Buying a house is an exciting time. But if you don’t know the first thing about mortgages, it can also be an incredibly confusing time. Knowing the basic terms is the best place to start. When you are familiar with those terms, you can at least wade into the mortgage waters without fear of drowning.

Here are some of the most pertinent terms that you may or may not hear during the homebuying process. Knowing these terms will arm you to find the best mortgage rate and, ultimately, the best house.

Mortgage Glossary

These terms are some of the most commonly used in the mortgage industry. Generally speaking, these are the only names though some terms may be referred to by other names.

Agreement of Purchase and Sales

This is a legal contract in which the buyer and seller enter. The offer is oftentimes prepared by a realtor or lawyer who can ensure that all of the details are covered and the rights of both buyer and seller are protected. This is an agreement that outlines the details of the purchase and the sale accordingly.

Amortization Period

Not to be confused with the term. This is the total number of years in which the entire financed loan is paid off. These are made in a fixed set of payments with the standard periods being between 10 and 25 years.

Appraisal

An appraisal is a determination of the current market value of the home.

Appraiser

The appraisal is done by the appraiser. They determine the home’s market value based primarily on the condition and the various systems of the home. They also help determine the sale price compared to other homes that have recently sold within the same area.

Assets

An asset is anything that you own or call upon. This is a way to determine one’s net worth to secure financing.

Canada Mortgage and Housing Corporation (CMHC)

One of the largest private mortgage insurance companies in the country. They administer government housing initiatives and work with the private sector, community organizations, and all levels of government.

One of the authorities in Canadian housing, CMHC contributes to the stability of both the financial system and housing market. The CMHC offers support to those in housing need through housing advice and research.

Closing Date

The closing date is the date on which the sale becomes final. The funds are transferred from the buyer to the vendor, with the new owner than taking possession of the property.

Commitment

This is a document or letter issued by the lender which describes the terms of the loan. The buyer has accepted those terms, forming a binding contract. There may condition within that must be met before the finalization of the contract.

Conveyance

This is the transfer of an interesting property from one individual to another.

Debt Service Ratios

There are multiple ratios that the lender uses to gauge the borrower’s debt compared to their income to determine if they can afford the loan. Total Debt Service Ratio and Gross Debt Service Ratio are used for most mortgages.

Fixed-Rate Mortgage

A mortgage where the interest rates have been locked into place for the existing term.

Home Equity Line of Credit (HELOC)

This line of credit is secured through equity in a property. The lender agrees to lend the maximum amount within a term. HELOC’s can also be referred to as a second mortgage.

Home Inspection

A home inspection is an examination of the home’s current condition. These are done by a certified home inspector. It covers the condition of the various systems of the homes based on visual access. Also focuses on the home’s performance and any potential issues that may come about.

Interest Adjustment Date

This is the date from which a buyer’s interest is calculated at the stated rate, compounded at the frequency, and then set out within the mortgage contract. Typically the first day of the month after the closing.

Interim Financing

Also known as bridge loans, this is short-term financing. A means for the down payment on a new home until the sale of an existing home is complete. A firm sale has to be in place to obtain this kind of financing.

Maturity Date

The final day in the term of a mortgage. This is when the remaining balance on the mortgage becomes due.

Mortgage Default Insurance

Insurance that protects the lender if the borrower defaults on their mortgage payments. Typically used when the down payment is under 20% of the purchase price of the home.

Mortgage Term

This is the length of time in which interest is guaranteed. Typically ranges from 6 months to 10 years, though 5-year terms are most common. When the term expires, the buyer can renegotiate the terms or repay the balance of the principal.

Mortgagee

This is a mortgage that has no pre-payment interest penalties.

Mortgagor

Another term for the borrower.

Open Mortgage

An open mortgage is another term for a mortgage that is free of interest penalties for pre-payment. It means that the buyer can pay off the principal balance at their speed.

Prime Rate

The prime rate is the rate which financial institutions will lend to the borrower.

Title

Evidence that of who is the rightful owner of the property. Changes hands in a sale.