Mortgage Architects ~ Rob Cagnin, AMP

Mortgage Glossary

A

Adjustable Rate Mortgage (ARM) -
Otherwise known as a Variable Rate Mortgage A variable rate mortgage is a mortgage that has fixed payments, but the interest rate fluctuates with any changes in the Bank of Canada prime lending rate. If interest rates go down, more of the payment goes to principal. If interest rates go up, more of the payment goes towards the interest.

Amortization -
The gradual elimination of a liability, such as a mortgage, in regular payments over a specified period of time. Literally to pay the outstanding balance of a loan by making equal payments on a regular schedule (usually monthly). The payments are structured so that the borrower pays both interest and principal with each equal payment.

Annuity -
A series of fixed payments paid at regular intervals over a specified interval of time.

Application -
A mortgage application requires potential borrowers to submit all information regarding their income, savings, assets, debts, and more.

Appraisal -
The determination of property value based on recent sales information of similar properties.

Asset -
Items of ownership, valuable and convertible into cash; total resources of a person or business, or entity.

B

Bankruptcy -
A tactic that individuals use to relieve themselves of debts and/or liabilities when they are no longer able to repay. Borrowers will need to re-establish credit after 2 years in order to quality for type "A" loans.

Biweekly Mortgage -
Mortgage loan payments that require a payment twice monthly, yielding twenty six payments per year. This significantly reduces the time over which a mortgage is paid off.

Broker -
An individual in the business of assisting in arranging funding or negotiating contracts for a client but who does not loan the money themselves. Brokers usually receive a commission for their services from the lender.

C

Closing -
Final arrangements to transfer title of property as well as allocate charges and credits.

Closing Costs -
Closing costs are fees paid by the borrower/client when a property is purchased or refinanced. Costs incurred can included legal fees, dispursements, closing costs, appraisal fee, land transfer tax etc.

Conventional Mortgage -
A mortgage loan which is obtained without any additional default insurance required. This is available at an 80% loan-to-value ratio or less.

Credit Rating -
Borrowers are rated by lenders according to the borrower's credit-worthiness or risk profile. These ratings are based on various factors such as a borrower's payment history, amount of debt owing, number of credit enquiries.

Credit Report -
A report to a prospective lender on the credit standing of a prospective borrower. A credit report will often be used to help determine creditworthiness. Information regarding late payments, defaults, or bankruptcies will appear here.

D

Default -
The failure to make payments on a loan.

Down Payment -
Money paid by a buyer from his own funds, as opposed to that portion of the purchase price which is financed.

E

Equity -
The difference between the current market value of a property and the principal balance of all outstanding loans.

Escrow -
A third party agent that receives, holds, and/or disburses certain funds or documents upon the performance of certain conditions. For example, an earnest money deposit is put into escrow until the transaction is closed. Only then can the seller receive the deposit.

Estate -
The ownership interest an individual holds in real property. This is also the sum total of all the real property and personal property owned by an individual at time of death.

F

First Mortgage -
A mortgage which has priority over all other mortgages.

Fixed-Rate Mortgage -
A mortgage where the interest rate does not change for the life of the loan.

Foreclosure -
A legal procedure in which real estate is sold by the lender to pay a defaulting borrower's debt.

G

Grace Period -
A time allowed, usually 15 days, for making late payments without a penalty.

Gross Monthly Income -
The total amount the borrower earns per month, not counting any taxes or expenses. This income is often used in calculations to determine whether a borrower qualifies for a particular loan.

H

Home Inspection -
A thorough assessment made by a professional regarding the structural and mechanical condition of a property.

I

Interest -
Consideration in the form of money paid for the use of money, usually expressed as an annual percentage. Also a right, share, or title in property.

Interest Rate -
The percentage of an amount of money that's paid for its use over a specified time period.

L

Lender -
The bank, mortgage company, or mortgage broker offering the loan. Many institutions only "originate" loans and then resell the obligation to third parties.

Liability Insurance -
Insurance that protects property owners against claims that allege negligence or inappropriate action that resulted in bodily injury or property damage to another party.

Lien -
A legal claim by one party against the property of another as security for a debt. Must be paid off when property is sold. A mortgage or a first trust deed is a lien.

Loan -
The principal or amount of total borrowed money, which is repaid with interest.

Loan Officer -
An intermediary between lending institutions and borrowers, loan officers solicit loans, represent creditors to borrowers, and represent borrowers to creditors.

Loan-To-Value Ratio -
The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage. A LTV ratio of 90 means that a borrower is borrowing 90% of the value of the property and paying 10% as a down payment. For purchases, the value of the property is assumed to be the purchase price, for refinances the value is determined by an appraisal.

M

Margin -
The amount a lender adds to the quoted index rate for an adjustable rate loan to determine the new interest rate.

Maturity -
The date the loan is due.

Monthly Housing Expense -
Total principal, interest, taxes, and insurance paid by the borrower on a monthly basis. Used with gross income to determine affordability.

Mortgage -
A legal document that pledges property to a creditor for the repayment of the loan, and is the term used to describe the loan itself.

Mortgage Insurance -
Insurance that covers the lender against losses which have occurred as a result of a default on a home loan. This is required on all loans that have a loan-to-value higher than 80%.

P

Pre-Approval -
A term used to describe when a borrower has completed a loan application and provided debt, income, and savings information that has been reviewed and pre-approved by an underwriter.

Pre-Qualification -
After a loan officer has made inquiries about a borrower's debt, income, and savings, he or she can write a written statement (pre-qualification) about the borrower's chances for qualifying for a home loan.

Prime Rate -
Interest charged by financial institutions to top-rate borrowers.

Principal -
The amount of debt, not counting interest, left on a loan.

Pre-Payment -
Any amount paid so as to reduce the principal before the due date.

Purchase Agreement -
A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

R

Real Estate -
A portion of property consisting of houses and land including all the legal rights therein.

Real Estate Agent -
A person licensed to negotiate and transact the sale of real estate.

Realtor -
A real estate agent, broker, or associate that holds an active membership in a local real estate board. Must be certified.

Refinancing -
The process of paying off one loan with the proceeds from a new loan, using the same property as security.

S

Second Mortgage -
A mortgage that has a lien position subordinate to the first mortgage.

Secured Loan -
A loan which is backed by assets belonging to the borrower in order to decrease the risk assumed by the lender. (The loan is secured by collateral).

T

Title -
A legal document showing a person's right to or ownership of a property.

Title Insurance -
Title Insurance policies typically insure a homebuyer by protecting the owner or mortgagee of real estate from lawsuits or claims arising from a defective title.

Total Debt Ratio -
Monthly debt and housing payments divided by gross monthly income.

V

Variable Rate Mortgage -
See Adjustable Rate Mortgage.

Vested -
Means that one has a right to use a portion of a fund, such as an individual's retirement fund.

Z

Zero Percent Financing -
A loan with no interest in the contract.

Contact me by Email: rob@robcagnin.ca, or by Phone: 905-634-6111 Ext 113.