Common Terms

The gradual reduction of a debt by means of regular payments.

Lenders require an independent assessment of the value of the home you are buying before agreeing to finance the purchase. The cost of this appraisal is typically the only cost associated with qualifying for a residential mortgage.

CMHC Insurance
If you put less than 25% down, you must have Canada Mortgage and Housing corporation insurance. It insures the lender against you defaulting on your mortgage. The insurance premiums are added to your mortgage amount and vary with the size of your downpayment.

Commitment Letter
A letter outling the amount, terms and conditions under which a lender is willing to offer a mortgage.

Interest Adjustment Date
Most lenders prefer to have mortgage payments come due on the first of the moth. But if your home purchase closes on another date, the funds are disbursed on that date. In order to keep your regular payment date on the first of the month, lenders ask you to make an interest adjustment payment. It's paid on the closing date by cheque or by deduction from the mortgage advance and covers the interest owed for the number of days between the closing date and the end of the month.

The ability to transfer your mortgage, including rate and terms, from your existing property to a new property.

Prepayment Clause
A clause in a mortgage agreement that lets you pay off all or part of the mortgage before the maturity date.

Rate Commitment
How long a lender is willing to offer you the prevailing interest rate. Can vary from 30 to 180 days.

Tax Hold Back
When your property taxes are included with your mortgage payments, your lender will hold back funds from your disbursement to cover interim or final taxes payable to the municipality. The amount depends on the month the mortgage was funded and on the dates when interim and final taxes are due. Hold backs are used to pay for the current year's taxes, while your monthly tax installments are accumulated in an account to pay for the next year's tax bills.

The length of time a mortgage has been committed for. The interest rate usually remains constant during this term unless the commitment states otherwise.

Weekly and Bi-weekly Payments
You can usually choose o make your mortgage payments once a week or once every two weeks. This accelerates the reduction of your mortgage because you are making the equivalent of one extra monthly payment per year. Reducing the outstanding balance of your mortgage at this faster rate saves you interest.