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MORTGAGES have lending terms with specific definitions that Canadian homeowners should know when shopping for the best rate and features

Mortgages are often long wordy legal documents that can be intimidating to most ordinary Canadian homeowners. 

However, while you still may want to discuss the full legal implications of your mortgage in Canada with your lawyer, loans officers or mortgage broker, here are some lending terms that might be useful as you shop various mortgages (courtesy iCentral Credit):

ACCELERATION CLAUSE - allows the lender to speed up the rate at which your loan comes due or even to demand immediate payment of the entire outstanding balance of the loan should you default on your loan. 

ADJUSTABLE RATE MORTGAGE (ARM) - is a mortgage in which the interest rate is adjusted periodically based on a preselected index. Also sometimes known as the renegotiable rate mortgage, the variable rate mortgage or the Canadian rollover mortgage. 

ADJUSTMENT INTERVAL - on an adjustable rate mortgage, the time between changes in the interest rate and/or monthly payment, typically one, three or five years, depending on the index. 

AMORTIZATION - means loan payment by equal periodic payments calculated to pay off the debt at the end of a fixed period, including accrued interest on the outstanding balance. 

ANNUAL PERCENTAGE RATE (APR) - an interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account points and other credit costs. This APR allows homebuyers to compare different types of mortgages based on the annual cost for each loan. 

APPRAISAL - an estimate of the value of property, made by a qualified professional called an "appraiser. " 

ASSUMPTION - the agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. Assuming a loan can usually save the buyer money since this is an existing mortgage debt, unlike a new mortgage where closing costs and new, possibly higher, market-rate interest charges will apply. 

BALLOON (PAYMENT) MORTGAGE - usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract. 

BROKER - an individual in the business of assisting in arranging, funding or negotiating contracts for a client but who does not loan the money himself. Brokers usually charge a fee or receive a commission for their services. 

BUY-DOWN - when the lender and/or the homebuilder subsidizes the mortgage by lowering the interest rate during the first few years of the loan. While the payments are initially low, they will increase when the subsidy expires. 

CAPS (INTEREST) - consumer safeguards which limit the amount the interest rate on an adjustable rate mortgage may change per year and/or the life of the loan. 

CAPS (PAYMENT) - consumer safeguards which limit the amount monthly payments on an adjustable rate mortgage may change. CLOSING- the meeting between the buyer, seller and lender or their agents where the property and funds legally change hands. Also called settlement. 

CLOSING COSTS - usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The costs of closing usually are about 3 percent to 6 percent of the mortgage amount. 

COMMITMENT- an agreement, often in writing, between a lender and a borrower to loan money at a future date subject to the completion of paperwork or compliance with stated conditions. 

CONSTRUCTION LOAN - a short-term interim loan for financing the cost of construction. The lender advances funds to the builder at periodic intervals as the work progresses. 

CONVENTIONAL MORTGAGE - a mortgage not insured CHMC. 

CREDIT REPORT - a report documenting the credit history and current status of a borrower's credit standing. 

DEBT-TO-INCOME RATIO - the ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her net effective income or gross monthly income. See housing expenses-to-income ratio. 

DEFAULT - failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage. 

DEFERRED INTEREST - see negative amortization. 

DELINQUENCY - failure to make payments on time. This can lead to foreclosure. 

DISCOUNT POINT - see points. 

DOWNPAYMENT - money paid to make up the difference between the purchase price and the mortgage amount. Downpayments usually are 25% or more of the sales price on conventional loans, and no money down up to 5 percent on CHMC loans. 

DUE-ON-SALE-CLAUSE - a provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home. 

EARNEST MONEY - money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment. 

EQUITY - the difference between the fair market value and current indebtedness, also referred to as the owner's interest. 

ESCROW - refers to a neutral third party who carries out the instructions of both the buyer and seller to handle all the paperwork of settlement or "closing." Escrow may also refer to an account held by the lender into which the homebuyer pays money for tax or insurance payments. 

FIXED-RATE MORTGAGE - a mortgage on which the interest rate is set for the term of the loan. 

FORECLOSURE - a legal procedure in which property securing debt is sold by the lender to pay the defaulting borrower's debt. 

GRADUATED PAYMENT MORTGAGE (GPM) - a type of flexible payment mortgage where the payments increase for a specified period of time and then level off. This type of mortgage has negative amortization built into it. 

GROSS MONTHLY INCOME - the total amount the borrower earns per month, before any expenses are deducted. 

GUARANTY - a promise by one party to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform according to a contract. 

HAZARD INSURANCE - a form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like. 

HOUSING EXPENSES-TO-INCOME RATIO - the ratio, expressed as a percentage, which results when a borrower's housing expenses are divided by his/her net effective income (CHMC loans) or gross monthly income (conventional loans). See debt-to-income ratio. 

IMPOUND - that portion of a borrower's monthly payments held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also known as reserves. 

INVESTOR - a money source for a lender. 

LIEN - a claim upon a piece of property for the payment or satisfaction of a debt or obligation. 

LOAN-TO-VALUE RATIO - the relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage. 

MARKET VALUE - the highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time. 

MORTGAGE INSURANCE - money paid to insure the mortgage when the downpayment is less than 25%. See private mortgage insurance, CHMC mortgage insurance. 

MORTGAGEE - the lender. MORTGAGOR - the borrower or homeowner. NEGATIVE 

AMORTIZATION - occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. The danger of negative amortization is that the homebuyer ends up owing more than the original amount of the loan. 

NET EFFECTIVE INCOME - the borrower's gross income minus federal and provincial income tax. 

NONASSUMPIION CLAUSE - a statement in a mortgage contract forbidding the assumption of the mortgage with out the prior approval of the lender. 

ORIGINATION FEE - the fee charged by the lender to prepare loan documents, make credit checks, inspect and sometimes appraise a property; usually computed as a percentage of the face value of the loan. 

PITI - principal, interest, taxes and insurance. Also called monthly housing expense. 

POWER OF ATTORNEY - a legal document authorizing one person to act on behalf of another. 

PREPAIDS - expenses necessary to create an escrow account or to adjust the seller's existing escrow account. Can include taxes, hazard insurance, private mortgage insurance and special assessments. 

PREPAYMENT - a privilege in a mortgage permitting the borrower to make payments in advance of their due date. 

PREPAYMENT PENALTY - money charged for an early repayment of debt. Prepayment penalties are allowed in some form, but differ from mortgage to mortgage. 

PRINCIPAL - the amount of debt, not counting interest, left on a loan. 

REALTOR - a real estate broker or an associate holding active membership in a local real estate board. 

RECORDING FEES - money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records. 

RENEGOTIABLE RATE MORTGAGE (RRM) - a loan in which the interest rate is adjusted periodically. See adjustable rate mortgage. 

REVERSE ANNUlTY MORTGAGE (RAM) - a form of mortgage in which the lender makes periodic payments to the borrower using the borrower's equity in the home as security. 

SERVICING - all the steps and operations a lender performs to keep a loan in good standing, such as collection of payments, payment of taxes, insurance, property inspections and the like. 

SETTLEMENT/SETTLEMENT COSTS - see closing/closing costs. 

SHARED APPRECIATION MORTGAGE (SAM) - a mortgage in which a borrower receives a below-market interest rate in return for which the lender (or another investor such as a family member or other partner) receives a portion of the future appreciation in the value of the properly. May also apply to mortgages where the borrower shares the monthly principal and interest payments with another party in exchange for a part of the appreciation. 

SURVEY - a measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to known points, its dimensions, and the location and dimensions of any buildings. 

TERM MORTGAGE - see balloon payment mortgage. 

TITLE- a document that gives evidence of an individual's ownership of property. 

TITLE INSURANCE - a policy, usually issued by a title insurance company, which insures a homebuyer against errors in the title search. The cost of the policy is usually based on the value of the property, and is often borne by the purchaser and/or seller. 

TITLE SEARCH - an examination of municipal and land registry records to determine the legal ownership of property which is usually performed by a title company. 

UNDERWRlTING - the decision whether to make a loan to a potential homebuyer based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate and term or loan amount. 

VARIABLE RATE MORTGAGE (VRM) - see adjustable rate mortgage. 

VERIFICATION OF DEPOSIT (VOD) - a document signed by the borrower's financial institution verifying the status and balance of his/her financial accounts. 

VERIFICATION OF EMPLOYMENT (VOE) - a document signed by the borrower's employer verifying his/her position and salary. 

WRAPAROUND - results when an existing assumable loan is combined with a new loan, resulting in an interest rate somewhere between the old rate and the current market rate. The payments are made to a second lender or the previous homeowner, who then forwards the payments to the first lender after taking the additional amount off the top.

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