Glossary - What does it all mean?

Amortization
The number of fixed payments or years it takes to repay the entire mortgage
loan.

Assumption Agreement
A legal document signed by a home-buyer that requires the buyer to assume
responsibility for the obligations of a former owner's mortgage.

Blended Payments
Equal payments consisting of both a principal and an interest component,
paid each month during the term of the mortgage. Each month, the principal
portion increases while the interest portion decreases, but the total
monthly payment does not change.

Closed Mortgage
A closed mortgage usually offers a lower interest rate than an open one of
the same term, but the open mortgage lets you pay off as much as you want,
any time, without penalty.

Conventional Mortgage (Fixed-rate mortgage)
A conventional mortgage is a loan for no more than 75% of the appraised
value or purchase price of the property, whichever is less. A high ratio
mortgage is usually for more than 75% of the appraised value or purchase
price. This type of mortgage is often referred to as an NHA mortgage because
it is granted under the provisions of the National Housing Act and must, by
law, be insured through CMHC for which the borrower pays the insurance
premium, application, legal and property appraisal fees.

Debt Service Ratio
The percentage of the borrower's gross income that will be used for monthly
payments of principal, interest, taxes, heating costs and condominium fees.

Default
Non-payment of installments due under the terms of a mortgage.

Discharge
Removal of all mortgages and financial encumbrances on a property.

Financing (Balance of Sale)
The seller sometimes takes the mortgage at a rate lower than market rates.
Most of these arrangements are not renewable or transferable to the next
owner.

Fixed Rate Mortgage
You can choose a fixed or variable interest rate. A fixed rate mortgage
allows you to budget precisely for whatever term you select...anywhere from
one to occasionally 25 years. A variable rate fluctuates with the market.

Foreclosure
A legal procedure whereby the lender obtains ownership of the property
following default by the borrower.

Gross Debt Service Ratio
The percentage of gross annual income required to cover payments associated
with housing (mortgage principal and interest, taxes and secondary
financing). Most lenders prefer the GDS be no more than 32%.

Mortgage Insurance Premium
A premium added to the mortgage and paid by the borrower over the life of the mortgage. The mortgage insurance insures the lender against loss in case of default by the borrower.

Mortgage Life Insurance
A form of reducing term insurance recommended for the borrower. In the event of the death of an owner, the insurance pays out the balance of the mortgage. The intent is to protect survivors from losing their home.

Mortgagee
The lender.

Mortgagor
The borrower.

Open Mortgage
A mortgage that can be prepaid at any time without penalty.
P.I. (Principal & Interest)
Principal and interest due on a mortgage.
P.l.T. (Principal, Interest, & Taxes)
Principal, interest and taxes due on a mortgage.

Penalty
A sum of money paid to a lender for the privilege of prepaying a mortgage in
part or in full.

Prepayment Option
The right to prepay specified amounts of the principal balance. Penalty
interest may be incurred on prepayment options.

Principal
The amount you owe the lender at any given time

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

Roll-over Mortgage
A mortgage loan whose interest rate is established for a specific term. At
the end of this term, the mortgage is said to "roll over" and the borrower
and lender may agree to extend the loan. If satisfactory terms cannot be
agreed upon, the lender is entitled to be repaid in full. In this case, the
borrower may seek alternative financing

Second Mortgage
This is usually at a higher interest rate and represents the difference
between the price of the home and first mortgage plus the down payment. This
may be obtained from lenders and finance companies or through lawyers or
notaries.

Term
The term you select is important too. A mortgage "term" is the length of time for which money is loaned at a specified rate of interest. When the term expires, you can either repay the balance of the principal or renegotiate the mortgage at current rates and conditions. Short term mortgages are appropriate if you believe interest rates will drop come renewal time. Long term mortgages are suitable if you feel current rates are reasonable and you want the security of budgeting for the future. This is especially important for first time homebuyers. The key is to feel comfortable with your mortgage payments.

Underwriting Fees
A sum of money collected by some lenders to offset expenses incurred in the lending transaction. Variable Rate Mortgage (Floating Rate) A mortgage whose payments can be fixed from one to five years but whose interest rate could change monthly depending on market conditions. If interest rates go down, the monthly principal is reduced; if rates go up, the monthly payments might not cover the interest owing and payments may be increased for the next term. Most variable rate mortgages allow prepayment of any amount (with certain minimums) on any monthly payment date and usually without penalty.

Variable Rate Mortgage (Floating Rate)
A mortgage whose payments can be fixed from one to five years but whose
interest rate could change monthly depending on market conditions. If
interest rates go down, the monthly principal is reduced; if rates go up,
the monthly payments might not cover the interest owing and payments may be
increased for the next term. Most variable rate mortgages allow prepayment
of any amount (with certain minimums) on any monthly payment date and
usually without penalty.