A

Acceleration

A clause that allows the lender to demand immediate repayment of the entire loan balance if the borrower violates the terms of the agreement, such as missing payments or defaulting.

Amortization

The process of gradually paying off a loan through regular, scheduled payments of principal and interest. Amortization schedules determine how much of each payment goes toward the loan balance versus interest.

Annual Percentage Rate (APR)

The total cost of borrowing on a loan, including the interest rate and any additional fees or costs, expressed as a yearly percentage.

Appraisal

An independent assessment of a property's market value conducted by a certified appraiser. It is used by lenders to determine the loan amount for which a borrower qualifies.

Assignment

The transfer of a mortgage loan or its rights from one lender to another. This process does not affect the terms of the loan for the borrower, but it changes the entity to whom the borrower is making payments.

Assumption

The process of transferring an existing mortgage from the current homeowner to a new buyer. The buyer takes over the remaining loan balance, terms, and conditions, often without needing a new mortgage. This option is typically subject to lender approval.

B

Balloon Payment

A large, lump-sum payment due at the end of a loan term, typically after smaller monthly payments have been made throughout the term.

Bridge Loan

A short-term loan used to bridge the gap between the sale of an existing property and the purchase of a new one. It is often used when a borrower needs funds for a down payment on a new home before selling their current home.

C

Capitalization Rate (Cap Rate)

A metric used to estimate the return on investment for income-generating real estate. It is calculated by dividing the property's net operating income by its current market value.

Cash-Out Refinance

Refinancing a mortgage for a higher amount than the existing loan balance, allowing the borrower to take out the difference in cash. It is commonly used to finance home improvements, debt consolidation, or other expenses.

Closing Costs

Expenses associated with finalizing a real estate transaction. These may include legal fees, appraisal costs, title insurance, and other administrative fees. Closing costs are typically paid at the closing date.

Collateral

An asset pledged by a borrower to secure a loan. In mortgage lending, the property itself serves as collateral for the loan.

Conventional Loan

A mortgage that is not insured or guaranteed by the government, typically requiring higher credit scores and larger down payments compared to government-backed loans.

Credit Report

A detailed record of an individual’s credit history, compiled by credit bureaus. It includes information about credit accounts, payment history, outstanding debts, credit inquiries, and any public records like bankruptcies. Lenders use credit reports to assess a borrower’s creditworthiness when applying for loans or credit.

D

Debt-to-Income Ratio (DTI)

A measure of a borrower's monthly debt payments relative to their monthly gross income. Lenders use DTI to assess a borrower's ability to manage additional loan payments.

Default

The failure to fulfill the terms of a loan agreement, such as missing payments or not adhering to other conditions. Default of a mortgage loan can lead to power of sale, foreclosure, or legal action by the lender to recover the loan amount.

Delinquency

Being behind on loan payments or failing to meet the payment due date. Lenders may impose late fees and initiate collection efforts if the delinquency continues.

Down Payment

The upfront payment made by a borrower toward the purchase price of a property. Down payments for mortgages are usually expressed as a percentage of the total property price.

Draw Schedule

In construction loans, the draw schedule outlines when funds will be released to cover specific stages of the building project. Funds are disbursed as milestones are met.

E

Equity

The difference between the market value of a property and the outstanding mortgage balance. It represents the homeowner's ownership stake in the property.

Equity Take-out

Refinancing a mortgage for a higher amount than the existing loan balance, allowing the borrower to take out the difference in cash. It is commonly used to finance home improvements, debt consolidation, or other expenses.

F

First Charge

The primary lien against a property.

Fixed-Rate Mortgage

A mortgage with an interest rate that remains constant for the entire term of the loan. Fixed-rate mortgages provide predictable monthly payments, which can be beneficial for budgeting.

G

Gross Debt Service (GDS)

A measure used in mortgage lending to assess a borrower's ability to afford a property. It calculates the percentage of a borrower's gross annual income required to cover housing costs, including mortgage payments, property taxes, heating, and condo fees (if applicable).

Gross Income

The total income earned by an individual or household before any deductions, such as taxes, insurance, or retirement contributions. It includes wages, salaries, bonuses, rental income, and any other sources of income before any expenses are subtracted.

Guaranteed Mortgage

A mortgage loan where the lender is assured repayment by a third party, typically a government agency or a guarantor, in case the borrower defaults. This reduces the lender’s risk and may help borrowers secure a mortgage.

H

Hard Money Loan

A type of loan secured by real estate, typically offered by private lenders or investors. Hard money loans often have higher interest rates and shorter terms than traditional loans, making them suitable for short-term financing needs.

Home Equity Line of Credit (HELOC)

A revolving line of credit that allows homeowners to borrow against the equity in their home. The credit limit is based on the difference between the home’s market value and the outstanding mortgage balance. They are often used for major expenses like home renovations or consolidating debt.

I

Insured Mortgage

A mortgage that is protected by insurance, typically provided by a government agency or a private insurer. If the borrower defaults on the loan, the insurance covers the lender's losses. In Canada, insured mortgages are often insured through the Canada Mortgage and Housing Corporation (CMHC).

Interest-Only Loan

A loan structure where the borrower pays only the interest for a specified period, sometimes part or all of the term. For the rest of the term payments include both principal and interest.

J

K

L

Lender Fee

A fee charged by lenders for processing a loan application. It is typically a percentage of the loan amount and is paid at closing.

Lien

A legal claim against a property until the debt secured by that property is paid.

Loan-to-Value Ratio (LTV)

The ratio of the loan amount to the appraised value of the property, expressed as a percentage. Lenders use LTV to assess the risk of a mortgage loan, with lower LTVs representing less risk. Higher LTV loans are generally more expensive due to the higher risk.

M

Maturity

The date by which the principal balance of a loan must be paid in full.

Mortgage Charge

A legal document registered on title of a property that pledges the property to a lender as security for payment of a debt.

Mortgage Broker

A licensed professional who acts as an intermediary between borrowers and lenders. A mortgage broker help clients find and secure mortgage loans by comparing offers from multiple lenders, assisting with paperwork, and providing advice on the best mortgage options based on the borrower's financial situation.

Mortgage Insurance

Insurance that protects the lender in case a borrower defaults on the loan. It is often required by lenders.

Mortgagee

The lender or financial institution that provides a mortgage loan to the mortgagor (borrower).

Mortgagor

The borrower in a mortgage agreement. The mortgagor pledges their property as collateral for the loan and is responsible for repaying the loan to the mortgagee (lender).

N

Negative Amortization

When the monthly payments on a loan are less than the interest charged, causing the outstanding loan balance to increase over time rather than decrease.

Net Worth

The total value of all a person's assets, including cash minus any liabilities.

O

P

Personal Guarantee

A promise made by an individual to take responsibility for repaying a loan if the primary borrower, such as a business, fails to meet its obligations. It makes the individual's personal assets liable for the debt, offering lenders additional security.

Porting

Transferring an existing mortgage from one property to another when a borrower sells their home and buys a new one. It allows a borrower to keep your current mortgage terms, including the interest rate, avoiding potential penalties for breaking the mortgage early.

Pre-Approval

The process where a lender evaluates a borrower’s financial situation, including credit score, income, and debt, to determine how much they are eligible to borrow for a mortgage.

Prepayment Penalty

A fee that may be charged to a borrower who pays off a loan before it's due.

Prime Rate

The interest rate that banks charge their preferred customers.

Principal Balance

The amount of the loan remaining to be paid, excluding interest and fees.

Q

R

Refinance

The process of replacing an existing mortgage with a new loan, usually to take advantage of lower interest rates, change the loan term, or access home equity.

Renewal

The process of extending a mortgage agreement with the same lender after the end of its term. The borrower signs a new contract, which may include updated interest rates, terms, and conditions, while continuing to pay off the remaining balance.

S

Second Charge

A loan secured against a property that already has an existing mortgage (the first charge). This loan takes a secondary position, meaning if the borrower defaults, the first mortgage lender is paid off first, and the second charge lender is paid from any remaining proceeds.

Security

The property that will be pledged as collateral for a loan.

Switching

Transferring an existing mortgage from one lender to another, usually at the end of the mortgage term. The borrower keeps the same mortgage balance but may save on interest or access better service with the new lender.

T

Term

The length of time a mortgage agreement is in effect with a specific lender, including its interest rate and conditions. At the end of the term, the mortgage must either be paid off, renewed, or refinanced. Terms typically range from 6 months to 10 years.

Title Insurance

Insurance that protects against financial loss arising from disputes over property ownership or defects in the title. Lenders require title insurance to safeguard their interest in the property.

Total Debt Service (TDS)

A measure used in mortgage lending to evaluate a borrower’s overall debt load. It calculates the percentage of a borrower’s gross annual income needed to cover all housing costs (as in GDS) plus other debt obligations, such as car loans, credit card payments, and personal loans.

U

Underwriting

The process through which a lender assesses the risk of granting a loan. Underwriters evaluate the borrower's financial history, credit score, income, and other factors to determine eligibility.

V

Variable-Rate Mortgage

A mortgage with an interest rate that can change periodically, typically based on an index that reflects market conditions.

W

X

Y

Z

Zoning

Local government regulations that determine how a property can be used. Zoning laws designate areas for residential, commercial, agricultural, or industrial use and can impact a property's development potential.