**Adjustable Rate Mortgage** – an Adjustable Rate Mortgage, known as an ARM, is a Mortgage that has a fixed rate of interest for only a set period of time, typically one, three or five years. During the initial period the interest rate is lower, and after that period it will adjust based on an index. The rate thereafter will adjust at set intervals.

**Annual Percentage Rate** – is the rate of interest that will be paid back to the Mortgage lender. The rate can either be a fixed rate or variable rate.

**Amortization** – the amortization of the loan is a schedule on how the loan is intended to be repaid. For example, a typical amortization schedule for a 25 year loan will include the amount borrowed, interest rate paid and term. The result will be a month breakdown of how much interest you pay and how much is paid on the amount borrowed.

**Appraisal** – is conducted by a professional appraiser who will look at a property and give an estimated value based on physical inspection and comparable houses that have been sold in recent times.

**Bi-Weekly Mortgage** – this type of mortgage has an impact on when a loan is paid and how frequently. In a typical Mortgage, you make one monthly payment or twelve payments over the course of a year. With a Bi-Weekly payment you are paying half of your normal payment every two weeks. This is the equivalent of thirteen regular payments(26 bi-weekly), which in turn will reduce the amount of interest you pay and pay off the loan earlier.

**Closed Mortgage **– This type of mortgage locks you into paying the mortgage for a set period of time. The interest rate is generally lower than an open mortgage.

**Closing Costs** – these are the costs that the buyer must pay during the Mortgage process. These include legal fees and land transfer tax.

**Construction Draw Mortgage** – when a person is having a home-built, they will typically have a Construction Mortgage. With a Construction Mortgage, the lender will advance money based on the construction schedule of the builder. When the home is finished, the mortgage will convert into a permanent Mortgage.

**Conventional Mortgage** – The down payment for your property is at least 20% of the purchase price. If this is the case mortgage default insurance is generally not required. There may be exceptions to this, for example if your salary is not paid to you on a regular basis

**Debt Service Ratio** – lenders look at a number of ratios and financial data to determine if the borrowers are able to repay the loan. One such ratio is the debt-to-income ratio. In this calculation, the lender compares the monthly payments, including the new Mortgage, and compares it to monthly income. The income figure is divided into the expense figure, and the result is displayed as a percentage. The higher the percentage, the more riskier loan it is for the lender.

**Down Payment** – is the amount of the purchase price that the buyer is paying. Generally, lenders require a specific down payment in order to qualify for the Mortgage. (Minimum 5%)

**Equity** – the difference between the value of the home and the Mortgage loan is called equity. Over time, as the value of the home increases and the amount of the loan decreases, the equity of the home generally increases.

**Fixed Rate Mortgage** – is a mortgage where the interest rate and the term of the loan is negotiated and set for the life of the loan. The terms of fixed rate Mortgages can range from 1-10 years

**High Ratio Mortgage **– The down payment for the property is less than 20% of the purchase price. If this is the case you will have to pay mortgage default insurance

**Homeowner’s Insurance** – prior to the Mortgage closing date, the homeowners must secure property insurance on the new home. The policy must list the lender as loss payee in the event of a fire or other event. This must be in place prior to the loan going into effect.

**Loan-to-value Ratio** – this is another typical financial calculation that is done is called the Loan-to-Value (LTV) ratio. This calculation is done by dividing the amount of the Mortgage by the value of the home. Lenders will generally require the LTV ratio to be at least 95% in order to qualify for a Mortgage.

**Mortgage** – is the loan and supporting documentation for the purchase of a home. Mortgage lenders generally follow strict underwriting guidelines to limit the possibility of borrowers defaulting on their payments.

**Mortgage Default Insurance **– Also referred to as Mortgage Loan Insurance, protects the mortgage lender in the case that you are unable to make your payments. It does not protect you, and your mortgage lender will make the necessary arrangements for you if it is required. The premiums (or the cost of mortgage default insurance) will vary depending on the percentage you have in a down payment; the bigger your down payment the lower your mortgage default insurance premium

**Mortgage Term **– the period of time that you have signed your mortgage contract in which you have agreed to pay a fixed or variable interest rate for. (example 5 year fixed interest rate)

**Open Mortgage **– This type of mortgage you are able to pay off the mortgage at any time with zero penalty. Typically, however, there is a premium associated with this type of mortgage and it generally comes in the form of a higher rate of interest.

**Payment Options **– Most financial institutions will offer a number of payment frequency options including:

- Monthly: one payment per month for a total of 12 per year
- Semi-Monthly: twice a month for a total of 24 per year
- Biweekly: a payment every two weeks; 26 payment per year
- Accelerated biweekly: a payment of half the monthly payment every two weeks, 52 weeks per year divided by 2 for a total of 26 payments. With this payment frequency you will make the equivalent of one extra monthly payment per year.
- Weekly: one payment per week for a total of 52 per year
- Accelerated weekly: a payment of one quarter of the monthly payment every week. With this payment frequency you will make the equivalent of one extra payment per year.

**Pre-Approval **– This is a preliminary discussion with a mortgage broker who will find out how much you can afford to borrow and at what interest rate. The broker will also discuss how much down payment would be required and what your mortgage payments would look like.

**Principal** – is the term used to describe the amount of money that is borrowed for the Mortgage. The principal amount that is owed will go down when borrowers make regular payments.

**Title Insurance** – the lender is using the home as collateral for the Mortgage transaction. Because of this, they need to be certain that the title of the property is clear of any liens which could jeopardize the Mortgage. So, lenders will require borrowers to get title insurance on the property, which will ensure that the homes are free and clear.

**Variable Rate Mortgage **– In this type of mortgage the interest payments fluctuate when the prime lending rate increases or decreases. This can affect your payments in one of the two following ways:

- your payments may be predetermined at the start of the mortgage and then if interest rates go down more of the payment may be applied to the principal and if the interest rates go up less of the payment will be applied to the principal (therefore more to interest).
- your payments aren’t predetermined and they fluctuate based on rates.