Joint Liability
Liability shared among two or more
people, each of whom is liable for
the full debt.
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L
Late Charge
Penalty paid by a borrower when
a payment is made after the due
date.
Lender
The bank, mortgage company, or mortgage
broker offering the loan.
Lender Fees
Lender Fees are fees paid to the
lender.
Lender Processing Fee
The lender processing fee covers
the cost of analyzing your loan
application and compiling and packaging
the necessary supporting documentation
to close your loan.
Lien
A legal claim by one person on the
property of another for security
for payment of a debt.
Loan Application
An initial statement of personal
and financial information required
to apply for a loan.
Loan Application Fee
Fee charged by a lender to cover
the initial costs of processing
a loan application. The fee may
include the cost of obtaining a
property appraisal, a credit report,
and closing costs incurred during
the process or the fee may be in
addition to these charges.
Loan Term
The period of time between the closing
date and the date of your last payment
is paid.
Loan-to-Value Ratio (LTV)
The percentage of the loan amount
to the appraised value (or the sales
price, whichever is less) of the
property.
Lock or Lock-In
A lender's guarantee of an interest
rate for a set period of time-usually
between loan application approval
and loan closing. The lock-in protects
you against rate increases during
that time.
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M
Manufactured Home
A factory assembled residence built
in units or sections that are transported
to a permanent site and erected
on a foundation.
Margin
The percentage difference between
the index for a particular loan
and the interest rate charged. This
is a number predetermined by the
lender.
Monthly Mortgage Payment
A monthly mortgage payment typically
contains four parts called the PITI
(principal, interest, taxes, and
insurance). If you pay your taxes
and insurance on your own, you pay
only principal and interest to your
lender.
Monthly Principal and Interest
(P&I) Payment
Principal and interest is the dollar
portion to repay the loan. All interest
that occurs is calculated on the
current balance owing. The principal
reduces the remaining balance of
a mortgage.
Mortgage
A legal document by which real property
is pledged as security for the repayment
of a loan.
Mortgage Banker
An individual or company that originates
and/or services mortgage loans.
Mortgage Broker
An individual or company that arranges
financing for borrowers.
Mortgage Insurance
Insurance to protect the lender
in case you default on your loan.
With conventional loans, mortgage
insurance is generally not required
if you make a down payment of at
least 25% of the home's appraised
value.
Mortgage Loan
A loan for which real estate serves
as collateral to provide for repayment
in case of default.
Mortgage Term
The length of time given to repay
the loan.
Mortgagee
The lender in a mortgage loan transaction.
Mortgagor
The borrower in a mortgage loan
transaction.
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N
Negative Amortization
A loan payment schedule in which
the outstanding principal balance
of a loan goes up rather than down
because the payments do not cover
the full amount of interest due.
The monthly shortfall in payment
is added to the unpaid principal
balance of the loan.
Non-Assumption Clause
A statement in a mortgage contract
forbidding the assumption of the
mortgage by another borrower without
the prior approval of the lender.
Note
Legal document obligating a borrower
to repay a loan at a stated interest
rate during a specified period of
time. The agreement is secured by
a mortgage or deed of trust or other
security instrument.
Notice of Default
Written notice to a borrower that
a default has occurred and that
legal action may be taken.
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P
Payment Schedule
The method for disclosing your payment
schedule varies by loan type. For
fixed-rate loans, the payment schedule
indicates what your required monthly
payment will be throughout the life
of your loan. For adjustable rate
loans, the payment schedules will
vary by loan type and are based
on conservative assumptions of future
interest rates.
Per Diem Interest
Interest calculated per day. (Depending
on the day of the month on which
closing takes place, you will have
to pay interest from the date of
closing to the end of the month.
Your first mortgage payment will
probably be due the first day of
the following month.)
PITI
Abbreviation for Principal, Interest,
Taxes and Insurance, the components
of a monthly mortgage payment.
Points (or Discount Points)
Points are an up-front fee paid
to the lender at the time that you
get your loan. Each point equals
one percent of your total loan amount.
Points and interest rates are inherently
connected: in general, the more
points you pay, the lower the interest
rate you get. However, the more
points you pay, the more cash you
need up front since points are paid
in cash at closing.
Power of Attorney
Legal document that authorizes one
person to act on behalf of another.
Pre-approval
The process of determining how much
money a prospective homebuyer or
refinancer will be eligible to borrow
prior to application for a loan.
A pre-approval includes a preliminary
screening of a borrower's credit
history. Information submitted during
pre-approval is subject to verification
at application.
Prepaid Expenses
Taxes, insurance and assessments
paid in advance of their due dates.
These expenses are included at closing.
Prepaid Interest
Interest that is paid in advance
of when it is due. Typically charged
to a borrower at closing to cover
interest on the loan between the
closing date and the first payment
date.
Prepayment
Full or partial repayment of the
principal before the contractual
due date.
Prepayment Penalty
A prepayment penalty is a fee that
is charged if the loan is paid off
earlier than the specified term
of the loan. Depending on your loan,
you may or may not incur a prepayment
penalty.
Pre-qualification
The process of determining how much
money a prospective homebuyer will
be eligible to borrow prior to application
for a loan. Information submitted
during pre-qualification is subject
to verification at application.
Principal
The amount of debt, not counting
interest, left on a loan.
Property Taxes
The taxes assessed on the property
by the local government (e.g. city,
village or township) for the various
services provided to the property
owner. Such services may include
police and fire department services,
garbage pick up and snow removal.
Purchase Agreement
Contract signed by buyer and seller
stating the terms and conditions
under which a property will be sold.
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R
Real Financing Cost
The real financing cost is a consumer-oriented
rate that takes into account specific
costs, fees, potential rate changes
and the projected amount of time
you will have the loan. The fees
and costs are distributed over the
time you plan to be in the house,
allowing you to do an apples-to-apples
comparison of a variety of loan
types. The real financing cost is
not the APR. The APR assumes that
you keep your loan for the entire
term (e.g. 30 years for a 30-year
fixed loan) and includes only some
of your loan fees. The total financing
cost takes into account all of your
closing costs associated with your
loan and also how long you plan
to be in your house.
Real Property
Land and any improvements permanently
affixed to it, such as buildings.
Refinancing
The process of paying off one loan
with the proceeds from a new loan
secured by the same property.
Rent Free
If you are living with a relative
or friend without paying rent, this
is considered "rent free."
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S
Sales Agreement
Contract signed by buyer and seller
stating the terms and conditions
under which a property will be sold.
Second Mortgage
An additional mortgage placed on
a property that has rights that
are subordinate to the first mortgage.
A second mortgage is a lien in which
you are given a lump sum amount
that you pay off in installments
over a specified period of time.
Home improvement and debt consolidation
loans are considered second mortgages.
Security
This refers to the address of the
property being pledged as security
for your loan.
Single Family
A residence that houses one family.
Structural Improvements
A "Structural Improvement"
is any permanent improvement made
to your property that is not strictly
for decorating purposes. Examples
include: additions, new flooring,
kitchen or bathroom upgrades, new
windows and central air. Swimming
pools are considered structural
improvements only if they are in
ground and your property is in a
year round warm weather climate.
Survey
A mortgage survey is a bird's eye
sketch of your property that shows
the boundary lines of your lot,
and details any encroachments between
you and your neighbors.
Sweat Equity
Value added to a property in the
form of labour or services by the
owner rather than by cash.
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T
Tax Lien
Claim against a property for unpaid
taxes.
Tax Sale
Public sale of property by a government
authority as a result of non-payment
of taxes.
Third Party Fees
Fees paid to a third party for services
requested by the lender on your
behalf.
Title
Document that gives evidence of
ownership of a property. Also indicates
the rights of ownership and possession
of the property. Individuals who
will have legal ownership in the
property are considered "on
title" and will sign the mortgage
and other documentation.
Title Insurance
Title insurance protects a lender
against any title dispute that may
arise over a particular property.
It is required to close on your
home. You may also purchase owner's
title insurance which protects you
as the homeowners.
Title Search
Examination of local real estate
records to ensure that the seller
is the legal owner of a property
and that there are no liens or other
claims against the property.
Total Payments
This is the total amount you will
have paid over the life of the loan
for principal, interest and prepaid
finance charges, assuming you keep
the loan to maturity and made only
the required monthly payments.
Trans Union
One of the two major credit bureaus
in Canada.
Transfer Tax
Tax paid when title passes from
one owner to another.
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U
Underwriting
In mortgage lending, the process
of determining the risks involved
in a particular loan and establishing
suitable terms and conditions for
the loan.
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V
Variable Rate Mortgage
See Adjustable Rate Mortgage.
Variable Rate
Interest rate that changes periodically
in relation to an index.
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W
Waiver
Voluntary relinquishment or surrender
of some right or privilege.
Walk-through
A final inspection of a home to
check for problems that may need
to be corrected before closing.
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Z
Zoning Regulations
Local law establishing building
codes and usage regulations for
properties in a specified area.
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