Mortgage Glossary

Borrowing Basics

Scotiabank offers a mortgage glossary to help you understand different lending terms you may encounter.

A

Amortization Period - The actual number of years it will take to repay a mortgage loan in full. This may go beyond the term of the loan. For example, mortgages often have five-year terms but 25-year amortization periods.

Appraised Value - An estimate of the value of the property offered as security for a mortgage loan. The appraisal is done for mortgage lending purposes and the appraisal value may be less than the purchase price of the property.

C

Canada Mortgage and Housing Corporation (CMHC) - The Corporation of the Federal Government that provides mortgage insurance to lenders against borrower default, under the National Housing Act (NHA).

Closed and Open Mortgages - A closed mortgage agreement does not provide for payout before the maturity date. A lender may permit early payout of a closed mortgage under certain circumstances but will charge a penalty for doing so. An open mortgage permits for prepayment/payout in full at any time without penalty.

Closing Date - The date on which the sale of the property becomes final and the new owner takes possession.

Collateral Mortgage Charge - security is provided in favour of The Bank of Nova Scotia (carrying on business as “Scotiabank”), registered in first position priority on the land and building. The specific details of the mortgage loan are not included in the charge that is registered on the title to your home. A separate credit agreement contains the specific terms of the mortgage loan. This collateral charge may secure other debt besides the mortgage loan.

Condominium - A form of ownership in which the owner has title to a dwelling unit and owns a share of the common elements (such as elevators, hallways and the land).

Conventional Mortgage Charge - (in Quebec, an immovable hypothec): security is provided in favour of Scotia Mortgage Corporation (SMC), a wholly owned subsidiary of Scotiabank, registered in first position priority on the land and building. The specific details of the mortgage loan such as the amount, term and interest rate are included in the charge registered on title to your home. This conventional charge secures only the mortgage loan.

D

Debt Service Ratios (GDSR & TDSR) - The Gross Debt Service Ratio (GDSR) is the percentage of gross annual income required to cover payments associated with the principal residence (mortgage principal and interest, taxes, secondary financing, heating, and 50% of condominium fees, if any). The GDSR should not exceed 32% of gross annual income. The Total Debt Service Ratio (TDSR) is the percentage of gross annual income required to cover payments associated with housing and all other debts and obligations, such as payments on a car loan. The TDSR should not exceed 40% of gross income.

Down Payment - The amount of money (usually in the form of cash) put forward by the purchaser. It represents the difference between the purchase price and the amount of the mortgage loan.

E

Equity - Equity is the difference between the price for which a property could be sold and the total debts registered against it.

F

Fixed Rate Mortgages - A fixed rate mortgage is where the rate of interest and payment amount are fixed for a specific term.

G

Genworth - Genworth Financial Canada, a private mortgage default insurance provider.

H

High Ratio Mortgage - A mortgage loan that exceeds 80% of the lesser of the appraised value or purchase price of the property. This mortgage must be insured and borrowers must pay an application fee and the insurance premium (which may be added to the mortgage) to the insurer.

I

Interest Adjustment Date (I.A.D.) - The date the term of the mortgage starts and is usually the first of the month. An interest-only payment on mortgage funds advanced prior to the IAD will be due on this date. The first regular monthly principal and interest payment is due one month after the IAD.

L

Leasehold Mortgage - A mortgage loan on a home where the building is on leased (rented) land. The lender takes an interest in the lease.

Loan-to-Value Ratio - The ratio of the mortgage loan to the appraised value or purchase price of the property, whichever is less, expressed as a percentage.

M

Maturity Date - The last day of the term of the mortgage agreement. The mortgage agreement must then be renewed or the mortgage balance paid in full.

Mortgagee - The lender

Mortgage Insurance - Distinct from mortgage life insurance or home, property, fire and casualty insurance; mortgage insurance provides protection to the lender in the event of a default by the borrower.

Mortgagor - The borrower

N

National Housing Act (NHA) Loan - A mortgage loan insured by Canadian Mortgage and Housing Corporation (CMHC).

O

Offer to Purchase - A formal, legal agreement between buyer and seller that offers a certain price for a specified real property. The offer may be firm (no conditions attached) or conditional (certain conditions must be fulfilled).

P

P.I.T. - Principal, interest, and taxes.

Prepayment Charge/Penalty - A fee charged by the lender when the borrower pays off all or a portion of a mortgage more quickly than provided for in the mortgage agreement.

R

Refinance - The process of arranging a new mortgage for an increased amount or switching from a conventional to a collateral mortgage. The old mortgage(s) is (are) paid off/discharged from the proceeds of the new loan. This type of loan is also referred to as "equity take out."

Renew - To extend a mortgage agreement with the same lender for another term. The length of the term and the conditions (such as the rate of interest) may be changed.

S

Secondary Homes - A secondary home is a property other than the owner's principal residence. It may be purchased to meet special family circumstances or work demands, or as a cottage or leisure residence, and is intended for occupancy by the owner or a relative (on a rent free basis) at some time during the year. It does not include rental properties, part-time rentals, timeshares or rental pools.

T

Term - The period of time over which the interest rate, payment and other mortgage conditions are set. At the end of the term the mortgage is due and payable unless renewed.

Type A or Type B Vacation Properties - Generally speaking, Type A vacation properties are the same as standard residential properties in terms of quality of construction and materials used. They have year-round road access, and generally meet standard residential property lending requirements. Type B vacation properties must meet all Type A property requirements except for the following:

  • A standard heating system is not required.
  • Year-round road access is not required (e.g. unplowed road in the winter is acceptable)