For most Canadians, their mortgage is not only their biggest asset, but also their biggest liability. Therefore, it is imperative to understand all the financial jargon associated with your mortgage in order to make the best financial decisions possible. How you finance your home as well as the home-buying process can have a major impact on your financial well-being and future, especially in an era where certain financial products are no longer being offered and new products available. This rings true especially for first-time home buyers.

Understanding the 'financial language' can help Canadians choose the best mortgage option which fits in with their financial planning strategy. In order to help those who are planning on buying a home, we have provided a list of the most common terms, along with a synopsis of their meaning.

•    Amortization: refers to the period of time that the entire mortgage is to be paid; this is calculated with the assumption of regular payments.
•    Appraisal: Whereby a qualified person makes an independent assessment of the property worth.
•    Assuming a mortgage: The taking over of a previous owner's mortgage when the property is purchased.
•    Buy down rate: The portion of the interest rate on a buyer's mortgage that is assumed when your house is bought. If the home buyer doesn’t like the interest rate on their mortgage, the seller can offer to add a percentage of it onto their existing mortgage.
•    Capped rate: Usually associated with a variable-rate mortgage, this is an interest rate that has a pre-determined ceiling.
•    Closed mortgage: This type of mortgage cannot be prepaid, renegotiated and/or refinanced prior to maturity, unless specifically stated in the mortgage terms.
•    Closing costs: These costs are not included in the purchase price of the home and must be paid on the closing date, i.e. land transfer taxes, legal fees.
•    Closing date: The date upon which the sale of the home becomes final, with the new owner assuming possession of the home and the funds are transferred to the seller.
•    Conventional mortgage: Where the borrower contributes more than 20% of the property value as a down payment.
•    Convertible mortgage: This type of mortgage can be changed from short-term to long-term.
•    Debt service ratio: This is the percentage of the borrower's income that is used for the monthly payments of the principle, interest, taxes, heating costs as well as condo fees.
•    Default: Whereby the borrower breaks the terms of the mortgage agreement by either not making the payments and/or by late payments.
•    Down payment: Usually consists of 5-20% of the home value that the purchaser pays up-front.
•    Equity: The amount that a homeowner actually owns outright; it is calculated by the difference between the market value of the home and the amount owing.
•    High ratio mortgage: Where the borrower has contributed less than 20% of the property value for the down payment.
•    Home inspection: Whereby a qualified person performs a visual inspection of the home and makes a report of the true condition of the property.
•    Home insurance: Differs from mortgage life insurance, this is used to insurance not only the actual home, but its contents.
•    Interest adjustment: This is the amount of interest due between the date the mortgage starts and the date of the first mortgage payment.
•    Land transfer tax: This tax may be applicable on a land transfer depending on the province.
•    Legal fees/disbursements: Monies spent on such services like a real estate lawyer that are associated with the buying of a home.
•    Lump sum payment: This refers to an extra payment that is made in order to reduce the mortgage amount.
•    Mortgage broker: An individual/company who does not actually lend money, but rather acts on your behalf to find a lender as well as arrange the terms of the mortgage.
•    Mortgage default insurance: Type of insurance that is required for home buyers that have contributed between 5-20% of the home value as their down payment.
•    Mortgage life insurance: This insures the mortgage and pays it off in full should the mortgage holder die. Term life insurance can be used for this purpose as well, and offers several advantages.
•    Mortgage rate: This is the percentage of interest the home buyer pays on top of the loan principal.
•    Mortgage term: This refers to the length of time that the interest rate is guaranteed for the mortgage.
•    MLS listings: Computer websites/lists available to consumers that show listings of available homes within your region.
•    Offer to purchase/conditional offer: The written contract containing any stipulations and/or conditions upon which the buyer agrees to purchase the home.
•    Open mortgage: This type of mortgage can be paid off, renewed, and/or refinanced at any point in the mortgage. This type of mortgage usually has a higher interest rate.
•    Porting/Portable mortgage: The transfer of an existing mortgage from one home to a new home.
•    Pre-approved mortgage certificate:approved mortgage certificate A written agreement the home buyer can obtain before buying a home stating the amount of the mortgage as well as the interest rates that the buyer is approved for.
•    Pre-paid property tax/utility adjustments: The amount owed to the seller if they have already paid these items.
•    Pre-payment: Paying part of the mortgage ahead of schedule; depending on the mortgage terms, this may incur a penalty.
•    Property survey: A survey that contains the legal description of the property; this is usually required by the mortgage lender.
•    Refinancing: This refers to the homeowner increasing the amount of their current mortgage at a new interest rate.
•    Renewal: The option of renewing the mortgage once the original term has expired.
•    Sales tax: The taxes that are applied to the purchase price of the home; this varies depending on the province as well as the type of home bought (i.e. resale property, newly built).
•    Variable rate mortgage: The interest rate on this type of mortgage varies with the market and changes every month.

Canadians home buyers should always do their own research when it comes to mortgages as well as consult with professionals. Having a deeper understanding of what is entailed in the mortgage process can enable the home buyer to make a financial choice that saves them money, as well as suits their needs. To learn more about using term life insurance to insure a mortgage, please visit our page that specifically addresses this issue.