HOME LOANS  Accrued Interest Interest that accumulates on a loan and has be to paid back at a later date, usually when the principal is due, rather than being paid from the time the loan is made. Accrued interest may be compounded, with interest charged on interest, or a simple rate on the value of the original loan.

Adjustable Rate Mortgage A mortgage with an interest rate that can be adjusted as the prime rate changes. (Also known as a variable rate mortgage.)

Agreement of Sale The legal contract between the buyer and seller of a property including the sale price, settlement date and all other conditions.

Appraisal A professional assessment of the market value of a property.

Appreciation The capital increase in value of an asset.

Amortisation The process of paying back a loan in installments. During the first few years, the biggest part of the installment goes towards paying off the interest owed.

Amortisation Schedule Timetable for payment of a mortgage.

Balloon Mortgage A mortgage with a fixed interest rate for installments over a specific term and one large last payment at the end of the term to settle the outstanding amount of the principal.

Basis Point One one-hundredth of a percent (.01%). Changes in interest rates are often quoted in basis points.

Buy-down When the lender and/or the home builder subsidises the mortgage by lowering the interest rate during the first few years of the loan. The payments are initially low, but increase when the subsidy expires.

Cap Limit on how much the interest rate on an adjustable rate mortgage can change in a year and/or the life of the loan.

Closing Signing off on all loan documents.

Closing Costs Fees paid when purchasing a property, including attorneys' fees, fees for preparing and filing a mortgage, taxes, escrow payments, title search and insurance. These expenses are usually paid on the day the title to the property is formally transferred from the seller to the buyer.

Commission Broker's fee for facilitating the transaction, usually expressed as a percentage of the total paid by the buyer.

Conditional Sale An installment type mortgage, where the buyer moves onto the property, but the title of the property remains with the seller until full payments are made.

Credit Report An investigation into a person's credit history by a credit bureau. The report is used by the lender to determine if a loan applicant has a good credit standing.

Debt-to-income Ratio A calculation based on an individual's monthly income to determine how much debt a potential borrower can take on.

Deed A legal document transferring the ownership or title of a property from one owner to another.

Default Failure to make payments on time. This can lead to the loan's foreclosure.

Down Payment A sum (the difference between the purchase price and the portion of the price that is financed) usually paid by a buyer out of his/her own pocket.

Equity The difference between the appraisal of a property and the outstanding mortgage payments.

Escrow The part of a homeowners' monthly mortgage payment that is held by the lender to pay taxes, mortgage insurance and other recurring charges against the property. Escrow payments are also known as reserves.

Finance Charge The total amount your loan will cost you. It includes all interest paid on the loan as well as the purchase sum, but excludes closing costs.

Fixed Rate An interest rate that is negotiated upfront and does not vary throughout a loan term.

Foreclosure The legal action that can follow defaulting. The lender ends all the borrower's rights to the mortgaged property. Foreclosure usually involves the forced sale of a property at public auction with the proceeds of the sale going towards debt owed.

Interest Rate The charge - expressed as a percentage - for making use of credit. A 17% interest charge means that an amount equal to 17% of the amount borrowed will be charged each year by the lender as a lending fee.

Lock-in A written agreement guaranteeing the home buyer a specified interest rate provided that the loan is formalised within an agreed period of time.

Offer to Purchase A document that contains the price and terms under which a buyer is willing to buy a property.

Owner Financing A transaction that requires the seller to supply all or a part of the financing to the buyer.

Mortgage A legal agreement that pledges a property to the lender as security for payment of a debt.

Mortgage Life Insurance A policy that covers the declining balance of a mortgage loan and is payable on the death of a borrower.

Net The cash value after taxes have been taken into account.

Note of Default An official notice to a borrower that an individual has defaulted on his/her loan and that legal action will be taken.

Per Diem Interest A condition which states that the buyer will have to pay interest from the date of closing to the end of the month, depending on the day of the month the deal is finalised. The first home loan payment is usually due on the first of the following month.

Principal The amount of debt, excluding interest, left on a mortgage.

Prime Rate The interest rate banks offer to their best customers when securing a loan.

Refinancing Securing a new loan in order to pay off the existing mortgage.

Second Mortgage A second home loan taken out on a property. The second loan is always subordinate to the first and should the borrower default, the first mortgage has to be paid off with the proceeds of the foreclosure first.

Title Documented proof of the possession of a property.

Title Insurance Insurance to protect the lender or the buyer against losses arising from disputes over ownership of a property.

Title Search An investigation into the history of ownership of a property to check for unpaid claims, restrictions or other problems to prove that the seller can transfer ownership without any complications.

Underwriter A company or person responsible for issuing a mortgage.

Variable Rate An interest rate that changes periodically in relation to the prime rate. Also known as an Adjustable Rate.