Interest (mortgage rate)
Interest is the money you pay to your lender for using the funds you borrow. Interest is charged from the day you get the money. That day is known as the funding date.
Interest adjustment
The interest adjustment amount is a one-time interest expense. You pay it when you get mortgage funds before the interest adjustment date (IAD) shown on your mortgage document. You may also pay an interest adjustment amount if you change your mortgage payment date or mortgage payment frequency during the mortgage term.
Many borrowers set their mortgage payments to monthly on the first of the month. If you buy a home on another day, your lender calculates interest from your closing day to the nearest first day of the month. As the borrower, you pay the interest adjustment amount.
Interest adjustment date (IAD)
The day your lender starts to calculate interest on the mortgage principal is the IAD. Normal interest is separate from the interest adjustment amount. You pay this interest according to your mortgage payment schedule.
Interest rate differential (IRD)
The interest rate differential (IRD) is a type of prepayment charge you may pay to your lender when you pay all or part of the mortgage before the term ends. For fixed-rate closed mortgages, prepayment charges are usually 3 months interest or the IRD, whichever is greater. Your mortgage document explains how the IRD is calculated.
Land transfer tax
Land transfer tax is a closing cost you pay the government on your closing date. The tax is calculated based on the property's purchase price. Most provinces charge a provincial land transfer tax and some cities charge an additional municipal land transfer tax. Taxes vary by province and first-time home buyers are sometimes exempt from part of the cost. Find more details about land transfer tax on provincial and municipal websites.
Lien
A lien is a claim or legal right against assets that are typically used as collateral to satisfy a debt. A creditor or a legal judgment could establish a lien. A lien serves to guarantee an underlying obligation, such as the repayment of a loan. If the underlying obligation is not satisfied, the creditor may be able to seize the asset that is the subject of the lien.
Lump sum payment (prepayment)
A prepayment is when you pay off some or all of the mortgage before the term ends. You can pay off most open mortgages without paying a prepayment charge. When you prepay a closed mortgage, you usually pay a prepayment charge to your lender. But most closed mortgages let you make an annual prepayment of 10% to 20% without a charge.
Maturity date
The maturity date is when your mortgage term ends. This is when you either renew your mortgage for a new term, if your lender agrees, or pay it off completely.
Mortgage
A mortgage is a loan secured by a lien registered on title to your home or other real estate. You repay the loan according to specific terms that include interest rate, payment amount and timeline. These details are set out in the mortgage document. If you can't repay the loan, your lender has the right to take possession of your property and sell it to collect any money you owe them.
Mortgage broker
A mortgage broker works on your behalf and searches for the best mortgage deal among various lenders. When you accept a mortgage, the broker completes the application and applies for the loan on your behalf.
Mortgage discharge
When you pay off your mortgage in full, your lender issues a mortgage discharge document that's registered on title to your property. It certifies the property is completely free from that mortgage debt.
Debt ratios
Debt ratios measure your ability to repay a mortgage by ensuring debt doesn't exceed a certain percentage of your income. Lenders and mortgage insurers use 2 debt-service ratios to determine if you qualify for a mortgage: gross debt service ratio (GDS) and total debt service ratio (TDS).
Mortgage payment
Mortgage payments are the regular payments you make to repay your loan. Payments can be monthly, semi-monthly, biweekly or weekly. They include principal and interest.
Mortgage pre-approval
A firm offer is an unconditional offer to buy a property. Often, sellers prefer firm offers because the home sale is more likely to go through without major holdups.
Mortgage prequalification
Mortgage pre-qualification is a quick assessment process. The lender assesses your financial information, including debt, income and assets. You get an estimate on the mortgage amount you may be approved for. If you're pre-qualified, your lender has only done a basic review of your finances. You must still provide documents and more financial details before getting pre-approved for a mortgage.
Mortgage principal
Mortgage principal is the amount of money you borrow from a lender. If a mortgage is for $250,000, then the mortgage principal is $250,000. You pay the principal, with interest, back to the lender over time through mortgage payments.
Mortgage statement
You get a written record of your mortgage status, often on an annual basis, from your lender. The statement includes how much you paid in principal and interest to date, plus the remaining principal on the mortgage.
Mortgage term
A term is how long you commit to your mortgage rate, details and conditions with a lender. When a term ends, you pay off the mortgage or renew it for another term if your lender agrees. Terms range from 1 to 10 years, but 4- to 5-year terms are most common.
Mortgagee
A mortgagee is the lender.
Mortgagor
A mortgagee is the borrower.
Open mortgage
You can prepay open mortgages, in part or in full, without a prepayment charge. Open mortgages usually have higher interest rates than closed mortgages. But open mortgages are also flexible. If rates start to increase, you can easily pay off an open mortgage and switch to a closed one.
Posted rate
The posted rate is a lender's standard advertised interest rate for a mortgage product. You may be able to negotiate with your lender for a lower interest rate.
Prime rate
A lender's prime rate is usually based on the interest rate the Bank of Canada sets each night. It can change at any time. Lenders usually base the interest charge for their variable-rate mortgages on their prime rate.
Private mortgage
A private mortgage is when a borrower wants to take out a loan, and instead of going to the banks they go to a private lender called a “mortgage investment corporation” (MIC).
The main different between a traditional mortgage and a private mortgage is the length of the loan. Private lenders specialize in short term loans (less than a year), where as a traditional loan from a bank is likely to be longer term (more than 3 years).
Property tax
You pay property tax to your municipality for services like garbage collection, policing and fire protection. The property tax amount depends in part on your property's value. You can add the tax to your regular mortgage payments. In this case, your lender pays your taxes to the municipality.
Property title
Title is the ownership you buy when you purchase property. Lenders require clear "title" to the property before they release mortgage funds. Any issues or concerns about the property's title — fraud, survey errors, municipal work orders, zoning violations and encroachments — found through the lawyer's title search must be resolved before closing. Mortgages are "registered against title" or "registered on title" to protect the lender's financial interest in the property.