glossary of mortgage terms

Mortgage terms and mortgage options have become more complex over the last few years, and at the same time, consumers in Canada are more informed than ever before about mortgage finance. The following information is a guide to some of the mortgage terms you may come across during your mortgage financing.

Amortization Period
The actual number of years it will take to repay a mortgage loan in full. This can be well in excess of the loan's term. For example, Mortgages often have five year terms but 25 year amortization periods.

Closed Mortgage
A closed mortgage agreement does not provide for payout prior to maturity. A lender may permit payout under certain circumstances but will levy a penalty charge for doing so if such exceeds certain limits, if any, specified in the mortgage (i.e. 15% prepayment provision). An open mortgage allows prepayment / repayment at any time without penalty.

Bridge Financing
A special short term loan needed to cover or bridge the gap in time between completing the purchase of one property and finalizing arrangements to pay for it. Usually this is a result of mismatched closing dates.

Debt Service Ratios (GDSR & TDSR)
The Gross Debt Service Ratio (GDSR) is the percentage of gross annual income required to cover payments associated with housing (mortgage principal and interest, taxes, secondary financing, heating, and 50% of condominium fees, if any). The GDSR should not exceed 32% of gross annual income. The Total Debt Service Ratio (TDSR) is the percentage of gross annual income required to cover payments associated with housing (GDSR) and all other debts and obligations, such as payments on a car loan. The TDSR ratio should not exceed 40% of gross income.

High Ratio Mortgage
A mortgage loan which exceeds 75% of the lesser of the appraised value or purchase price of the property. This mortgage must be insured and borrowers must pay an application fee and the insurance premium (which may be added to the mortgage) to the insurer.

Interest Adjustment Date (I.A.D.)
A date, usually one month before monthly mortgage payments begin, when interest on monies advanced before that date is calculated and must be paid by the borrower.

Joint Tenancy
Ownership of land by two or more persons whereby, on the death of one, the survivor or survivors take the whole property.

Loan-to-Value Ratio
The ratio of the loan to the appraised value or purchase price of the property, whichever is less, expressed as a percentage.

Mortgage Insurance Premium
A premium which is charged as a percentage of the mortgage. The mortgage insurance insures the lender against loss in case of default by the borrower.

P.I.T.
Principal, Interest, and taxes.

Second Mortgage
A mortgage placed in 2nd position on property which is already encumbered with a first mortgage. Determination of first, second, third mortgages is by priority of registration (time and date).

Tenancy in Common
Ownership of land by two or more persons: unlike joint tenancy in that the interest of the deceased does not pass to the survivor, but is treated as an asset of the deceased’s estate.

Vendor Take Back Mortgage
A mortgage which a vendor of property takes from the purchaser usually as part payment of the purchase price for that property. A private first or second mortgage that the vendor lends to the purchaser/borrower.