adjustable-rate mortgage (ARM)

A mortgage whose interest rate changes periodically based on the changes in a specified index.

adjustment date

The date on which the interest rate changes for an adjustable-rate mortgage (ARM).

adjustment period

The period that elapses between the adjustment dates for an adjustable-rate mortgage (ARM).

amortization

The repayment of a mortgage loan by installments with regular payments to cover the principal and interest.

amortization term

The amount of time required to amortize the mortgage loan. The amortization term is expressed as a number of months. For example, for a 30-year fixed-rate mortgage, the amortization term is 360 months.

annual percentage rate (APR)

The cost of a mortgage stated as a yearly rate; includes such items as interest, mortgage insurance, and loan origination fee (points).

appreciation

An increase in the value of a property due to changes in market conditions or other causes. The opposite of depreciation.

asset

Anything of monetary value that is owned by a person. Assets include real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, and so on).

assignment

The transfer of a mortgage from one person to another.

assumable mortgage

A mortgage that can be taken over ("assumed") by the buyer when a home is sold.

assumption

The transfer of the seller's existing mortgage to the buyer.

assumption clause

A provision in an assumable mortgage that allows a buyer to assume responsibility for the mortgage from the seller. The loan does not need to be paid in full by the original borrower upon sale or transfer of the property.

assumption fee

The fee paid to a lender (usually by the purchaser of real property) resulting from the assumption of an existing mortgage.

balance sheet

A financial statement that shows assets, liabilities, and net worth as of a specific date.

balloon mortgage

A mortgage that has level monthly payments that will amortize it over a stated term but that provides for a lump sum payment to be due at the end of an earlier specified term.

balloon payment

The final lump sum payment that is made at the maturity date of a balloon mortgage.

basis point

A basis point is 1/100th of a percentage point. For example, a fee calculated as 50 basis points of a loan amount of $100,000 would be 0.50% or $500.

binder

A preliminary agreement, secured by the payment of an earnest money deposit, under which a buyer offers to purchase real estate.

biweekly payment mortgage

A mortgage that requires payments to reduce the debt every two weeks (instead of the standard monthly payment schedule). The 26 (or possibly 27) biweekly payments are each equal to one-half of the monthly payment that would be required if the loan were a standard 30-year fixed-rate mortgage, and they are usually drafted from the borrower's bank account. The result for the borrower is a substantial savings in interest.

blanket mortgage

The mortgage that is secured by a cooperative project, as opposed to the share loans on individual units within the project.

breach

A violation of any legal obligation.

bridge loan

A form of second trust that is collateralized by the borrower's present home (which is usually for sale) in a manner that allows the proceeds to be used for closing on a new house before the present home is sold. Also known as "swing loan."

broker

A person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them.

buydown mortgage

A temporary buydown is a mortgage on which an initial lump sum payment is made by any party to reduce a borrower's monthly payments during the first few years of a mortgage. A permanent buydown reduces the interest rate over the entire life of a mortgage.

call option

A provision in the mortgage that gives the mortgagee the right to call the mortgage due and payable at the end of a specified period for whatever reason.

CMHC (Canada Mortgage and Housing Corporation)

A federal agency that provides mortgage loan insurance for buyers with less than 20% down.

cap

A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or mortgage payments may increase or decrease.

capital improvement

Any structure or component erected as a permanent improvement to real property that adds to its value and useful life.

certificate of title

A statement provided by an abstract company, title company, or attorney stating that the title to real estate is legally held by the current owner.

chain of title

The history of all of the documents that transfer title to a parcel of real property, starting with the earliest existing document and ending with the most recent.

change frequency

The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).

clear title

A title that is free of liens or legal questions as to ownership of the property.

closing

A meeting at which a sale of a property is finalized by the buyer signing the mortgage documents and paying closing costs. Also called "settlement."

closing cost item

A fee or amount that a home buyer must pay at closing for a single service, tax, or product. Closing costs are made up of individual closing cost items such as origination fees and attorney's fees.  Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Closing costs normally include an origination fee, an attorney's fee, taxes, an amount placed in escrow, and charges for obtaining title insurance and a survey. Closing costs percentage will vary according to the area of the country.

Closing Cost Support Program

Provides up to $2,500 to Prince Edward Islanders with modest incomes to help cover closing costs on their first home purchase, requiring income ≤ $100K.

closing statement

The final statement of costs incurred to close on a loan or to purchase a home.

cloud on title

Any conditions revealed by a title search that adversely affect the title to real estate. Usually clouds on title cannot be removed except by a quitclaim deed, release, or court action.

collateral

An asset (such as a car or a home) that guarantees the repayment of a loan. The borrower risks losing the asset if the loan is not repaid according to the terms of the loan contract.

collection

The efforts used to bring a delinquent mortgage current and to file the necessary notices to proceed with foreclosure when necessary.

combined loan-to-value (CLTV)

The unpaid principal balances of all the mortgages on a property (first and second usually) divided by the property's appraised value.

co-maker

A person who signs a promissory note along with the borrower. A co-maker's signature guarantees that the loan will be repaid, because the borrower and the co-maker are equally responsible for the repayment. See endorser.

commission

The fee charged by a broker or agent for negotiating a real estate or loan transaction. A commission is generally a percentage of the price of the property or loan.

commitment letter

A formal offer by a lender stating the terms under which it agrees to lend money to a home buyer. Also known as a "loan commitment."

common areas

Those portions of a building, land, and amenities owned (or managed) by a planned unit development (PUD) or condominium project's homeowners' association (or a cooperative project's cooperative corporation) that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc.

comparables

An abbreviation for "comparable properties"; used for comparative purposes in the appraisal process. Comparables are properties like the property under consideration; they have reasonably the same size, location, and amenities and have recently been sold. Comparables help the appraiser determine the approximate fair market value of the subject property.

condominium conversion

Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership.

construction loan

A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.

consumer reporting agency (or bureau)

An organization that prepares reports that are used by lenders to determine a potential borrower's credit history. The agency obtains data for these reports from a credit repository as well as from other sources.

contingency

A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.

conventional mortgage

A mortgage that is not insured or guaranteed by the federal government.

convertibility clause

A provision in some adjustable-rate mortgages (ARMs) that allows the borrower to change the ARM to a fixed-rate mortgage at specified timeframes after loan origination.

convertible ARM

An adjustable-rate mortgage (ARM) that can be converted to a fixed-rate mortgage under specified conditions.

cooperative (co-op)

A type of multiple ownership in which the residents of a multiunit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.

corporate relocation

Arrangements under which an employer moves an employee to another area as part of the employer's normal course of business or under which it transfers a substantial part or all of its operations and employees to another area because it is relocating its headquarters or expanding its office capacity.

credit repository

An organization that gathers, records, updates, and stores financial and public records information about the payment records of individuals who are being considered for credit.

deed

The legal document conveying title to a property.

deed in lieu

A deed given by a mortgagor to the mortgagee to satisfy a debt and avoid foreclosure.

default

Failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage.

delinquency

Failure to make mortgage payments when mortgage payments are due.

depreciation

A decline in the value of property; the opposite of appreciation.

due-on-sale provision

A provision in a mortgage that allows the lender to demand repayment in full if the borrower sells the property that serves as security for the mortgage.

down payment

A sum of money paid to a lender to receive a mortgage

Down Payment Assistance Program (DPAP)
A pilot program offering qualified first-time homebuyers with modest incomes an interest‑free loan up to 5% of purchase price (max $17,500), repayable over ten years.

easement

A right of way giving persons other than the owner access to or over a property.

effective age

An appraiser's estimate of the physical condition of a building. The actual age of a building may be shorter or longer than its effective age.

effective gross income

Normal annual income including overtime that is regular or guaranteed. The income may be from more than one source. Salary is generally the principal source, but other income may qualify if it is significant and stable.

electronic funds transfer (EFT)

EFT allows account holders to transfer funds from an account electronically. This method of transfer is not only highly secure, but also extremely efficient and easy to transact.

encumbrance

Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions.

endorser

A person who signs ownership interest over to another party. Contrast with co-maker.

equity

A homeowner's financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage.

estate

The ownership interest of an individual in real property. The sum total of all the real property and personal property owned by an individual at time of death.

eviction

The lawful expulsion of an occupant from real property.

examination of title

The report on the title of a property from the public records or an abstract of the title.

fair market value

The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.

fee simple

The greatest possible interest a person can have in real estate.

finder's fee

A fee or commission paid to a mortgage broker for finding a mortgage loan for a prospective borrower.

first adjustment

When you can expect the first rate adjustment in your ARM loan.

first mortgage

A mortgage that is the primary lien against a property.

fixed-rate mortgage (FRM)

A mortgage in which the interest rate does not change during the entire term of the loan.

foreclosure

The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.

fully amortized ARM

An adjustable-rate mortgage (ARM) with a monthly payment that is sufficient to amortize the remaining balance, at the interest accrual rate, over the amortization term.

good faith estimate

An estimate of charges which a borrower is likely to incur in connection with a settlement.

hazard insurance

Insurance protecting against loss to real estate caused by fire, some natural causes, vandalism, etc., depending upon the terms of the policy.

high-ratio mortgage

A mortgage where the down payment is less than 20%, requiring CMHC insurance.

home equity line of credit

A credit line that is secured by a second deed of trust on a house. Equity lines of credit are revolving accounts that work like a credit card, which can be paid down or charged up for the term of the loan. The minimum payment due each month is interest only.

home equity loan

a loan secured by a second deed of trust on a house, typically used as a home improvement loan.

housing ratio

The ratio of the monthly housing payment in total (PITI - Principal, Interest, Taxes, and Insurance) divided by the gross monthly income. This ratio is sometimes referred to as the top ratio or front end ratio.

index

A published interest rate to which the interest rate on an Adjustable Rate Mortgage (ARM) is tied.

interest-only loan option

Loan payments have two components, principal and interest. An interest-only loan has no principal component for a specified period of time. These special loans minimize your monthly payments by eliminating the need to pay down your balance during the interest-only period, giving you greater cash flow control and/or increased purchasing power.

Land Transfer Tax (PEI)

Typically paid by the buyer at closing, calculated as 1% of the purchase price above $30,000.

lien

An encumbrance against property for money due, either voluntary or involuntary.

lender

The bank, mortgage company, or mortgage broker offering the loan.

lifetime cap

A provision of an ARM that limits the highest rate that can occur over the life of the loan.

loan to value ratio (LTV)

The unpaid principal balance of the mortgage on a property divided by the property's appraised value. The LTV will affect programs available to the borrower and generally, the lower the LTV the more favorable the terms of the programs offered by lenders.

lock period

The amount of time that a lender will guarantee a loan's interest rate. Once you've locked in the interest rate on a loan, the lender will guarantee that rate for a certain period of time, usually for 30, 45 or 60 days.

lock-in

A written agreement guaranteeing the home buyer a specified interest rate provided the loan is closed within a set period of time. The lock-in also usually specifies the number of points to be paid at closing.

margin

The number of percentage points a lender adds to the index value to calculate the ARM interest rate at each adjustment period.

maturity date

A pre-set date informing account owners when they can withdraw principal funds without incurring a penalty.

mortgage

A legal document that pledges a property to the lender as security for payment of a debt.

mortgage insurance (MI)

Insurance written by an independent mortgage insurance company protecting the mortgage lender against loss incurred by a mortgage default.

mortgagee

The person or company who receives the mortgage as a pledge for repayment of the loan. The mortgage lender.

mortgagor

The mortgage borrower who gives the mortgage as a pledge to repay.

negative amortization

Negative Amortization, or "deferred interest," occurs when the mortgage payment is less than a loan's accruing interest. This causes a loan's balance to grow instead of reduce or "amortize."

origination fee

A fee imposed by a lender to cover certain processing expenses in connection with making a real estate loan. Usually a percentage of the amount loaned.

owner financing

A property purchase transaction in which the property seller provides all or part of the financing.

periodic cap

The maximum rate increase for a specific period for a specific loan (ARM) only.

PITI

Principal, interest, taxes and insurance--the components of a monthly mortgage payment.

planned unit developments (PUD)

A subdivision of five or more individually owned lots with one or more other parcels owned in common or with reciprocal rights in one or more other parcels.

points

Charges levied by the mortgage lender and usually payable at closing. One point represents 1% of the face value of the mortgage loan.

prepaids

Those expenses of property which are paid in advance of their due date and will usually be prorated upon sale, such as taxes, insurance, rent, etc.

prepayment penalty

A charge imposed by a mortgage lender on a borrower who wants to pay off part or all of a mortgage loan in advance of schedule.

principal

This term refers to the total amount of money originally deposited into a Savings account. When taking out a loan however, it refers to the amount of debt, not including interest.

qualifying ratios

The ratio of your fixed monthly expenses to your gross monthly income, used to determine how much you can afford to borrow. The fixed monthly expenses would include PITI along with other obligations such as student loans, car loans, or credit card payments.

rate

The annual rate of interest on a loan, expressed as a percentage of 100.

rate cap

A limit on how much the interest rate can change, either at each adjustment period or over the life of the loan.

rate lock-in

A written agreement in which the lender guarantees the borrower a specified interest rate, provided the loan closes within a set period of time.

rebate

Compensation received from a wholesale lender which can be used to cover closing costs or as a refund to the borrower. Loans with rebates often carry higher interest rates than loans with "points" (see above).

refinancing

The process of paying off one loan with the proceeds from a new loan using the same property as security.

seller carry back

An agreement in which the owner of a property provides financing, often in combination with an assumed mortgage.

simple interest

An amount earned on an account holder's principal, according to a specified rate. This does not include any compounding interest.

stated/documented income

Some loan products require only that applicants "state" the source of their income without providing supporting documentation such as tax returns.

subordination

If you are refinancing your first mortgage and have an existing second or home equity line, one option is to "subordinate" the second mortgage: request that your second mortgage holder go back into the second lien position when you replace your existing first mortgage with the new refinance loan.

survey

A print showing the measurements of the boundaries of a parcel of land, together with the location of all improvements on the land and sometimes its area and topography.

tenants in common

An undivided interest in property taken by two or more persons. The interest need not be equal. Upon death of one or more persons, there is no right of survivorship.

title insurance

Insurance against loss resulting from defects of title to a specifically described parcel of real property.

title search

An investigation into the history of ownership of a property to check for liens, unpaid claims, restrictions or problems, to prove that the seller can transfer free and clear ownership.

total debt ratio

Monthly debt and housing payments divided by gross monthly income. Also known as Obligations-to-Income Ratio or Back-End Ratio.

variable rate

An interest rate that may change once an account opens.