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					                        Common mortgage terms defined

Here are some common mortgage terms you may hear from a mortgage broker or bank. A clear
understanding of mortgage terms is essential when negotiating mortgage rates with your lender.

Amortized Mortgage: A mortgage requiring periodic payments which include both a partial repayment of
the debt and interest on the outstanding balance.

Amortization Schedule: A table showing the amounts of principal and of interest comprising each level
payment due at regular intervals and the outstanding principal balance of the loan after each level
payment is made

Basis Point: A small unit of measure used to describe yield changes of less than one per cent in debt
instruments such as mortgages. One basis point is equal to one-hundredth of one percent. (For example,
a rate change of one quarter of a percent equals 25 basis points).

Blanket Mortgage A single mortgage registered against two or more individual parcels of real property.

Blended Mortgage Payments: Equal or regular mortgage payments, consisting of both a principal and
an interest component.

Blended Mortgage Rate: The interest rate on an increased mortgage which is derived from a formula
that takes into account the interest rate on the existing loan and the interest rate on the increase
mortgage amount

Conventional Mortgage: A mortgage loan that is 75 per cent or less of the loan-to-value ratio; and does
not require insurance by CMHC or other private insurer.

Debt Service Ratio: The percentage of a borrower's income that can be used for housing costs. Gross
Debt Service (GDS) Ratio is the amount that a lender will permit a borrower to use from his/her gross
income in order to qualify for a loan for housing costs, including mortgage payment and taxes (and
condominium fees, when applicable). Total Debt Service (TDS) Ratio is the maximum percentage of a
borrower's income that a lender will consider for all debt repayment (other loans and credit cards, etc.)
including a mortgage.

Equity: The difference between the price for which a property can be sold and the mortgage(s) on the
property. Equity is the owner's stake in the property.

Foreclosure: A legal process by which the lender takes possession and ownership of a property when
the borrower doesn't meet the mortgage obligations.

High-ratio Mortgage: A mortgage that exceeds 75 per cent of the loan-to-value ratio; must be insured by
either the Canada Mortgage and Housing Corporation (CMHC) or a private insurer to protect the lender
against default by the borrower who has less equity invested in the property.

Mortgage: A contract between a borrower and a lender. The borrower pledges a property as security to
guarantee repayment of the mortgage debt.

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Mortgage Insurance: Government-backed or private-backed insurance protecting the lender against the
borrower's default on high-ratio (and other types of) mortgages.

Mortgage Prepayment Penalty: Is a fee paid by the borrower to the lender in exchange for being
permitted to break a contract (a mortgage agreement); usually three months' interest, but it can be a
higher or it can be the equivalent of the loss of interest to the lender.

Open Mortgage: A mortgage that can be prepaid or renegotiated at any time and in any amount, without

Prepayment Clause A clause inserted in a mortgage, which gives the mortgagor the privilege of paying
all or part of the mortgage debt in advance of the maturity date.

Principal: The mortgage amount initially borrowed or the portion still owing on the mortgage. Interest is
calculated on the principal amount.

Term Mortgage A non-amortizing mortgage under which the principal is paid in its entirety upon the
maturity date. Sometimes called a straight loan.

Variable-rate Mortgage: A mortgage for which payments are fixed, but whose interest rate changes in
relationship to fluctuating market interest rates. If mortgage rates go up, a larger portion of the payment
goes to interest. If rates go down, a larger portion of the payment is applied to the principal.

Vendor Take-Back Mortgage: When sellers use their equity in a property to provide some or all of the
mortgage financing in order to sell the property.

          OFFICE: 705-636-5437     TOLL FREE: 1-877-274-8482

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