Mortgage Terminology

Amortization period
The time over which you will completely repay a mortgage loan. It assumes you make equal payments.

Assumption agreement
A legal document. It’s used when a home buyer takes over the previous owner’s mortgage.

Blended payments
A monthly mortgage payment including some of the principal plus the month’s interest. The total monthly payment stays the same. Over time, you pay more principal each month, but less interest.

Closed mortgage
A mortgage you cannot prepay, renegotiate or refinance, unless the terms allow.

Conventional mortgage
A mortgage loan for no more than 80% of the value of the property. The value could be the appraised value or the purchase price of the property, whichever is lower. Mortgages for more than this limit must be insured.

Debt service ratios
The gross debt servicing ratio (GDS) is the percentage of your monthly gross income you need to pay the mortgage principal, interest, taxes, heating costs and any condo fees.

The total debt servicing ratio (TDS) is the GDS plus any other monthly expenses.

Missing a mortgage payment.

Removal of all mortgages and other money owed on a property.

Fixed rate mortgage
A mortgage with a rate that does not change, even if interest rates change.

A legal procedure. The lender becomes the owner of the property because the borrower did not make the payments.

Mortgage insurance premium
A monthly payment for Mortgage life insurance.

Mortgage life insurance
Mortgage life insurance pays any money owing on the mortgage if the owner or one of the owners dies, becomes disabled or terminally ill. It helps protect survivors from losing their home.

The lender.

The borrower.

Open mortgage
A mortgage you can pay off any time, with no penalty.

A fee to make more than your monthly payment on the mortgage. It doesn’t apply to an open mortgage.

P & I
Principal and interest due on a mortgage.

Stands for principal, interest, taxes and heating costs.

Prepayment option
The right to prepay agreed amounts of the principal. The lender may charge you penalty interest on prepayment options.

The amount of the original borrowed money that you still owe.

Rate (interest)
The return the lender receives for loaning you the money for the mortgage.

Roll over mortgage
A mortgage loan where the interest rate is set for a specific length of time. At the end of this time the mortgage "rolls over" and the borrower and lender may agree to extend the loan for longer. If they don’t agree on the terms, the lender can ask to be repaid in full. In this case, the borrower has to find other financing.

Second mortgage
In real estate, a property can have multiple loans or liens against it. A second mortgage typically refers to a secured loan (or mortgage) that is in second place to another loan against the same property, meaning the lenders for your first mortgage get paid first in situations like bankruptcy. Because of the increased risk for the lender, a second mortgage typically charges a higher interest rate.

The length of time for which the money is loaned, at a particular rate of interest. At the end of the term, you can either repay the amount owing or renegotiate the mortgage at current rates and conditions.

Underwriting fees
Some lenders collect these fees to pay for their expenses in lending the money.

Variable rate mortgage (VRM)
Also known as an adjustable rate mortgage (ARM). This is a mortgage where the interest rate may go up and down throughout the term.

If interest rates go down, the monthly principal goes down.

If rates go up, the monthly payments might not cover the interest you owe. Payments could increase for the next term.

Most variable rate mortgages let you prepay any amount of the mortgage (with certain minimums) on any monthly payment date. There is usually no penalty to pre-pay.

Vendor financing (balance of sale)
The seller sometimes offers a mortgage at a rate lower than market rates. These generally cannot be renewed or transferred to the next owner.