Mortgage Glossary

Canadian Mortgage Trends mortgage glossary

Welcome to Canadian Mortgage Trends’ Mortgage Glossary—a quick reference guide to help you understand essential mortgage terms.

Whether you’re a seasoned industry professional or a first-time homebuyer, our glossary provides clear definitions to simplify the complex world of mortgages. Dive in and stay informed!


Asset-backed commercial paper (ABCP) is a type of short-term debt instrument typically issued by a financial institution or a special purpose vehicle (SPV) to finance various assets. These assets can include credit card receivables, trade receivables, mortgages, auto loans, and other forms of debt. The paper is “asset-backed” because it is secured by the financial assets pooled together by the issuer. ABCP is usually issued with maturities of 30 to 270 days and is often bought by institutional investors seeking safe, short-term investments.

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An All-in-One mortgage is a financial product that combines a mortgage loan with a line of credit and often includes a personal bank account. This type of mortgage allows homeowners to consolidate debt and manage finances in one place, creating a flexible solution that lets them apply their income directly toward reducing interest costs and building home equity more efficiently.

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Alt-A mortgages, short for “Alternative-A” mortgages, are a category of loans that fall between prime and subprime in terms of borrower creditworthiness. These mortgages are typically offered to borrowers who have credit scores or financial documentation that are slightly lower than what is required for prime loans but do not present the high credit risk associated with subprime borrowers.

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Amortization refers to the length of time it takes to fully repay a mortgage, including both principal and interest. In Canada, the most common amortization periods range from 25 to 30 years, though shorter periods are available and may be advantageous for borrowers who want to minimize interest payments over the life of the loan.

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Assumability, or mortgage assumption, is a feature that allows a new borrower to take over an existing mortgage from the original borrower. In a mortgage assumption, the new buyer steps into the seller’s existing mortgage terms, including the remaining balance, interest rate, and payment schedule. This option can be appealing when interest rates have risen since the original loan was secured, as the buyer may benefit from a lower locked-in rate compared to current market rates.

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B-lending serves as a flexible option for borrowers who are temporarily outside of traditional lending guidelines. Borrowers may choose B-lenders to secure financing for a range of reasons, including home purchases, debt consolidation, or short-term solutions until they qualify for a prime mortgage. B-lending provides an accessible route to homeownership or refinancing when mainstream banks cannot meet the applicant’s needs.

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In financial terms, “bankable” refers to an individual or business with the creditworthiness, stability, and financial strength to qualify for traditional bank financing. This implies that the person or entity meets a bank’s lending criteria, often based on factors like credit history, income stability, collateral, and the ability to repay the loan.

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A Bankers’ Acceptance (BA) is a short-term debt instrument issued by a company and guaranteed by a bank, often used to finance commercial transactions or bridge cash flow gaps. These instruments act as a promise that the bank will pay a specified amount at a future date, usually ranging from 30 to 180 days, making BAs a secure and reliable tool for businesses seeking short-term financing.

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Base-year effects refer to the influence that data from a specific reference year (the “base year”) can have on current inflation or economic measurements. Changes in prices or economic conditions from that base year can distort comparisons over time, especially if there are significant fluctuations or anomalies in the base year’s data, affecting the interpretation of current trends.

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A basis point, often abbreviated as “bps” (pronounced “bips”), is a unit of measure equal to one-hundredth of a percentage point (0.01%). Basis points are commonly used in finance to quantify small changes in interest rates, bond yields, or financial percentages.

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In the mortgage and financial industries, a BDM, or Business Development Manager, is a professional responsible for building and maintaining relationships with mortgage brokers, lenders, and other partners to drive business growth. BDMs typically work for lenders, banks, or mortgage providers, acting as a liaison between the organization and brokers to help them understand and offer the lender’s mortgage products effectively.

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In the mortgage industry, BFS refers to clients who are business-for-self—individuals who are self-employed or own their own businesses. BFS borrowers often face unique challenges when applying for a mortgage, as traditional lenders typically rely on stable, salaried income to assess loan eligibility. BFS borrowers may have irregular income or employ tax strategies that reduce their reported income, making it harder to meet standard qualifying criteria.

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The Big 6 Banks refer to Canada’s six largest banks by market capitalization, customer base, and national presence. They dominate the country’s financial landscape, offering a broad range of financial services including personal and business banking, wealth management, and investment banking.

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A blended rate is a combined interest rate created by merging two different mortgage rates. This typically occurs when a borrower refinances or increases their mortgage before the current term ends. The lender blends the rate of the existing mortgage with the rate on new funds, producing a single, combined interest rate.

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The return an investor can expect to earn from holding a bond, expressed as a percentage. It is calculated by dividing the bond’s annual interest payment (coupon) by its current market price or face value. Bond yields can vary based on the bond’s type, maturity, and interest rate environment, and they are a key indicator of market conditions and the economy. Higher yields generally signal higher risk or inflation expectations, while lower yields suggest lower risk or economic uncertainty.

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Breaking a mortgage refers to the process of terminating an existing mortgage contract before the end of its term. Homeowners may choose to break their mortgage for various reasons, such as refinancing to a lower interest rate, consolidating debt, or selling the property.

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Bulk insurance, also known as portfolio insurance, is a type of mortgage insurance that lenders purchase in bulk for a group of low-ratio mortgages (where the borrower has a down payment of 20% or more). Unlike individual mortgage insurance, which protects a lender against the risk of a single borrower defaulting, bulk insurance covers a large portfolio of loans, reducing risk across the entire group.

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A buyers’ agent is a licensed real estate professional who represents the interests of a homebuyer in the purchasing process. Unlike a listing agent, who works on behalf of the seller, a buyers’ agent is dedicated to helping the buyer find, negotiate, and secure a property that meets their needs.

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The “Canadas,” or Government of Canada (GoC) bonds, refer to debt securities issued by the Canadian federal government. These bonds are considered one of the safest investments available in Canada because they are backed by the full credit and taxing power of the federal government.

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A charge, in real estate and mortgage terms, is a legal claim or encumbrance on a property that serves as security for a loan. When a lender registers a charge against a property, it establishes a right to take ownership if the borrower defaults on their mortgage obligations.

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A closed mortgage is a mortgage agreement that restricts the borrower’s ability to make additional payments or pay off the loan before the end of the term without incurring penalties. Closed mortgages typically offer lower interest rates than open mortgages due to these restrictions.

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A co-borrower, sometimes referred to as a co-signer, is an individual who shares the responsibility for a loan along with the primary borrower. Co-borrowers are equally liable for the loan repayments and have their credit profiles affected by the loan’s performance. Their income and creditworthiness can also enhance the primary borrower’s ability to qualify for a mortgage or secure more favorable terms.

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A collateral charge is a method of securing a mortgage or loan against your property, offering unique flexibility compared to a standard mortgage. Unlike a traditional mortgage, a collateral charge is “readvanceable,” meaning the lender can extend more funds after closing without requiring a full refinancing process or lawyer involvement. However, a collateral charge is also non-transferable—it cannot be switched to a new lender at renewal without refinancing, which can involve legal fees.

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A construction draw mortgage, also known as a builder loan, is a type of financing that provides funds to builders or property owners in stages (or “draws”) during the construction of a property. This type of mortgage supports the completion of new builds, with funds disbursed at key milestones as construction progresses.

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The contract rate is the interest rate specified in a mortgage agreement between the borrower and the lender. This rate determines the initial monthly payment amount and is fixed or variable depending on the mortgage terms.

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A conventional mortgage is a loan that does not require mortgage insurance because the borrower has made a down payment of at least 20% of the home’s purchase price. This type of mortgage generally carries lower overall costs since it avoids the insurance premiums required for high-ratio (insured) mortgages.

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A conversion rate is the interest rate a lender offers when a borrower converts their mortgage from one term type to another. Conversion rates allow borrowers to switch their mortgage type—such as from a variable to a fixed rate—without breaking the mortgage, but often come with terms specific to the lender.

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A convertible mortgage is a type of mortgage that allows the borrower to start with a short-term, often variable interest rate, and convert it to a longer fixed-term mortgage without penalties. This type of mortgage provides flexibility for borrowers who may want to lock in a rate in the future if interest rates start to rise.

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Debt ratios are financial metrics lenders use to determine a borrower’s ability to manage monthly mortgage payments. The two primary debt ratios in Canada are the Gross Debt Service (GDS) ratio and the Total Debt Service (TDS) ratio.

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A discretionary rate is a specially discounted mortgage rate that a lender may offer to select borrowers, typically based on factors like negotiation, the borrower’s credit profile, or the borrower’s overall relationship with the bank. Discretionary rates are often lower than the lender’s standard posted rates.

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A down payment is the initial amount a homebuyer pays upfront toward the purchase price of a property. This payment, usually expressed as a percentage of the property’s purchase price, reduces the amount of the mortgage loan needed.

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The effective rate is the actual interest rate a borrower pays on a mortgage after accounting for compounding within the year. Unlike the nominal or posted interest rate, which doesn’t consider compounding, the effective rate reflects the true cost of borrowing.

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In the context of mortgages, equity represents the portion of a property’s value that the homeowner actually owns, as opposed to what is still owed to the lender. Equity is calculated as the difference between the property’s current market value and the outstanding balance on any mortgage or other liens secured by the property.

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An equity lender is a type of lender that bases mortgage approval primarily on the equity or value of the property, rather than the borrower’s credit score or income. This form of lending is common in the private or alternative mortgage sector and is particularly useful for borrowers with unconventional incomes, lower credit scores, or those looking for financing on unique properties.

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An equity mortgage, or equity lending, refers to a mortgage loan primarily approved based on the equity or value of the property rather than the borrower’s income or credit history. This type of lending is common for individuals with unique financial circumstances, such as self-employed borrowers or those with a limited credit history, who may not qualify for traditional financing.

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An equity take-out refers to the process of borrowing against the equity in your home, allowing homeowners to access a portion of their property’s value without selling it. This can be achieved by refinancing the existing mortgage or obtaining a separate loan or line of credit secured against the home.

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The First Home Savings Account (FHSA) is a Canadian registered savings account designed to help first-time homebuyers save for a down payment. Contributions, up to $8,000 annually and $40,000 lifetime, are tax-deductible, and investment growth is tax-free. Withdrawals for a qualifying home purchase are also tax-free.

Unused funds can be transferred to an RRSP or RRIF without penalties. To qualify, you must be a Canadian resident, at least 18 years old, and a first-time homebuyer under CRA rules.

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A front-loaded mortgage is a type of loan where the majority of initial payments go towards paying interest rather than principal. This structure makes the loan more costly upfront, as the principal balance reduces slowly in the early years, even though the payment amounts remain the same.

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A guarantor is an individual who agrees to take responsibility for a borrower’s mortgage if the borrower is unable to make payments. Guarantors provide additional security to lenders, often helping the primary borrower qualify for a mortgage by bolstering the application with their financial strength.

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Hawkish describes a stance or outlook on economic policy, particularly in relation to interest rates, that favours tighter or more restrictive measures to control inflation. Central banks or policymakers with a hawkish stance typically support raising interest rates or reducing monetary stimulus to curb rising prices and prevent the economy from overheating.

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A high-ratio mortgage is a mortgage loan where the borrower’s down payment is less than 20% of the property’s purchase price, resulting in a higher loan-to-value (LTV) ratio. In Canada, a high-ratio mortgage requires the borrower to purchase mortgage default insurance (CMHC, Sagen, or Canada Guaranty), which protects the lender in case of borrower default.

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Hold the Payment refers to a mortgage feature that allows borrowers to temporarily suspend their regular mortgage payments without facing penalties. This option is typically offered by some lenders to accommodate unforeseen financial hardships, like job loss or emergency expenses.

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A Home Equity Line of Credit (HELOC) is a revolving line of credit secured against the equity in your home. It allows homeowners to borrow funds up to a set limit based on the equity they have built up, usually at a variable interest rate.

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A hybrid mortgage is a mortgage loan that combines elements of both fixed and variable interest rates, allowing borrowers to diversify their rate exposure within a single mortgage product.

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An insured mortgage is a home loan backed by mortgage default insurance, required when the down payment is less than 20%. This insurance protects the lender in case of borrower default and is typically provided by CMHC, Sagen, or Canada Guaranty.

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An insurable mortgage is a home loan that meets the criteria for mortgage default insurance, such as a minimum 20% down payment and a maximum purchase price of $1.5 million. While the borrower doesn’t pay for insurance, the lender may insure the loan to access better rates.

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The Interest Adjustment Date (IAD) is the date on which interest starts accruing on a mortgage, marking the beginning of regular interest-bearing payments.

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An Interest Offset Mortgage allows borrowers to reduce their mortgage interest by linking their mortgage to a chequing or savings account. The balance in this account offsets the mortgage balance, lowering the interest payable.

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Interest Rate Catalysts are factors or events that prompt a change in interest rates, influencing the cost of borrowing and the overall economy.

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Interest Rate Differential (IRD) is a penalty that some lenders charge when a mortgage is paid off or partially paid down before its maturity date, especially with closed, fixed-rate mortgages. The IRD is meant to compensate lenders for the interest they lose when a mortgage is broken early.

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Lending spreads refer to the difference between the interest rate a lender charges borrowers and the interest rate at which it borrows funds or the rate on a risk-free benchmark. This spread compensates lenders for the risk and costs involved in lending, such as credit risk, administrative expenses, and regulatory requirements.

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Lending value is the maximum amount of money a lender is willing to extend as a loan on a particular asset, based on its assessed risk and potential resale value. This term is most commonly used in mortgage lending and secured loans, where the asset itself serves as collateral for the loan.

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A listing agent, also known as a seller’s agent, is a real estate professional who represents the homeowner in the process of selling their property. The listing agent’s role includes marketing the property, advising on pricing, managing offers, and negotiating terms with potential buyers on behalf of the seller.

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The Loan-to-Value Ratio (LTV) is a measure of how much of a property’s value is being financed by a mortgage. Calculated as a percentage, it represents the loan amount relative to the property’s appraised or market value. For example, if a buyer puts a 20% down payment on a home, the LTV ratio is 80%, meaning the mortgage covers 80% of the property’s value.

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A low-ratio mortgage, also known as a conventional mortgage, is a loan where the borrower’s down payment is 20% or more of the property’s purchase price. This higher down payment means the loan-to-value (LTV) ratio is 80% or less, reducing the lender’s risk and eliminating the need for mortgage default insurance.

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In the context of mortgages and loans, maturity is the date when the loan term ends, and the borrower is expected to have fully repaid the outstanding principal balance and any accrued interest. Maturity marks the completion of the borrower’s financial obligation under the initial terms of the loan agreement.

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The Minimum Qualifying Rate (MQR) is the benchmark interest rate used by lenders to assess a borrower’s ability to repay a mortgage. It is typically higher than the actual interest rate a borrower is offered and is used to ensure that borrowers can handle potential increases in interest rates over the course of their mortgage. The MQR is a key component of the stress test applied to both insured and uninsured mortgages in Canada.

For uninsured mortgages, the MQR is usually set as either the Bank of Canada’s five-year benchmark rate or the lender’s contract rate plus 2%, whichever is higher. The MQR helps lenders determine whether a borrower can afford their mortgage payments if interest rates rise.

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The modern era of monetary policy refers to the period in which central banks, particularly in advanced economies, have increasingly relied on sophisticated economic models, transparent policy frameworks, and targeted tools to influence economic stability. This era is characterized by the adoption of inflation targeting, advanced data analytics, and proactive communication strategies to achieve goals such as stable inflation, low unemployment, and economic growth.

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A monoline lender is a financial institution that focuses solely on a specific type of lending, such as residential mortgages, rather than offering a broad array of banking services like traditional banks. In Canada, monoline lenders provide specialized mortgage products through mortgage brokers and are known for their competitive rates and unique offerings.

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Mortgage arrears occur when a borrower fails to make their mortgage payments on time. This can happen due to a variety of reasons, such as financial hardship or unexpected circumstances, and it can lead to serious consequences, including late fees, suspension of access to services, and even foreclosure. It is crucial for homeowners to address mortgage arrears as soon as they arise to avoid more severe financial outcomes.

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A mortgage assignment, commonly referred to as a “switch,” occurs when a homeowner transfers their existing mortgage from one lender to another. This can be done for various reasons, such as securing a lower interest rate, better terms, or simply changing to a lender who better meets your needs. A mortgage switch allows you to keep your existing mortgage balance and terms, while benefiting from the new lender’s offer.

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Mortgage default insurance is a type of insurance that protects lenders in case a borrower defaults on their mortgage. In Canada, it is typically required for homebuyers who have less than a 20% down payment. The insurance ensures that the lender is compensated for any losses if the borrower is unable to repay the loan.

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Mortgage maturity refers to the end of the term of a mortgage agreement. When your mortgage reaches maturity, the original loan term expires, and the borrower must either pay off the remaining balance in full or renew the mortgage under new terms. It’s an important milestone in the life of a mortgage, and decisions made at this point can significantly impact your financial future.

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A mortgage originator is a professional or company that helps borrowers secure mortgage financing. They are typically the first point of contact for those looking to buy or refinance a home. Mortgage originators may work directly with lenders or act as intermediaries between borrowers and financial institutions to find the best mortgage products and rates available.

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Mortgage portability allows homeowners to transfer their existing mortgage to a new property without having to break the loan and pay any penalties. This feature is especially useful for borrowers who are looking to move to a new home but want to keep their current mortgage terms, including the interest rate, intact.

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Mortgage prepayment refers to paying off part or all of your mortgage balance before the scheduled term ends. This can involve making extra payments on top of your regular monthly payments or paying off the entire mortgage early. Prepaying your mortgage can help you save on interest costs and reduce the overall length of your loan.

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A mortgage term refers to the length of time you commit to a particular mortgage agreement with your lender. It typically ranges from 1 to 10 years, and during this period, you’ll agree to a set interest rate and payment schedule. At the end of the term, you can either renew the mortgage, pay off the remaining balance, or explore other options, depending on your situation.

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A mortgagor is the individual or entity that borrows money from a lender to purchase property. In other words, the mortgagor is the borrower in a mortgage agreement. The mortgagor agrees to repay the loan, along with interest, over a specified period. If the mortgagor fails to meet their payment obligations, the lender has the right to seize the property through foreclosure to recover the loan amount.

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Mortgage default insurance is a type of insurance that protects lenders in case a borrower defaults on their mortgage. In Canada, it is typically required for homebuyers who have less than a 20% down payment. The insurance ensures that the lender is compensated for any losses if the borrower is unable to repay the loan.

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Mortgage maturity refers to the end of the term of a mortgage agreement. When your mortgage reaches maturity, the original loan term expires, and the borrower must either pay off the remaining balance in full or renew the mortgage under new terms. It’s an important milestone in the life of a mortgage, and decisions made at this point can significantly impact your financial future.

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A mortgage originator is a professional or company that helps borrowers secure mortgage financing. They are typically the first point of contact for those looking to buy or refinance a home. Mortgage originators may work directly with lenders or act as intermediaries between borrowers and financial institutions to find the best mortgage products and rates available.

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Mortgage portability allows homeowners to transfer their existing mortgage to a new property without having to break the loan and pay any penalties. This feature is especially useful for borrowers who are looking to move to a new home but want to keep their current mortgage terms, including the interest rate, intact.

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Mortgage prepayment refers to paying off part or all of your mortgage balance before the scheduled term ends. This can involve making extra payments on top of your regular monthly payments or paying off the entire mortgage early. Prepaying your mortgage can help you save on interest costs and reduce the overall length of your loan.

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A mortgage term refers to the length of time you commit to a particular mortgage agreement with your lender. It typically ranges from 1 to 10 years, and during this period, you’ll agree to a set interest rate and payment schedule. At the end of the term, you can either renew the mortgage, pay off the remaining balance, or explore other options, depending on your situation.

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A mortgagor is the individual or entity that borrows money from a lender to purchase property. In other words, the mortgagor is the borrower in a mortgage agreement. The mortgagor agrees to repay the loan, along with interest, over a specified period. If the mortgagor fails to meet their payment obligations, the lender has the right to seize the property through foreclosure to recover the loan amount.

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Negative amortization occurs when the monthly payments on a mortgage are not sufficient to cover the interest charges. As a result, the unpaid interest is added to the principal balance, causing the loan balance to increase over time rather than decrease. This can lead to a situation where the borrower owes more than the original amount borrowed, even though they’ve been making payments.

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Negative amortization occurs when the monthly payments on a mortgage are not sufficient to cover the interest charges. As a result, the unpaid interest is added to the principal balance, causing the loan balance to increase over time rather than decrease. This can lead to a situation where the borrower owes more than the original amount borrowed, even though they’ve been making payments.

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A Notice of Assessment (NOA) is an official statement issued by the Canada Revenue Agency (CRA) after they process your tax return. It outlines the details of your tax filing, including whether you owe additional taxes, are entitled to a refund, or if there are any discrepancies in your return. It also provides information about your tax situation for the year, including your total income, taxable deductions, and credits.

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O.A.C. stands for “On Approved Credit.” It is a term commonly used by lenders, including mortgage companies, car dealerships, and financial institutions, to indicate that a loan or financing offer is subject to the borrower’s credit approval. This means that the terms, such as the interest rate and loan amount, depend on the borrower’s creditworthiness.

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Origination refers to the process of creating or starting a new loan, such as a mortgage. It involves all the steps required to set up the loan, including the application, approval, documentation, and disbursement of funds. The origination process is carried out by lenders, brokers, or financial institutions and marks the beginning of the borrower’s loan agreement.

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An Overnight Index Swap (OIS) is a financial contract between two parties where one party agrees to pay a fixed interest rate, while the other pays a floating rate based on an overnight index, typically the overnight lending rate set by a central bank. OIS contracts are short-term instruments used by financial institutions and corporations to hedge interest rate risk or speculate on future interest rate movements.

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The payout date, also known as the discharge date, is the day when a borrower fully repays their mortgage loan. It marks the end of the mortgage term and signifies that the lender no longer has a financial claim on the property. Once the loan is paid off in full, the lender provides a discharge document, releasing the borrower from their obligations and removing any liens on the property.

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A payout statement, also known as a discharge statement, is a document provided by a lender that details the remaining balance of a mortgage loan, including principal, interest, and any applicable fees. It is typically issued when a borrower is preparing to pay off their mortgage in full, either at the end of the mortgage term, through early repayment, or during refinancing. The payout statement outlines the exact amount required to fully settle the loan.

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A percentage point (pp) is a unit of measurement used to express the difference between two percentages. It is often used to clarify changes in values or rates, such as interest rates or economic data. For example, if an interest rate increases from 5% to 6%, the increase is said to be 1 percentage point (1 pp), not 1 percent.

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Pre-qualification and pre-approval are two important steps in the mortgage process that help determine how much you can borrow. While both terms are related to obtaining a mortgage, they represent different levels of commitment and detail in assessing your financial situation.

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A primary dealer is a financial institution or broker-dealer that is authorized by a central bank, such as the U.S. Federal Reserve or the Bank of Canada, to engage in the purchase and sale of government securities. Primary dealers are integral to the functioning of government debt markets, as they serve as intermediaries between the central bank and the broader financial system.

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A prime mortgage refers to a home loan that is offered to borrowers with strong credit histories and stable financial situations. These borrowers are considered low-risk by lenders, meaning they are more likely to make timely payments on the mortgage. Prime mortgages typically come with lower interest rates and more favourable terms compared to loans offered to higher-risk borrowers.

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The prime rate is the interest rate that banks and other financial institutions charge their most creditworthy customers for short-term loans. It serves as a benchmark for many types of loans, including mortgages, personal loans, and lines of credit. The prime rate is typically influenced by the central bank’s key interest rate, such as the Bank of Canada’s policy rate, and is adjusted in response to changes in the broader economic environment.

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The Prime-BA spread refers to the difference between the prime interest rate (the rate at which commercial banks lend to their most creditworthy customers) and the Bankers’ Acceptances (BA) rate (a short-term debt instrument issued by corporations and guaranteed by a bank). This spread is a key indicator of the perceived risk and liquidity in the credit market, as it reflects how much more expensive borrowing through BA is compared to borrowing at the prime rate.

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The qualifying rate is the interest rate used by lenders to determine whether a borrower can afford a mortgage. It is typically higher than the actual mortgage rate and is used in stress tests to assess a borrower’s ability to handle potential interest rate increases. In Canada, the qualifying rate is often based on the Bank of Canada’s benchmark rate or the posted rate by financial institutions.

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A monetary policy used by central banks to stimulate the economy by purchasing government securities and other financial assets, increasing the money supply and lowering interest rates.

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A monetary policy where a central bank reduces the money supply by selling off assets or allowing them to mature, with the goal of raising interest rates and controlling inflation.

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A quick close refers to the accelerated process of finalizing a real estate transaction, where the buyer and seller agree to complete the sale in a shorter period than usual. Typically, closings take about 30 to 60 days, but a quick close can be completed in as little as 7 to 10 days, depending on the circumstances and the parties involved.

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The rack rate is the full, published price for a product or service, particularly in the hospitality and travel industries. It represents the standard rate at which a hotel, airline, or other service provider advertises their offerings before any discounts, promotions, or special rates are applied. The rack rate is often used as a benchmark for pricing, but it is typically negotiable, and customers rarely pay the full rack rate.

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Rate bias refers to the practice where lenders, financial institutions, or other entities apply different interest rates or loan terms to borrowers based on certain characteristics or factors that may not be directly related to the borrower’s creditworthiness. This can result in discrimination or unfair pricing, often seen in the form of higher interest rates or unfavourable loan terms being offered to specific groups, such as those based on gender, race, location, or other personal attributes.

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A readvanceable mortgage is a type of home loan that allows the borrower to access additional funds as they pay down their mortgage balance. Essentially, as the mortgage principal decreases, the credit available for borrowing increases, making it easier for homeowners to borrow against their home’s equity without needing to apply for a new loan or refinance.

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A rental add-back refers to a financial adjustment made when calculating a borrower’s income for mortgage qualification purposes. Specifically, it allows lenders to add back rental income or certain property expenses that are deducted from a borrower’s income on their tax returns. The rental add-back can help increase a borrower’s qualifying income, making it easier to qualify for a mortgage or a larger loan.

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A rental offset refers to the process by which a lender reduces a borrower’s mortgage application debt-to-income (DTI) ratio by considering rental income from a property owned by the borrower. The rental income is used to offset the borrower’s mortgage payment obligations, making it easier for them to qualify for a mortgage or obtain a larger loan amount. This is particularly useful for borrowers who own rental properties and rely on rental income to support their financial situation.

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A restrictive term in the context of a loan or mortgage refers to a condition or provision in the loan agreement that limits or restricts the borrower’s ability to make certain decisions or actions during the term of the loan. These terms are typically included to protect the lender’s interests and reduce risk. For example, a restrictive term may limit the borrower’s ability to pay off the loan early, refinance, or make changes to the property.

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A reverse mortgage is a type of loan that allows homeowners aged 55 and older to borrow money against the equity in their home without having to make regular mortgage payments. Instead of the borrower making payments to the lender, the loan is repaid when the homeowner sells the property, moves out, or passes away. The loan amount is typically based on the value of the home, the borrower’s age, and other factors.

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Secondary financing, also known as a second mortgage, is a loan taken out on a property that already has a primary mortgage. It is a form of secured borrowing where the property serves as collateral, and the lender holds a secondary position in the event of a foreclosure. The second mortgage is typically subordinate to the first mortgage, meaning the primary mortgage lender gets paid first in case the property is sold.

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Securitization is the financial process of pooling various types of debt—such as mortgages, car loans, or credit card debt—and converting them into tradable securities, typically in the form of bonds. These securities are then sold to investors, providing the original lenders with immediate capital while spreading the risk of the underlying debts among multiple investors.

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The Smith Manoeuvre is a Canadian tax strategy that allows homeowners to convert their mortgage interest into tax-deductible interest by using the equity in their home. This strategy involves taking out a home equity line of credit (HELOC) on your home and using it to make investments. The goal is to use the investment income to pay down your mortgage while benefiting from the tax deductions on the HELOC interest.

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In finance, a spread refers to the difference between two prices, rates, or yields. The term is often used in a variety of contexts, including bond markets, stock markets, and lending, to describe the difference between two related values. The spread can indicate risk, cost, or the relationship between different types of financial instruments.

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Standard rate simulation assumptions are the predefined factors or conditions used in financial modeling to simulate how interest rates will behave over time. These assumptions are often used to predict the impact of rate changes on various financial products, such as mortgages, loans, or investments. They provide a framework for assessing the potential effects of different interest rate scenarios on borrowers, lenders, and investors.

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A stated income mortgage is a type of home loan where the borrower is not required to provide extensive documentation of their income, such as tax returns or pay stubs. Instead, the borrower simply states their income on the application, and the lender takes that at face value when determining whether the borrower qualifies for the loan. This type of mortgage is typically used for self-employed individuals or those with non-traditional income sources who may not have the standard documentation that traditional mortgages require.

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The Bank of Canada’s target rate, also known as the key interest rate or key policy rate, is the specific interest rate the Bank wants major financial institutions to follow when lending one-day (overnight) funds to one another. It serves as a foundation for setting other interest rates within Canada, impacting everything from mortgages to credit lines.

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The Total Debt Service (TDS) ratio is a key metric used by lenders to assess a borrower’s ability to manage their debt load in relation to their income. It measures the percentage of a borrower’s gross income that goes towards paying all of their debt obligations, including the mortgage, credit cards, car loans, and other debts. Lenders use the TDS ratio to determine whether the borrower can afford to take on a new mortgage or loan, ensuring that they are not over-leveraged.

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The TED spread is the difference between the interest rates on short-term U.S. government debt (such as Treasury bills) and the interest rates on interbank loans (such as the LIBOR). It is a key measure of credit risk in the financial system, specifically indicating the level of fear or uncertainty in the market. A wider TED spread typically signals higher perceived risk in the banking sector, while a narrower TED spread indicates a more stable financial environment.

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Tightening and loosening are terms used to describe the actions central banks take to adjust monetary policy in order to influence the economy. Tightening refers to the central bank’s actions to reduce the money supply or increase interest rates to curb inflation and slow down economic activity. Loosening, on the other hand, refers to measures taken to increase the money supply or reduce interest rates to stimulate economic activity, especially during periods of low growth or recession.

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Trailer fees and renewal fees are two types of charges that may apply to certain financial products, particularly in the context of investment products and mortgages. Trailer fees refer to ongoing commissions paid to financial advisors or brokers for maintaining a client’s investment portfolio. Renewal fees are typically charged when renewing a financial contract, such as a mortgage, or extending an investment agreement.

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The trigger rate is the point at which a borrower’s mortgage payment no longer covers the interest accruing on the loan, causing the outstanding mortgage balance to increase rather than decrease. This typically applies to variable-rate mortgages, where the interest rate fluctuates over time. When the trigger rate is reached, the borrower may need to either increase their payments or face negative amortization, where the loan balance grows instead of shrinking.

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An underwriter is a professional or institution responsible for evaluating and assessing the risk of a financial transaction, such as a mortgage, insurance policy, or securities issuance. In the context of mortgage lending, the underwriter examines the borrower’s financial information, creditworthiness, and the property in question to determine whether the loan application should be approved, denied, or modified.

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Underwriting is the process by which a financial institution or lender evaluates the risk of insuring or lending money to an individual, business, or entity. In the context of loans or mortgages, underwriting involves reviewing an applicant’s financial information, such as credit history, income, and the value of the collateral (property), to determine whether they qualify for a loan and the terms of that loan.

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An uninsured mortgage is a home loan that does not have mortgage default insurance. It typically requires a down payment of at least 20%, has no maximum purchase price, and may include properties like rentals or homes over $1.5 million.

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A vendor take-back (VTB) is a type of financing arrangement in which the seller of a property agrees to lend money to the buyer to help finance the purchase. This typically occurs in real estate transactions, where the seller “takes back” a mortgage from the buyer, allowing the buyer to purchase the property with less or no upfront cash. The buyer then repays the loan over time, typically at an agreed-upon interest rate and repayment schedule.

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A variable rate mortgage (VRM) is a type of home loan where the interest rate fluctuates over time, typically in line with a benchmark interest rate, such as the prime rate or the Bank of Canada’s policy rate. Unlike a fixed-rate mortgage, where the interest rate remains the same throughout the term, the interest rate on a variable rate mortgage can change periodically, resulting in monthly payment variations.

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Y/Y (or YOY, which stands for “Year Over Year”) is a financial metric used to compare a particular data point, such as revenue, profits, or stock prices, over a specific period (typically a month or quarter) with the same period in the previous year. This comparison helps analysts and businesses assess performance trends and determine whether there has been growth, decline, or stability in a given metric over the course of one year.

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Last modified: January 17, 2025

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