Mortgage Glossary | New Brunswick Mortgage Matters

Your Complete Mortgage Glossary

Understanding mortgage terminology can make the home buying and financing process much less stressful. We've put together this glossary to help New Brunswick homeowners and home buyers understand the most common mortgage terms they'll encounter.

If you have questions about any of these terms or want to discuss how they apply to your situation, contact Paul Mangion and the New Brunswick Mortgage Matters team for a free consultation.

A

Agreement of Purchase and Sale
The legal contract between a buyer and a seller for the purchase of a property. We recommend having your offer prepared by an experienced realtor who can protect your interests with the right clauses and conditions.

Amortization Period
The total number of years it takes to repay your entire mortgage based on regular fixed payments. Common amortization periods in Canada are 20 and 25 years.

Appraisal
The process of determining the current market value of a property. Lenders typically require an appraisal before approving a mortgage.

Assets
Everything you own or can draw upon, such as savings, investments, or property. Assets are used to determine your net worth and can help secure financing.

Assumption Agreement
A legal document where a buyer takes over the obligations of an existing mortgage. If someone assumes your mortgage, make sure you get a written release from the lender confirming you are no longer responsible for the debt.

B

Blended Payments
Regular mortgage payments that include both a principal and an interest portion. While your payment amount stays the same, over time more of each payment goes toward the principal and less toward interest.

C

Canada Mortgage and Housing Corporation (CMHC)
A federal Crown corporation that administers housing policy and insures mortgages for lenders when the loan exceeds 80% of the purchase price. The cost of this insurance is paid by the borrower and is typically added to the mortgage amount. These are commonly called high-ratio mortgages.

Closed Mortgage
A mortgage that cannot be paid off early or renegotiated during the term without paying a penalty. Closed mortgages typically offer lower interest rates than open mortgages.

Closing Costs
The additional costs associated with completing a property purchase. These may include appraisal fees, legal fees, survey fees, and land transfer taxes. Closing costs in New Brunswick typically range from 1.5% to 4% of the purchase price.

Closing Date
The date when the buyer takes legal possession of the property and the sale is finalized.

Collateral
An asset offered as security for a loan, such as a term deposit, savings bond, or vehicle.

Conventional Mortgage
A mortgage where the loan amount does not exceed 80% of the purchase price or appraised value of the property. No mortgage insurance is required for a conventional mortgage.

Credit Scoring
A system lenders use to evaluate a borrower's creditworthiness. Points are assigned based on factors like payment history, outstanding debt, and length of credit history.

D

Demand Loan
A loan where the full balance can be called due and payable by the lender at any time.

Deposit
A sum of money paid by the buyer when making an offer to purchase. If the offer is accepted, the deposit is held in trust until closing and applied to the purchase price. If the buyer fails to complete the purchase, the deposit may be forfeited to the seller.

E

Equity
The difference between the current market value of your property and the total amount still owing on your mortgage. Equity grows as you pay down your mortgage and as your property increases in value.

F

First Mortgage
The primary loan registered against a property. In the event of default, a first mortgage has priority over any other loans registered against the property.

Fixed Rate Mortgage
A mortgage where the interest rate is set and does not change for the entire term. Fixed rate mortgages offer predictable payments and protection from rate increases.

G

Gross Debt Service Ratio (GDS)
A calculation lenders use to assess how much of your income goes toward housing costs. It includes your mortgage payments, property taxes, heating costs, and 50% of any condo fees, divided by your gross income. Most lenders look for a GDS ratio of 32% or less.

Guarantor
A person with good credit and sufficient income who agrees to repay a loan if the primary borrower cannot. Having a guarantor can help buyers who may not qualify on their own.

H

High-Ratio Mortgage
A mortgage where the loan amount exceeds 80% of the purchase price or appraised value. High-ratio mortgages must be insured through CMHC, Sagen, or Canada Guaranty, with the insurance premium paid by the borrower.

Home Equity Line of Credit (HELOC)
A personal line of credit secured against your property. Borrowers can generally access up to 65% to 80% of their home's appraised value through a HELOC, and draw funds as needed.

I

Interest Adjustment Date (IAD)
The date your mortgage term officially begins. This is usually the first day of the month after your closing date. Interest for the days between closing and the IAD is typically paid at closing. Closing near the end of the month can reduce this cost.

Interest-Only Mortgage
A mortgage where your monthly payment covers only the interest charges. No principal is paid down, so the full loan amount remains outstanding throughout the term. Payments are lower than a regular mortgage but the balance does not decrease.

L

Lump Sum Prepayment
An extra payment made directly against your mortgage principal, above and beyond your regular payments. Making lump sum prepayments can reduce your total interest costs and shorten your amortization period.

M

Mortgage
A loan secured by real estate. The lender holds a registered interest in the property until the loan is fully repaid, at which point they provide a mortgage discharge.

Mortgagee
The lender (financial institution or individual) who provides the mortgage loan.

Mortgagor
The borrower who receives the mortgage loan and uses their property as security.

N

Net Worth
Your total financial position, calculated by subtracting everything you owe from everything you own.

O

Open Mortgage
A mortgage that can be repaid in full at any time during the term without penalty. Open mortgages typically carry a higher interest rate (usually 0.75% to 1.00% more) than closed mortgages. This can be a good option if you plan to sell your home or pay off your mortgage soon.

P

P.I.T.
An acronym for Principal, Interest, and Property Tax. These three components make up the total monthly housing cost used by lenders to qualify borrowers.

Portable Mortgage
A mortgage that can be transferred from your current property to a new one. Porting your mortgage can help you avoid prepayment penalties and keep a favorable interest rate when you move.

Prepayment Penalty
A fee charged by the lender when you pay off all or part of your mortgage beyond the agreed prepayment privileges. The penalty is typically the greater of three months' interest or the Interest Rate Differential (IRD).

Prime Rate
The interest rate financial institutions use as a benchmark for variable rate products. It is influenced by the Bank of Canada's overnight lending rate.

Principal
The original amount borrowed, not including interest.

R

Rate Commitment
The number of days a lender will hold (guarantee) a mortgage rate after approval. Rate commitments typically range from 30 to 120 days depending on the lender.

Renewal
When your mortgage term ends, your mortgage is up for renewal. At renewal, you can pay off the balance, stay with your current lender, or transfer to a new lender. We can arrange transfers at no cost to you.

S

Second Mortgage
A loan registered against a property that is secondary to the first mortgage. In the event of default, the first mortgage takes priority. Second mortgages typically carry higher interest rates to reflect the increased risk.

Switch
Transferring your existing mortgage from one lender to another, typically to get a better rate or terms. We can arrange a mortgage switch for you at no cost.

T

Term
The length of time your mortgage agreement is in effect. Available terms typically include 6 months and 1, 2, 3, 4, 5, 7, and 10 years. Your interest rate is fixed for the term you choose.

Total Debt Service (TDS) Ratio
A calculation lenders use to assess your total debt obligations relative to your income. It includes housing costs plus all other monthly debt payments (car loans, credit cards, lines of credit, etc.), divided by your gross income. Most lenders look for a TDS ratio of 40% or less.

U

Underwriting
The process lenders use to evaluate a mortgage application and decide whether to approve it. Underwriting considers your credit history, employment, income, assets, and the property being purchased.

V

Variable Rate Mortgage
A mortgage where the interest rate changes based on movements in the prime rate. Your payments may fluctuate over time, but variable rates have historically been lower than fixed rates over longer periods.

Vendor Take Back (VTB) Mortgage
A financing arrangement where the seller provides a mortgage directly to the buyer as part of the purchase agreement. This can be useful when buyers have difficulty qualifying through traditional lenders.

Have Questions About These Terms?

Understanding mortgage terminology is just the first step. If you'd like to talk through how any of these terms apply to your specific situation, contact Paul Mangion and the New Brunswick Mortgage Matters team. We're happy to answer your questions and guide you through the mortgage process.

Start Now