Chapter 3 Key Terms & Definitions Flashcards
Accelerated mortgage payment
A mortgage payment larger than required to retire the mortgage over the contracted amortization, having the effect of repaying the amount borrowed sooner and saving the borrower interest
Amortization
The total amount of time required to fully repay a mortgage
Assumability options
This option allows a purchaser the ability to take over the current homeowner’s mortgage
Balloon payment
The amount repayable at the end of the term
Basis point
1/100 of one percent
Blended payment
A payment that includes a combination of interest and principal
Bundled option
Also referred to as a Combination Option, this option combines a mortgage and a line of credit
Capped variable rate mortgage
A variable rate mortgage that cannot exceed a preset interest rate
Cash back option
An option whereby on closing of the mortgage, a percentage of the mortgage loan is paid to the borrower by the lender
Closed mortgage
A mortgage with no option to repay the outstanding principal balance during the term unless the property is sold to an arm’s length purchaser
Compounding frequency
The number of times per year in which an interest rate is charged. Typical compounding frequencies include semi-annually and monthly
Constant payment
A payment that remains the same throughout the term of the mortgage
Default
The failure to meet the obligations of a contract. In a mortgage contract default typically refers to the failure to make the regular periodic mortgage payments
Equity
The difference, in dollars, between the value of the property and the amount of financing currently on the property. Value - Financing = Equity
Extended amortization
An amortization that exceeds the standard amortization of 25 years
Face value of the mortgage
The original amount of the mortgage repayable by the borrower
Fixed rate
An interest rate that remains the same throughout the term of the mortgage
Fully open mortgage
An option allowing early repayment of the mortgage principal without penalty or notice
Graduated payment mortgage
A mortgage payment plan whereby the mortgage payments are initially small but grow over time. The initial payments may not be enough to the principal and accrued interest for the period.
High ratio mortgage
A mortgage in excess of 80% loan to value
Home equity line of credit (HELOC)
A line of credit secured by a property
Interest accruing mortgage
A mortgage with a term whereby no repayments of interest or principal are made. The principal and compound interest are repayable at the end of the term.
Interest only mortgage
A mortgage with a term and a constant mortgage payment consisting of only interest payable for the payment period. At the end of the term, the principal amount is repayable.
Interest rate differential
The difference between a borrower’s current contracted rate and the lender’s current available rate for a similar term
Line of credit
A debt with a credit limit that allows the borrow to withdraw funds up to that credit limit. Repayments are based on a percentage of the outstanding balance and interest is charged only on the amount of the credit limit that is actually used.
Loan to value (LTV)
The amount of a loan to the value of the property expressed as a percentage. Loan to Value (%) = Loan / Property Value
Lump sum payment
A payment of money applied directly to the mortgage principal
Mortgage default insurance
An insurance policy which compensates the insured (the lender) for losses suffered by the default of the borrower
Mortgage rank
The position of a mortgage registered on title of a property in relation to the timing of other registered mortgages. The first mortgage registered on title is considered a 1st mortgage. The next mortgage registered after the 1st is considered a 2nd mortgage, and so on.
Negative amortization
A scenario in which the periodic payment is not sufficient to pay the accumulated interest and the principal for the payment period. This causes the amortization to extend beyond the amount contracted.
Open mortgage
A mortgage that allows the borrower to repay the entire principal balance or portion thereof without penalty (fully open mortgage) or with an interest rate differential or 3 months’ interest penalty (partially open mortgage)
Outstanding balance
The amount of the mortgage remaining to be repaid at a given time
Partially amortized
A mortgage contract that has a term
Partially amortized, blended constant payment mortgage - Fixed rate
A mortgage with a term and a repayment plan consisting of a fixed interest rate and the same periodic payment made up of a combination of interest and principal throughout the term.
Partially amortized, blended constant payment mortgage - Variable rate
A mortgage with a term and a repayment plan consisting of a variable interest rate that changes whenever the lender’s prime rate changes and the same periodic payment made up of a fluctuating combination of interest and principal throughout the term.
Partially amortized, blended variable payment mortgage - Variable rate
A mortgage with a term and a repayment plan consisting of a variable interest rate and a fluctuating periodic payment that both change whenever the lender’s prime rate changes. The payment consists of a fluctuating combination of interest and principal throughout the term.
Portability option
This option allows the borrower to take the mortgage with him or her to his or her new home
Power of sale
A process that allows the lender to take control of a property, sell it and repay its mortgage without having to use the courts (exceptions apply). This can be a quick and fairly inexpensive remedy available to lenders upon default by the borrower.
Prepayment options
Options available to the borrower to prepay a part of his or her mortgage. These options may or may not include a penalty for this right
Prepayment penalty
A penalty charged by a lender to a borrower for early prepayment of the mortgage
Principal
The amount of money advanced on a mortgage loan, excluding interest or any other costs
Property insurance
Insurance that protects the insured against losses to the property due to fire and other covered perils
Purchaser
The buyer of a property
Quiet possession
The right of a borrower to enjoy the property without interference by the lender unless there is a default by the borrower
Reverse mortgage
An interest accruing mortgage typically reserved for Canadians over 55 years of age. The mortgage is usually only repayable upon the death of the surviving homeowner or sale of the property.
Straight line principal reduction mortgage
A mortgage repayment plan whereby equal payments of principal are made throughout the term in addition to the interest payable for that period
Term
A period of time in which the mortgage contract is in force. After this period of time the mortgage must be fully repaid or renegotiated.
Variable payment
A payment that changes based on a lender’s prime rate
Variable rate
An interest rate that fluctuates based on a lender’s prime rate
Vendor
The seller of a property
