Glossary for Mortgages


Select from the alphabetical list below to learn more about common terms used in connection with mortgages (including some CIBC mortgages), and to help you better understand what's involved in buying a home.


A

Agreement of Purchase and Sale

A legally binding agreement between the seller and the buyer of a home. It contains the price, the closing date and other information.

Amortization period

The period of time it will take to fully pay off the principal amount of a mortgage. This should not be confused with the term of the mortgage, which is usually shorter.

The most common amortization period for a new mortgage is 25 years.

Appraisal

An appraisal is a determination of the value of a property for lending purposes. A lender usually requires an appraisal and is charged a fee by the appraiser, which the lender may require the borrower to pay.

Assuming a mortgage

A mortgage assumption may occur when a purchaser buys property that has a mortgage on it, and by doing so accepts responsibility for the mortgage. In some cases the person who originally signed the mortgage (usually the seller of the property) also remains responsible for the mortgage. The lender's permission is usually required before a mortgage may be assumed.

Usually a purchaser wishes to assume a seller's mortgage because the seller's mortgage has a lower interest rate than the interest rate the purchaser can get for a new mortgage at the time of closing.

B

C

Canada Mortgage and Housing Corporation (CMHC)

A Crown corporation that administers the National Housing Act for the federal government and encourages the improvement of housing and living conditions for all Canadians.

CMHC sells mortgage default insurance for high-ratio mortgages and other types of mortgages.

Closed mortgage

A closed mortgage is one that cannot be prepaid, renegotiated or refinanced before the end of the term without paying a prepayment charge.

However, some closed mortgages permit certain prepayment privileges, such as the right to make a prepayment of 10-20% of the original mortgage amount each year, without paying a prepayment charge.

A closed mortgage often has a lower interest rate than an open mortgage or a convertible mortgage.

Closing costs

Closing costs are transaction costs that are payable by the home buyer or seller in order to close the transaction. For example, a home buyer's closing costs usually include land transfer taxes, and legal fees and disbursements.

Closing date

The closing date is when a property sale, purchase or mortgage becomes final. For a purchase and sale, typically this is when the buyer pays the balance of the purchase price, takes possession of the property and registers a transfer of ownership from the seller to the buyer. For a mortgage, typically this is when the lender advances the mortgage funds and the mortgage is registered.

Collateral mortgage

A collateral mortgage is a mortgage that is registered on a property to secure one or more loans or lines of credit. Often a collateral mortgage can secure not only loans or lines of credit given by the borrower at the time the mortgage is registered, but also loans or lines of credit that may be given by the borrower to the lender in the future.

Convertible mortgage

A convertible mortgage is a short-term mortgage (usually with a fixed interest rate) that allows you to change to a longer term without paying a prepayment charge.

It combines the flexibility of a short-term mortgage that lets you take advantage of falling interest rates with the security of being able to lock in an interest rate for a longer term if you think interest rates will rise.

Creditor Insurance

Insurance that pays certain debts of a borrower if certain events happen. For example, mortgage life insurance pays off the borrower's mortgage if the borrower dies. Mortgage disability insurance makes mortgages payments on the borrower's behalf if the borrower becomes disabled.

Not to be confused with property insurance, mortgage default insurance or title insurance.

D

Down payment

The amount of money that a home buyer pays towards the purchase price of the home. In many cases the buyer borrows the rest of the purchase price from a lender and the lender registers a mortgage as security for repayment.

If the buyer's down payment is less than 20% of the purchase price, the mortgage will be a high-ratio mortgage and the buyer will have to pay for mortgage default insurance.

E

F

Fixed rate mortgage

A fixed interest rate mortgage is a mortgage where the interest rate and payment amount do not change during the term.

It provides the security of knowing exactly how much of your mortgage principal will be paid off at the end of the term.

G

Genworth Financial Canada

A private mortgage insurance company that sells mortgage default insurance for high-ratio mortgages and other types of mortgages.

H

High-ratio mortgage

A high-ratio mortgage is one with a principal amount that is more than 80% of the property's value. For example, home buyers with a down payment of less than 20% of the purchase price will require high-ratio mortgage insurance.

For a high-ratio mortgage, mortgage default insurance is required. See also Mortgage Default Insurance.

Home equity

The value of a home, minus the amount of any debts registered on the property, such as liens or mortgages.

For example, if the value of a property is $250,000 and the mortgages on the property total $200,000, the owner's home equity is $50,000 ($250,000 - $200,000 = $50,000).

Property insurance (or home insurance)

Insurance that pays for certain types of damage to your home or its contents. Your lender will require that you keep adequate property insurance coverage in effect during the term of your mortgage.

Property insurance is not to be confused with creditor insurance (such as mortgage life insurance or mortgage disability insurance), mortgage default insurance or title insurance.

Home inspection

An inspection of a home to determine the condition of the home, identify any needed and list the cost of the repairs. A home inspection is usually performed by a qualified or licensed home inspector. In many cases, a home buyer obtains a home inspection to help decide whether to buy the home.

I

Interest adjustment date

The interest adjustment date for your mortgage is the date the amortization period begins. You will be required to pay an interest adjustment amount if the mortgage funds are advanced before the interest adjustment date.

For example, your mortgage payments may be due on the 1st day of each month. If you buy your home on March 15, your lender will advance the mortgage funds on that date. You will be required to pay an interest adjustment amount to cover interest from March 15 to March 31. The amortization period of your mortgage will begin on April 1 (the interest adjustment date), and your first mortage payment will be due on May 1, for interest from April 1 to April 30.

Interest Rate Differential (IRD)

At CIBC, the Interest Rate Differential amount is the difference between the following two amounts:

  • interest over the remaining term of your mortgage, calculated at your current mortgage interest rate, plus any interest rate discount you received.
  • interest over the remaining term of your mortgage, calculated at CIBC's current posted interest rate for the comparison mortgage identified in your mortgage documents.

For a full prepayment, the prepayment charge is calculated on the full amount of the prepayment. For a partial prepayment, the prepayment charge is calculated on the amount of the prepayment that is more than your annual prepayment privilege amount.

Interest

Interest is money paid by a borrower to a lender for the use of the lender's money.

The amount of interest charged by a lender is usually expressed as an annual percentage rate, which is called the mortgage interest rate.

J

K

L

Land transfer tax

A provincial or municipal tax that must be paid at the time of purchasing or taking a transfer of title to a property. Land transfer tax is payable by the purchaser and is usually calculated on the purchase price or other consideration given for the transfer.

Legal fees and disbursements

Costs payable to a lawyer, paralegal or notary to close a sale, purchase or mortgage of a property. Legal fees and disbursements are an example of closing costs.

M

Maturity date

The date a mortgage term ends. On the maturity date, the mortgage must either be paid off or renewed into a new term.

Mortgage

A loan to a property owner (often to buy the property) in which the borrower gives the lender a lien on the property to guarantee repayment. This means that if the loan is not repaid, the lender can take possession of the property and sell it to collect the amount owing.

Mortgage Default Insurance

Mortgage default insurance helps protect lenders against mortgage default by borrowers.

Mortgage default insurance is not to be confused with creditor insurance (such as mortgage life insurance or mortgage disability insurance), property insurance or title insurance.

Mortgage life insurance - see Creditor Insurance

Not to be confused with property insurance, mortgage default insurance or title insurance

Mortgage Disability Insurance - see Creditor Insurance

Mortgage payment amount (or regular payment amount)

A regular mortgage payment is the amount that the borrower is required to pay to the lender on a regular basis (weekly, bi-weekly, semi-monthly or monthly) during the mortgage term. Usually part of the regular payment amount is used to pay interest and part of the regular payment amount is used to pay mortgage principal, although in some cases the mortgage payment amount may be for interest only.

Mortgagee

The lender of a mortgage is called the mortgagee.

Mortgagor

The borrower of a mortgage is called the mortgagor.

Multiple Listing Service (MLS)

A computerized listing of properties for sale, including pictures and information about each property.

N

O

Open mortgage

An open mortgage that may be prepaid, in part or in full, during the term without paying a prepayment charge.

The interest rate on an open mortgage may be higher than the interest rate on a closed mortgage. An open mortgage provides flexibility until you are ready to lock into a closed term.

P

Portability

The mortgage portability option allows you to transfer or “port” the remainder of your existing mortgage term, outstanding principal balance and interest rate to a new property if you are selling your current home and buying a new one.

You must apply in writing to port your mortgage. Both you and the new property must meet CIBC’s mortgage approval criteria. Note that there are a number of other conditions and restrictions on porting your mortgage, so call us for details.

Posted rate

The interest rate advertised or shown by a lender as the interest rate it charges for a mortgage product. A borrower may be able to negotiate with the lender for a lower interest rate.

Pre-approved mortgage certificate (or mortgage pre-approval certificate)

A letter from a lender stating that you are pre-approved for a mortgage on certain terms. The pre-approval certificate will also list requirements that you must satisfy to obtain final approval for the mortgage.

Pre-payment (sometimes called a lump sum payment)

Early repayment of all or part of a mortgage.

When a closed mortgage is prepaid, the lender may charge a prepayment charge.

Pre-payment charge

The amount charged by a lender when the borrower pays all or part of the mortgage before it is due during the mortgage term. However most closed mortgages allow the borrower to pay a certain amount of the mortgage early without paying a prepayment charge.

Prepaid property tax and utility adjustments

These are amounts a home buyer must pay to the seller on closing if the seller has prepaid property taxes or utility bills.

For example, if your purchase closed on June 1 and the seller prepaid taxes and utilities to June 30, you will be required to pay the seller the amount of this overpayment. The adjustment amount is calculated by the lawyer, paralegal or notary closing the transaction.

Prime rate (or prime interest rate)

The prime rate is the interest rate that a lender publicly announces as its reference rate for certain variable interest rate loans. The prime rate can change at any time.

For most CIBC variable interest rate mortgages, the interest rate is based on CIBC's prime rate. For example, if the interest rate for a variable rate mortgage is CIBC prime rate plus 1%, the interest rate charged is one percent per year above the CIBC prime rate in effect from time to time. For most variable rate mortgages, the interest rate changes when the prime rate changes.

Q

R

Refinancing or renegotiating

Changing the conditions of your mortgage before its maturity date. Often a mortgage is refinanced to obtain a lower interest rate.

Renewal or renewing

Extending your mortgage when it matures. Often the interest rate and other terms of the mortgage offered by the lender for the renewal are different from the interest rate and terms of your original mortgage.

If you do not renew your mortgage, it must be paid off at maturity.

S

Survey (or and survey or property survey)

A survey is a drawing prepared by a professional land surveyor that shows certain information about a property, usually including the dimensions of the property and the location of its boundaries.

Your mortgage lender may require an up-to-date survey of the property, which may be available from the seller of your property. You or your lawyer, paralegal or notary can also arrange for a land surveyor to perform a property survey for a fee.

T

Term

The period of time your mortgage agreement with the lender is in effect. A mortgage term is usually between 6 months and 5 years long.

Not to be confused with amortization period. For example, a mortgage could have a term of 5 years and an amortization period of 25 years.

Title Insurance

Insurance that pays for losses caused by certain title defects.

For example, a homeowner may buy an owner's title insurance policy to protect the homeowner against losses caused by title fraud, municipal work orders, zoning violations, encroachments and other defects. A lender may buy a lender's title insurance policy to protect the lender against the same types of losses, plus losses caused by certain types of defects in the mortgage.

Not to be confused with (such as mortgage life insurance or mortgage disability insurance), property insurance or mortgage default insurance.

U

V

Variable rate mortgage

A variable interest rate mortgage has an interest rate that can vary during the term. The interest rate varies in accordance with changes in market interest rates. For example, the interest rate for most CIBC variable rate mortgages changes whenever CIBC's prime rate changes.

For variable rate mortgages, the mortgage payment amount may be fixed, or it may change with changing interest rates, depending on the terms of the mortgage. For most CIBC mortgages, your regular payment stays the same even if rates change. This means that when rates go down, a larger portion of your payment amount is applied to pay down your mortgage principal. When rates go up, a smaller portion of your payment amount is applied to pay down your mortgage principal.

W

XYZ

The information in this article is general only; it is not intended as specific investment, financial, accounting, legal or tax advice for any individual.