Borrower's Glossary of Terms

Borrower's Glossary

Our Borrower’s Glossary of Terms is your go-to resource for interpreting loan-related acronyms and financial jargon. This comprehensive guide will simplify key concepts such as principal (the total loan amount), interest rate (the borrowing cost), and APR (Annual Percentage Rate, which includes all fees). Delve into terms like down payment (initial cash contribution) and closing costs (fees for finalizing the loan). Familiarize yourself with fixed-rate mortgages (constant interest rate) and adjustable-rate mortgages (fluctuating interest rate) to confidently navigate your loan options. With this glossary as your tool, you can approach the mortgage process with assurance, ensuring a successful journey to homeownership.

Glossary of Terms

Amortization

The amount of fixed payments or years needed to fully repay the mortgage loan.

Assumption
Agreement

A legal agreement signed by a person purchasing a home which obligates the buyer to take on the responsibilities of a mortgage that was originally made by the previous owner.

Blended
Payments

Monthly payments for the mortgage will remain the same throughout the term, but will include both principal and interest components. The principal portion of the payment will increase each month, while the interest portion will decrease.

Closed
Mortgage

The monthly mortgage payments will stay consistent over the term, containing both principal and interest components. The principal portion of the payment will rise monthly, while the interest portion will decline.

The amount of fixed payments or years needed to fully repay the mortgage loan.

A legal agreement signed by a person purchasing a home which obligates the buyer to take on the responsibilities of a mortgage that was originally made by the previous owner.

Fixed-rate
mortgage

A mortgage loan that does not exceed 75% of the appraised value or purchase price of the property, whichever is lower. Mortgages exceeding this limit must have insurance.

Debt-service
Ratio

The portion of the borrower’s total income that will go towards monthly payments of principal, interest, taxes, heating expenses, and condominium fees.

Default

Elimination of all liens and debts associated with a property.

Foreclosure

A legal process in which the lender gains ownership of the property after the borrower fails to meet their obligations.

A mortgage loan that does not exceed 75% of the appraised value or purchase price of the property, whichever is lower. Mortgages exceeding this limit must have insurance.

The portion of the borrower’s total income that will go towards monthly payments of principal, interest, taxes, heating expenses, and condominium fees.

Elimination of all liens and debts associated with a property.

A legal process in which the lender gains ownership of the property after the borrower fails to meet their obligations.

Gross Debt
Service Ratio

Lenders typically recommend that the gross annual income allocated for housing expenses, including mortgage principal and interest, taxes, and secondary financing, should not exceed 32%.

Mortgage
Insurance Premium

Mortgage insurance is a premium paid by the borrower throughout the life of the mortgage, which protects the lender from financial loss in the event of borrower default.

Mortgage
Life Insurance

A type of decreasing term insurance that is advised for borrowers. If the owner or one of the owners passes away, the insurance will cover the outstanding balance on the mortgage. The aim is to prevent survivors from facing the risk of losing their home.

Lenders typically recommend that the gross annual income allocated for housing expenses, including mortgage principal and interest, taxes, and secondary financing, should not exceed 32%.

Mortgage insurance is a premium paid by the borrower throughout the life of the mortgage, which protects the lender from financial loss in the event of borrower default.

Mortgagee

The lender.

Mortgagor

The borrower.

Open
mortgage

A mortgage that allows for early repayment without incurring any fees.

P.I. (Principal
& Interest)

Payment required on a mortgage including principal and interest.

P.l.T. (Principal,
Interest, & Taxes)

Mortgage payments including principal, interest, and taxes.

Penalty

A fee charged to a lender for the opportunity to pay off a portion or the entirety of a mortgage before the scheduled time.

A mortgage that allows for early repayment without incurring any fees.

Payment required on a mortgage including principal and interest.

Mortgage payments including principal, interest, and taxes.

A fee charged to a lender for the opportunity to pay off a portion or the entirety of a mortgage before the scheduled time.

Prepayment
Option

You have the option to pay off certain amounts of the principal balance early. Please note that penalty interest may apply if you choose this prepayment option.

Principal

The remaining balance owed to the lender at any given point.

Rate (interest)

The repayment the lender receives for providing you with the loan for the mortgage.

Roll-over
Mortgage

A fixed-rate mortgage is a loan where the interest rate is set for a certain period of time. When this term ends, the mortgage “rolls over,” giving the borrower and lender the option to extend the loan. If they cannot agree on terms, the lender can demand full repayment. The borrower can then explore other financing options.

You have the option to pay off certain amounts of the principal balance early. Please note that penalty interest may apply if you choose this prepayment option.

The remaining balance owed to the lender at any given point.

The repayment the lender receives for providing you with the loan for the mortgage.

Second
Mortgage

Typically, this involves a higher interest rate and is the amount that separates the cost of the house from the initial mortgage and down payment. This can be acquired from banks, finance companies, or legal professionals such as lawyers or notaries.

Term

The term in a mortgage refers to the specific amount of time for which the money is borrowed at a specific interest rate. Once the term ends, you have the option to pay off the remaining balance of the loan or renegotiate the mortgage based on current rates and terms.

Underwriting
Fees

A fee charged by certain lenders to cover costs associated with the lending process.

Variable Rate
Mortgage

A fixed-term mortgage loan sets the interest rate for a specified period. When this term ends, the mortgage “rolls over,” allowing the borrower and lender to decide whether to extend the loan. If both parties cannot agree on new terms, the lender can demand full repayment. The borrower may then search for alternative financing.

A fee charged by certain lenders to cover costs associated with the lending process.