| Keyword |
Definition |
| Amortization |
Number of fixed payments
or years it takes to repay the entire amount of the mortgage loan. |
| Assumption Agreement |
A legal document signed
by a home buyer which requires the buyer to assume responsibility for
the obligations of a mortgage made by a former owner. |
| Blended Payments |
Equal payments consisting
of both a principal and an interest component, paid each month during
the term of the mortgage. The principal portion increases each month,
while the interest portion decreases, but the total monthly payment
does not change. |
| Closed Mortgage |
The restriction or denial
of repayment rights until the maturity of the mortgage. |
| Conventional Mortgage |
A mortgage loan which
does not exceed 75% of the appraised value or purchase price of the
property, whichever is the lesser of the two. |
| Debt-Service Ratio |
The percentage of the
borrower's gross income that will be used for monthly payments of principal,
interest, taxes, space heating costs and condominium fees. |
| Default |
Non-payment of the installments
due under the terms of the mortgage. |
| Discharge |
The removal of all mortgages
and financial encumbrances on a property. |
| Foreclosure |
A legal procedure whereby
the lender obtains ownership of the property following default by the
borrower. |
| Gross Debt Service Ratio
(GDS) |
The percentage of gross
annual income required to cover payments associated with housing (mortgage
principal and interest, taxes and secondary financing). Most lenders
prefer that the GDS be no more than 32%. |
| Mortgage Insurance Premium |
A premium which is 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 detault
by the borrower. |
| Mortgage Life Insurance |
A form of reducing term
insurance recommended for the borrower. In the event of the death
of the owner or one of the owners, the insurance pays the balance owing
on the mortgage. The intent is to protect survivors from losing
their home. |
| Mortgagee |
The lender. |
| Mortgagor |
The borrower. |
| Open Mortgage |
A mortgage which can
be prepaid at any time, without penalty. |
| P.I. |
Principal and Interest
due on a mortgage. |
| P.I.T. |
Principal, interest
and property taxes due on a mortgage. |
| Penalty |
A sum of money paid
to a lender for the priviledge 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 insurred on prepayment options. |
| Principal |
The amount you still
owe the lender at any time. |
| 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 established for a specified 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 house and first mortgage, plus the downpayment or remaining equity
in the property. |
| Term |
In a mortgage, "term"
is the actual length of time for which the money is loaned, at that
particular rate of interest. After the term expires, you can either
repay the balance of the principal then owing or renegotiate the mortgage
at current rates and conditions. |
| Total Debt Service Ratio
(TDSR) |
The ratio of total annual
income relative to a borrower's total payments, GDS payments plus other
debts such as bank loans, finance company loans, credit card payments,
car payments etc. Most lenders prefer this not exceed 40-42%. |
| 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 where payments
can be fixed from one to five years, but the interest rate could change
from month to month depending on market conditions. Interest rates fluctuate
with the prime lending rate. |
| Vendor Financing (Balance
of Sale) |
The seller sometimes
takes the mortgage at a rate lower than market rates. Most of these
arrangements are not renewable nor transferable to the next owner. |
