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Additional interest: The amount sometimes charged by the bank when you prepay principal or renegotiate the terms of your mortgage. The amount compensates the bank for loss of revenue.

Amortization: With a mortgage, the borrower agrees to pay back the amount borrowed over a period of time. This breaking of the loan into smaller parts to be paid back over uniform blocks of time is amortization.

Amortization period: The actual number of years it will take to repay a mortgage in full. This period can be longer than the loan’s term. For example, a mortgage may have a five-year term and a 25-year amortization period.

Appraised value: An estimate of the market value of the home and property that the borrower pledges as security for the mortgage. This value may be more or less than the purchase price of the property.

Assets: The things of value that you own, such as your home, car or summer home.

Below prime: A variable rate mortgage in which the interest rate varies with money market conditions. At any given time, however, the rate will never exceed BMO Bank of Montreal’s prime rate, less 0.375%.

Blended rate mortgage: A mortgage that combines the amount the borrower owes under an existing mortgage with additional mortgage money required by the borrower. The interest rate for the new amount borrowed is a "blend" – or combination – of the interest rate of the old mortgage and the interest rate for the additional amount to be borrowed.

Blended mortgage payment: A regular instalment payment composed of both principal and interest in which part of the money received is applied toward the principal of the loan and part is put to pay the interest. This is the norm for mortgage payments.

Bridge financing: A loan made for a short term, to "bridge" (or cover) the time gap between completing the purchase of one property and finalizing arrangements to pay for it. The need for this type of financing often results from mismatched closing dates.

CMHC/Canada Mortgage and Housing Corporation: The Canada Mortgage and Housing Corporation is a federal Crown corporation that administers the National Housing Act. CMHC’s services include providing housing information and assistance to consumers and providing mortgage default insurance for high ratio mortgages.

Carrying costs: The expenses of living in and maintaining a home and property. This includes mortgage payments, property taxes, heating, repairs, maintenance fees, etc.

Closed mortgage: A mortgage that generally cannot be prepaid or renewed early unless the borrower is willing to pay an additional interest. Some lenders may allow limited prepayment privileges without additional interest.

Closing date: The date the purchase of the property becomes final and the new owner takes possession.

Collateral mortgage: A loan evidenced by a promissory note and backed by the collateral security of a mortgage on a property. The money borrowed is generally used for a purpose other than the purchase of a home, such as a vacation or home renovations.

Conventional mortgage: A first mortgage of up to 75% of the property’s appraised value or purchase price, whichever is lower.

Convertible mortgage: A mortgage that may be prepaid or changed to another term at any time.

Deed: A legal document that transfers and evidences ownership of the property to the buyer.

Default: Failure to repay an outstanding debt as agreed.

Deposit: A sum of cash that must be paid to the vendor by the purchaser. This money is a symbol of the purchaser’s commitment to buy. If the offer is accepted, the deposit is applied to the down payment. If the buyer turns down the offer later, the deposit may or may not be returned.

Down payment: The amount of money put forward by the buyer toward the purchase price of a home.

Equity: The difference between the price for which a property could be sold and the total amount owing on it.

First mortgage: A mortgage that is registered first against the property. This mortgage has to be paid first in the event of sale or default.

Fixed rate mortgage: A mortgage for which the rate of interest is fixed for the term, i.e., a set period of time.

Floating rate mortgage: Another name for variable rate mortgage.

Gross debt service ratio: The percentage of a borrower’s gross monthly income that can be used to pay housing costs, including the monthly mortgage payment (principal and interest), heating costs, property taxes and condominium fees (if applicable). The total should not be more than 32% of monthly gross income.

High ratio mortgage: A mortgage for more than 75% of either or both a property’s appraised value and its purchase price. In other words, the down payment amount is less than 25% of the purchase price/appraised value.

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