Navigating the world of home financing can initially feel like deciphering a foreign language. With a myriad of terms, definitions, and nuances specific to the Canadian mortgage landscape, it’s essential to have a foundational understanding to make informed decisions on one of life’s most significant investments. Whether you’re a first-time homebuyer, looking to refinance, or merely curious about the housing market, our basic glossary serves as a primer to demystify mortgage-related jargon. Familiarizing yourself with these terms will empower you to approach the Canadian mortgage market with confidence and clarity. Dive in and let’s embark on this enlightening journey together!
Amortization: The period over which the entire mortgage is scheduled to be repaid. Commonly 25 or 30 years in Canada.
Appraisal: A professional evaluation of the market value of a property.
Blended Payments: Payments consisting of both a principal and an interest component, paid regularly during the term of the mortgage.
Closed Mortgage: A mortgage that cannot be prepaid, renegotiated, or refinanced without paying a penalty.
CMHC (Canada Mortgage and Housing Corporation): A federal corporation that provides mortgage default insurance for high-ratio mortgages.
Collateral: Assets pledged to secure a loan or other credit.
Conventional Mortgage: A mortgage loan that does not exceed 80% of the lending value of the property. These don’t usually require mortgage protection insurance.
Credit Report: A record of an individual’s payment history available from a credit bureau.
Down Payment: The homeowner’s own contribution towards the purchase price of a property, not borrowed.
Equity: The difference between the property’s market value and any outstanding mortgages or other liens on the property.
Fixed-Rate Mortgage: A mortgage for which the interest rate remains constant throughout the term.
Gross Debt Service (GDS): The percentage of the borrower’s gross income that will be used for monthly payments of principal, interest, taxes, and heating.
High-Ratio Mortgage: A mortgage exceeding 80% of the home’s appraised value or purchase price. These usually require mortgage default insurance.
Home Buyers’ Plan (HBP): A federal program allowing first-time homebuyers to use up to $35,000 of their RRSP savings to buy or build a home.
Interest Rate: The cost of borrowing money. Expressed as a percentage.
Lien: A claim against a property for money owing. It can be voluntary, like a mortgage, or involuntary, like a tax lien.
Maturity Date: The end of the mortgage term.
Mortgage: A legal document where a borrower pledges a property to a lender as security for a loan.
Mortgage Broker: A professional who offers mortgage products from multiple lenders.
Mortgagee: The entity providing the loan, typically a bank or financial institution.
Mortgagor: The borrower.
Open Mortgage: A mortgage that can be prepaid or renegotiated at any time without penalty.
PIT: Principal, interest, and taxes – the main elements of a monthly mortgage payment.
Pre-Approval: A lender’s commitment to lend to a potential borrower. Specifies terms including the mortgage amount, interest rate, and loan term.
Principal: The mortgage amount initially borrowed, or the portion of the mortgage that remains unpaid.
Refinance: To replace the existing mortgage with a new one.
Renewal: At the end of a mortgage term, the borrower can either repay the balance or renegotiate the mortgage for another term.
Term: The length of time a mortgage agreement covers. Not to be confused with amortization.
Variable Rate Mortgage (or Adjustable Rate Mortgage): A mortgage for which the rate of interest may change if other market conditions change.
This glossary covers the primary terms relating to mortgages in Canada. For further definitions or in-depth explanations on specific terms, consider consulting a mortgage professional or lender.