Mortgage Glossary

Concerned about mortgage fraud? Want to simply know more about it to protect youself? Check out our glossary of real estate and mortgage-related terms, and always make sure you know what you're signing.

A B C D E F G
H I J K L M N
O P Q R S T U
V W X Y Z  

 

Disclaimer: These terms and definitions are provided for educational purposes only. Although they are believed to be accurate, the Real Estate Council of Alberta (RECA) is not responsible for any deficiencies, defects, errors, omissions, completeness, suitability, accuracy, currency, or applicability of contents contained herein. Furthermore, RECA disclaims any liability for loss or damage, whether directly or indirectly, from the utilization of anytime content hereinafter set out.

A

Accelerated Payments
A mortgage payment option whereby the monthly mortgage payment is either split in half or in quarters and is paid every two weeks (bi-weekly) or every week (weekly).

Adjustable Rate Mortgage
A mortgage where the interest rate and payments are increased or decreased at predetermined intervals based on a lender's rate market review.  The interest rate charged on the mortgage may be linked to the lender’s prime rate or a pre-selected index rate.  Also see Index Rate.

Affordability
The ability of an individual to carry the cost of ownership of a property in relation to his or her available income.

Agreement for Sale
A financial arrangement between a seller and buyer in which the seller carries the financing for the buyer’s purchase of the property. However, the title remains in the name of the seller and the seller registers a caveat on title protecting his or her financial interests until such time as the funds are repaid by the buyer. When there is a financial arrangement between two parties such as this, it is even more important to ensure you know what you’re signing. If you have any questions or concerns, talk to a licensed real estate or mortgage brokerage professional and/or a lawyer.

Alberta Registry Agents
A network of community-based service centres, offering a wide range of registration, information and licensing services on behalf of the Government of Alberta. Alberta registries and registry agents are an important resource for consumers. You can search title on a property, register a lien, check ownership, etc.

Amortization
The gradual retirement of a debt by means of installment payments which often includes principal and interest. Also see Principal and Interest.

Amortization Period
The length of time required to repay a mortgage by equal installments of periodic constant payments based on a set interest rate. The payments are typically a combination of principal and interest in blended amounts. 

Amortization Schedule
A table illustrating the amount of principal and interest that comprise each of the periodic installments and the outstanding principal balance of the loan after each level payment is made.

Annual Percentage Rate
The interest rate stated on a yearly basis that represents the cost of a mortgage.
Applicant (Mortgage)
Refers to all borrowers, co-borrowers and guarantors on a mortgage loan application.

Arrears
Past due payments.

Assignment of Mortgage
An agreement that consists of the transfer (i.e. selling) of an interest and all rights in the mortgage contract and the security in the property to a new lender or third party in return for payment of money.

Assumable Mortgage
The process of an individual acquiring the title and access to a property that has an existing mortgage registered.  Lenders typically require the individual to qualify under the terms and conditions of the existing mortgage before allowing the mortgage assumption to occur.  

Assumption
The act of taking possession of mortgaged property whereby the buyer accepts liability for the debt and takes responsibility of seller’s existing mortgage at the interest rate and terms as laid out in the original mortgage documents. The seller remains liable to the mortgage lender unless the lender agrees to release the seller from the debt obligation.

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B

Balance
The amount of unpaid mortgage remaining after a payment has been made.

Blended Payments
The periodic mortgage payments of principal and interest where the payments remain constant in amount, although the portions attributed to principal and interest will vary with each payment as the time elapses in the amortization period.

Borrower
The party who obtains financing from a lender with the agreement that it will be repaid, with interest, within a defined timeframe.

Bridge Loan
A loan of short duration (i.e. up to 1 year) with a higher interest rate intended to cover immediate cash requirements until permanent financing is secured.

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C

Canada Mortgage and Housing Corporation
A federal crown corporation mandated to promote the construction of new houses, the repair and modernization of existing houses, and the improvement of housing and living conditions, including the establishment of mortgage default insurance for lenders.

Cash Back
A mortgage feature whereby the lender refunds a sum of money either as a percentage of the mortgage principal or as a lump sum.

Certificate of Title
A document that records the information about the land, such as the legal land description, municipal jurisdiction, ownership and registered interests. The Land Titles Office no longer issues a paper Certificate of Title, but a paper copy may be available from any Registry Agent in Alberta. An electronic copy is available on the Spatial Information System (SPIN) operated by Alberta Registries, Service Alberta.

Charge
The name given a mortgage when registered under the Land Titles Act.

Charging Clause
A provision in a mortgage document that charges the borrower’s interest in the real property as security for payment of the debt obligation.

Chattel Mortgage
An agreement that charges the borrower’s personal property identified in the agreement as security for a loan. A lender may take security on personal property in order to enhance the extent of their security for a loan. This may be the case when borrower’s real property is insufficient for a lender to proceed with the loan.

Closed Mortgage
The restriction or denial of repayment rights until maturity of the mortgage.

Closing
Finalizing a real estate transaction, which includes signing of the title documents, calculations of adjustments and disbursements of funds.

Closing Costs
The total costs for the respective parties associated with a real estate or mortgage transaction. Closing costs are typically due on the closing date, which is the date at which the real estate or mortgage transaction is finalized.

Closing Date
The date when the financial adjustments are made for each party in a real estate or mortgage transaction. In real estate, it is the date when the title to the property transfers to the new owner, after which, the new owner assumes financial responsibility for the property.

Comparative Market Analysis
A method of property valuation used by real estate professionals for estimating the value of residential properties.

Compound Interest
Interest that is calculated on the initial principal amount and the accumulated interest of prior periods.

Conventional Mortgage
A mortgage where the loan amount does not exceed 80% of the appraised value or purchase price of the property.

Conveyancing
The formal process of transferring the legal title of land and recording interests in the land, using the prescribed Land Titles forms submitted in the prescribed manner.

Cost of Credit
The difference between the value received by a borrower and the value given by the borrower to the credit grantor in connection with a credit agreement.

Credit Report
A record detailing an applicant’s past borrowing and repayment history.

Credit Score
A numerical expression based on a statistical analysis of a person’s credit files which represents the creditworthiness of that person.

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D

Dealing in mortgages
Describes the activities relating to the provision of services for soliciting, negotiating and collecting funds related to mortgage transactions. In order to deal in mortgages, individuals require an authorization from the Real Estate Council of Alberta, unless they are exempt pursuant to the Real Estate Act or the Real Estate Act Exemption Regulation. 

Debt
The financial amount that is owed as a result of borrowing funds.

Debt Ratio
A comparison of the total monthly payments of a borrower’s debt to his or her income. It is used to determine whether the borrower can afford the debt obligation.

Debt Service Coverage Ratio
A calculation used by lenders when underwriting a commercial mortgage application.  It measures the amount of cash available to meet the debt obligation of the mortgage payments.

Debtor
A person who has the obligation of owing money to another party.

Default
The failure to fulfill contractual obligations such as the failure to make mortgage payments.

Default Charge
A charge imposed on a borrower who fails to make a payment as it comes due under a credit agreement or who fails to comply with any other obligation under a credit agreement, but does not include interest on an overdue payment.

Discharge of Mortgage
The repayment of a mortgage and the legal document which confirms that the borrower is under no further liability to the lender in respect of the loan. In order to be effective, the discharge of the mortgage needs to be registered with the Land Titles Office.

Down Payment
The part of the purchase price of real property the buyer pays in cash and does not finance with a mortgage.

Due-on-Sale Clause
A provision in a mortgage contract that requires the mortgage be repaid in full to the lender upon a sale or conveyance of interest in the property that secures the mortgage.

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E

Effective Interest Rate
The actual interest rate on investment where a debt or loan was bought at a discount or at a premium. Also known as true cost.

Equity (Mortgage Financing)
The difference between the market value of the property, less the outstanding balance of the mortgage, less any other financial obligation registered against the property.

Equity Mortgage
A loan that is obtained against the equity in a property and registered as a mortgage on the title of the property.

Errors and Omissions Insurance
A form of business liability insurance intended to cover damages resulting from errors, omissions and negligence by professionals that occurred in the course of providing their business services. All licensed real estate, mortgage brokerage and real estate appraisal professionals in Alberta have some form of E&O insurance. This helps protect consumers when they’re working with licensed professionals.

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F

First Mortgage
A first charge on property that ranks ahead of any other mortgage, based on the date and time of its registration on title.

Fixed Rate Mortgage
A mortgage for which the interest rate has been fixed for a certain period of time (generally the length of the mortgage term).

Floating Rate
An interest rate that bears a specified mathematical relationship to an index rate and includes an interest rate that is subject to a minimum and maximum or is determined at the beginning of a period for the whole period, regardless of changes in the index rate during the period.

For Sale by Owner
The process of selling a property that is for sale by the owner without the representation of a real estate industry professional. Consumers are allowed to buy and sell their own property, on their own behalf, but there is greater protection available to consumers when working with a licensed real estate or mortgage brokerage professional.

Foreclosure
The legal process by which a lender takes possession and ownership of a property due to the borrower’s failure to comply with the terms and conditions of the mortgage agreement.

Fraudulent Misrepresentation
A statement is made that is untrue and the person making the statement does so knowingly to induce a party to enter a contract to his or her detriment.

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G

Gift Letter
A letter verifying that a portion of a borrower’s down payment is a gift from another person.

Gross Debt Service Ratio
A measure used by lenders to assess a borrower’s ability to carry the debt load for a mortgage. It is calculated as the percentage of the individual’s gross annual income relative to his or her annual mortgage payments, property taxes, condo fees (if applicable) and allowance for heat.

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H

High Ratio Mortgage
A mortgage loan that exceeds 80% of the appraised property value or sale price whichever is less.

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I

Index Rate
The rate used by a lender to measure the difference between the current interest rate charged on an adjustable rate mortgage and that earned by another type of debt instrument. 

Installment Loan
A loan that is repaid over time with a set number of scheduled payments. The term of loan may be as little as a few months and as long as 30 years. For example, a mortgage may be considered an installment loan.

Interest-Only Mortgage
A mortgage in which the borrower pays only the interest portion, with the principal balance unchanged.  The principal is repaid in full at the end of the mortgage term.

Interest Rate
The amount charged by a lender to a borrower for the use of borrowed funds and is calculated as a percentage of the principal

Interest Rate Differential
The compensation due a lender for early prepayment of a mortgage outside of its normal prepayment terms. It is usually calculated as the difference between the mortgage rate and market rate multiplied by the principal outstanding and the balance of the term.

Interim Financing
A loan of short duration (i.e. up to 1 year) with higher interest intended to cover immediate cash requirements until permanent financing is secured or until such time as the permanent financing comes into effect. 

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J

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K

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L

Land Identification Number Code
A unique, system generated 10 digit number assigned to a parcel of land in the Alberta Land Titles database and serves as a permanent identifier of that parcel until the parcel boundaries are changed.

Land Titles Act
Alberta legislation that outlines the land titles system of administration including land title transactions and interests in land.

Land Titles Assurance Fund
An assurance to the public that owners do not suffer damage or loss from errors in title. Registered properties are protected by indefeasibility of title, which means that they are not liable to be annulled, voided or undone. The Fund is supported by fees collected by the Land Titles Offices.

Land Titles Office
The official location for processing land title documents. Alberta has 2 Land Titles Offices – 1 in Calgary and 1 in Edmonton. Otherwise, Registry Agents across the province work under licence to manage land title matters.

Lender
An individual or institution responsible for underwriting, funding and administering a mortgage loan and to whom real estate is pledged as security for the loan. This may include institutional lenders, non-institutional lenders, government lenders and private lenders. Also see Mortgagee.

Lender Documentation
The application and all supporting documentation provided by the mortgage brokerage industry member to the lender. Wherever possible, all supporting documentation should be provided to the lender in one package.

Lender Product Sheet
A lender product sheet describes the particulars of a specific mortgage product, including term, amortization, repayment privileges, loan to value maximum, debt servicing maximum ratios, mortgage size restrictions, underwriting criteria, applicant income, equity sources, acceptable credit history (e.g. minimum credit score, bankruptcy history) and any other details relevant to the specific lender product or program. A lender product generally targets a particular borrower type or meets a specific borrowing need in the marketplace. Product sheets are provided by lenders to mortgage brokerage industry members for their information. If a product sheet is used for a specific mortgage, it should be retained by the industry member as part of the transaction record. Also see Lender Rate Sheet.

Lender Rate Sheet
A lender rate sheet shows the rates and fees for its product line. The rates are generally based on term, amortization, prepayment features, loan size, quickness of advance and other relevant details related to the lender’s mortgage products. The rate sheet is provided by lenders to mortgage brokerage industry members for their information. If a rate sheet is used for a specific mortgage deal, it should be retained by the industry member as part of the transaction record. Also see Lender Product Sheet.

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M

Maturity
The end of a term, or period of time, for a mortgage loan at which time the borrower mat have the option to pay off the mortgage, renew it with the existing lender or transfer it to another lender.

Mortgage
A legal agreement specifying the pledging of real property to a lender as security for a debt.

Mortgage Assumption
The act of taking possession of mortgaged property whereby the buyer accepts liability for the debt and takes responsibility of seller’s existing mortgage at the interest rate and terms as laid out in the original mortgage documents. The seller remains liable to the mortgage lender unless the lender agrees to release the seller from the debt obligation.

Mortgage-Backed Securities
A type of investment that represents an ownership interest in a bundle of amortized residential mortgages insured by Canada Mortgage and Housing Corporation (CMHC) under the National Housing Act (NHA) or the government-backed private mortgage insurers.

Mortgage Default
A borrower’s failure to fulfill his or her obligations contained in a mortgage agreement.

Mortgage Fraud
A material misstatement, misrepresentation or omission relied upon by a lender or insurer to underwrite, approve, fund or insure a mortgage loan. It is any scheme designed to obtain mortgage financing under false pretenses.

Mortgage Fraud for Housing
Occurs when a borrower (i.e. buyer) attempts to obtain a larger mortgage then he or she would otherwise be able to arrange and falsifies the information to the lender in order to qualify for the mortgage.

Mortgage Fraud for Profit
Typically perpetrated by organized crime or by individuals seeking financial gain through property manipulations.

Mortgage Fraud Red Flags
Potential indicators or warning signs that a real estate, mortgage brokerage or real estate appraisal transaction may be fraudulent.  When 2 or 3 red flags appear in the same transaction, it can be an indication of the presence of mortgage fraud.

Mortgage Insurance
A credit risk management tool protecting the lender from losses due to default on the mortgage by the borrower. It is typically required when the loan to value ratio for the property is 80% or greater.

Mortgage Insurer
A provider of mortgage loan (default) insurance to lenders. Also see Mortgage Insurance.

Mortgage Investment Corporation
A private investment and lending company that pools its funds from many investors for the purpose of loaning money to borrowers. Each loan is secured with a mortgage registered on the title of the respective property. 

Mortgage Origination
The process through which a lender creates a mortgage secured by the borrower’s (i.e. mortgagor’s) real property. Also see Mortgage.

Mortgage Plus Improvements
A feature that allows the borrower to add the cost of improvements or renovations to a property into a mortgage loan.

Mortgage Pre-Approval
An approval for a mortgage based on a borrower’s qualifications made in advance of a real estate purchase. A written pre-approval protects the borrower by specifying the mortgage term, interest rate and maximum amount of the loan. If mortgage rates rise, the borrower receives the pre-approved rate. If rates drop, the borrower receives the lower rate. However, the borrower must take possession of a property before the pre-approval expires. They typically are 60 or 90 days, but may be as long as 120 days for new construction. Once a property has been purchased, the pre-approval is subject to the borrower submitting any final supporting documentation, providing his or her financial position has not changed. It is also subject to the property meeting the lender’s underwriting requirements.

Mortgage Pre-Qualification
The tentative approval for a mortgage based on the borrower’s qualifications made in advance of a real estate purchase. It is for a specified period of time and subject to the borrower submitting his or her supporting documentation to the lender, providing his or her financial position has not changed. Once a property has been purchased, the property must also meet the lender’s underwriting requirements.

Mortgage Professionals Canada
Canada's national mortgage industry association.

Mortgage Refinance
The process by which a borrower seeks to discharge an existing mortgage in order to establish a new one. The new mortgage maybe with the same lender or a different lender. The process typically involves the borrower paying out the existing mortgage, along with any legal claims against the property and any applicable payout penalties as a result of the early discharge. Some reasons that a borrower may consider refinancing a mortgage include obtaining a better rate, benefitting from different mortgage privileges, or experiencing better service or greater convenience.

Mortgage Renewal
The process by which a borrower agrees to another mortgage term with the current lender to replace the term that has matured.  At the end of the prior mortgage term, and with a balance of funds still owing, the borrower may choose to continue with the same lender for another term. However, the details of the mortgage document may change at the time of the mortgage renewal to reflect the current mortgage market. The new term leaves the existing registered mortgage in place and is therefore not considered a new mortgage.  The renewed term is secured by the old mortgage document and its provisions are amended to fit the new term.

Mortgage Statement
A statement received from the lender that includes details of the mortgage such as property address, outstanding principal balance, monthly payment, interest rate and mortgage term.

Mortgage Switch
Occurs when a borrower moves his or her current mortgage balance and remaining amortization period to a new lender.  An agreement effectively transferring the interest in the mortgage to the new lender is signed by the parties and registered with the Land Titles Office. The previous mortgage terms and conditions are replaced by those of the new lender.

Mortgage Term
The period of time for which the lender loans funds to the borrower, as specified in the mortgage agreement. At the end of the mortgage term, the principal and unpaid interest becomes due and payable by the borrower to the lender. At that time the borrower may renew or refinance the mortgage. Also see Mortgage Refinance and Mortgage Renewal.

Mortgage Transferee
The lender to whom a mortgage has been conveyed (transferred).

Mortgage Transferor
The lender who conveys (transfers) a mortgage to another lender.

Mortgaged Premises
The security for the loan in the mortgage document, which typically includes the physical land and everything that is part of that land, or becomes part of that land. A mortgage of land automatically extends to everything that is securely attached to that land.

Mortgagee
An individual or organization that lends money secured by real property for which they may receive specified payments according to the mortgage agreement. Also see Lender.

Mortgagee in Possession
A lender that takes possession and responsibility (e.g. insurance, taxes, security and tenant relations, if applicable) of a mortgaged property. If a property includes residential leases, the mortgagee in possession must also abide by the provisions of the Residential Tenancy Act.

Mortgagor
A person that borrows funds secured by real property for which they may make specified payments according to the mortgage agreement. Also see Borrower.

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O

Open Mortgage
A mortgage that can be paid off early without any penalties or fees attached.

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P

Portability
The ability of the borrower to transfer an existing mortgage, including the rate and terms, from one property to another property. However, the lender may require the borrower to re-qualify for the same mortgage because the financial circumstances of the borrower may have changed and the property securing the mortgage has changed.

Postponement of Mortgage
Process by which a lender agrees to maintain a position of subsequent priority in the event of rearrangement and registration of a prior mortgage.

Prime Rate
The interest rate charged by lenders to its most creditworthy borrowers.

Principal (Mortgage)
The amount of funds originally borrowed from the lender or the portion of a mortgage still owing upon which interest is calculated.

Principal and Interest
A periodic mortgage payment calculation based on a combination of principal repayment and interest.

Principal, Interest and Tax
A periodic mortgage payment calculation based on a combination of principal repayment, interest and a portion of the property taxes.

Private Lender
Any individual, group of individuals as in a syndicated mortgage or Mortgage Investment Corporation other than a financial institution that advances funds in return for a mortgage with agreed to repayment terms and conditions.  Private lenders do not include chartered banks, treasury branches, credit unions, loan corporations, trust companies, and insurance companies, any persons engaged in the business of making loans secured with mortgages or any persons that manage registered pension plans.

Private Mortgage
A mortgage contract in which the lender is not a registered financial institution but rather a private corporation and/or an individual.

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Q

Qualifying
The process of determining a prospective borrower’s eligibility for mortgage financing related to a potential real estate purchase.

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R

Refinance
The process by which a borrower seeks to discharge an existing mortgage in order to establish a new one. The new mortgage maybe with the same lender or a different lender. The process typically involves the borrower paying out the existing mortgage, along with any legal claims against the property and any applicable payout penalties as a result of the early discharge. Some reasons that a borrower may consider refinancing a mortgage include obtaining a better rate, benefitting from different mortgage privileges, or experiencing better service or greater convenience.

Reverse Mortgage
A mortgage on a principal residence taken out by the owner who must be 60 years of age or older and that allows for a portion of the property’s equity to be converted into cash. No payments are made and the payments and interest accumulate against the equity in the property. The owner must continue to reside in the property for the reverse mortgage to stay in place.  Repayment of the loan is typically triggered when the property is sold, is no longer the principal residence or on the death of the owner(s).

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S

Second Mortgage
A mortgage registered against a property which is already encumbered with a first
mortgage, that mortgage having been registered at a date and time that precedes the second mortgage.

Simple Interest
A method of calculating the cost of borrowing by applying an interest rate to the principal amount. It does not include interest from previous periods.

Spatial Information System
The Land Titles online database that allows searches of a wide range of property related documents such as titles, plans, registered interests, historical titles, condominium bylaws.  The online system is accessible 7 days a week and is run by Alberta Registries as part of Service Alberta. This online system is often referred to as SPIN2. SPIN2 is a valuable tool in preventing, suppressing, detecting and investigating mortgage fraud.

Straw Buyer
A person who is paid by a fraudster to act on behalf of the fraudster, and whose name and credit are used for processing mortgage applications and title transfers.

Supporting Documents
The information and communications provided to the lender by the borrower, and/or other parties, concerning verification of the borrower’s identity, employment, equity and property details. Retained copies of the supporting documentation form part of the loan file. If legibility or authenticity is a concern, best efforts must be made to view original supporting documents.

Syndicated Mortgage
A mortgage in which 2 or more people participate, directly or indirectly, as lenders in a debt obligation that is secured by a mortgage.

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T

Title
A document that records the information about the land, such as the legal land description, municipal jurisdiction, ownership and registered interests. The Land Titles Office no longer issues a paper Certificate of Title, but a paper copy may be available from any Registry Agent in Alberta. An electronic copy is available on the Spatial Information System (SPIN) operated by Alberta Registries, Service Alberta.

Title Number
A unique number assigned to a Certificate of Title at the time a property is registered by Alberta Land Titles.

Title Search
A review if all registered encumbrances relating to a specific parcel of land to determine the present condition of title.

Torrens System
A system for recording land title transactions and interests in land, as prescribed in the Land Titles Act. It includes three supporting principles: the current title accurately reflects the facts about the property (i.e. Mirror Principle); the current title has all the information about the property (i.e. Current Principle); and the provincial government guarantees the accuracy of the title (i.e. Insurance Principle). This system improved on previous land title systems by facilitating land transactions and providing security of title, thus eliminating time-consuming and costly searches for an accurate chain of title for each transaction.

Total Debt Service Ratio
A measure used by lenders to assess a borrower’s ability to carry the debt load for a mortgage.  The TDS ratio is calculated as a percentage of the borrower’s gross annual income relative to his or her total debt payments (GDS payments plus any other debts).

Transfer of Mortgage
The process of transferring a mortgage from the current lender to another lender.

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U

Umbrella Mortgage
A special arrangement by which one document encompasses one or more existing mortgages registered on the same property.

Underwrite
The analysis of risk undertaken by mortgage lenders and mortgage insurers to establish whether to grant the mortgage loan or issue the mortgage insurance.

Underwriter
An individual employed by a lender or insurer who is responsible for verifying the mortgage application information and supporting documentation, making a risk assessment of the applicant(s) and the property, and approving or declining the mortgage based on this assessment.

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V

Variable Rate Mortgage
A mortgage where the interest rate is periodically adjusted based on the prime lending rate typically set by the lender.  When an interest rate change occurs payments may be increased or decreased.

Vendor Take-Back Mortgage
A mortgage that a seller of a property takes back or carries for the buyer as part of the purchase price for that property.

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W

Wraparound Mortgage
A special arrangement by which one document encompasses one or more existing mortgages registered on the same property.

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