Glossary
Amortization
The
period of time, most often 15, 20 or 25 years, required to reduce a debt to zero
when payments are made regularly.
Appraisal
A process for estimating the market value of a particular property. It can help
the purchaser determine what price to offer. It can also be used by the lender
for mortgage purposes. The appraised value seldom matches the actual purchase
price exactly as other factors influence price.
Approved
Lender
A
lending institution authorized by the Government of Canada through CMHC to make
loans under the terms of the National Housing Act. Only Approved Lenders can
negotiate mortgages which require mortgage loan insurance.
Assumption
Agreement
A legal document signed by a home buyer that requires the buyer to assume
responsibility for the obligations of a mortgage by the builder or the original
owner.
Blended
Payment
A
mortgage payment that includes principal and interest. It is paid regularly
during the term of the mortgage. The payment total remains the same, although
the principal portion increases over time and the interest portion decreases.
Building
Permit
A
certificate that must be obtained from the municipality by the property owner or
contractor before a building can be erected or repaired. It must be posted in a
conspicuous place until the job is completed and passed as satisfactory by a
municipal building inspector.
Closing
Costs
Costs,
in addition to the purchase price of the home, such as legal fees, transfer fees
and disbursements, that are payable on the closing date. Closing costs typically
range from 1.5%-4% of a home`s selling price.
Closing
Date
The date
on which the sale of a property becomes final and the new owner takes
possession.
CMHC
Canada
Mortgage and
Housing Corporation. A Crown corporation that administers the National Housing
Act for the federal government and encourages the improvement of housing and
living conditions for all Canadians. CMHC also creates and sells mortgage loan
insurance products.
Conditional
Offer/ Conditions of
Sale
An Offer to Purchase that is subject to specified conditions, for example, the
arranging of a mortgage. There is usually a stipulated time limit within which
the specified conditions must be met.
Collateral
Mortgage
A mortgage which secures a loan by way of a promissory note. The money which is
borrowed can be used to buy a property or for another purpose such as home
renovation or for a vacation.
Commitment
Letter / Mortgage Approval
Written notification from the mort-gage lender to the borrower that approves the
advancement of a specified amount of mortgage funds under specified conditions.
Conventional
Mortgage Loan
A
mortgage loan up to a maximum of 75% of the lending value of the property.
Mortgage loan insurance is not required for this type of mortgage. Covenant A
clause in a legal document which, in the case of a mortgage, gives the parties
to the mortgage a right or an obligation. For example, a covenant can impose the
obligation on a borrower to make mortgage payments in certain amounts on certain
dates. A mortgage document consists of covenants agreed to by the borrower and
the lender.
Deed
A legal document which is signed by both the vendor and purchaser, transferring
ownership. This document is registered as evidence of ownership.
Default
Failure
to abide by the terms of a mortgage loan agreement. A failure to make mortgage
payments (defaulting on the loan) may give cause to the mortgage holder to take
legal action to possess (foreclose) the mortgaged property.
Deposit
Money
placed in trust by the purchaser when an Offer to Purchase is made. The sum is
held by the real estate representative or lawyer until the sale is closed, and
then paid to the vendor.
Discharge
of Mortgage
A
document signed by the lender and given to the borrower when a mortgage loan has
been repaid in full.
Down
Payment
The
portion of the house price the buyer must pay up front from personal resources,
before securing a mortgage. It generally ranges from 5%-25% of the purchase
price.
Easement
A right
acquired for access to or over, or for use of, another person’s land for a
specific purpose, such as a driveway or public utilities.
Encumbrance
A
registered claim for debt against a property, such as a mortgage.
Equity
The
difference between the price for which a home could be sold and the total debts
registered against it. Equity usually increases as the outstanding principal of
the mortgage is reduced through regular payments. Market values and improvements
to the property also affect equity.
Foreclosure
A legal procedure in which the lender gets ownership of the property if the
borrower defaults on the mortgage loan.
Gross
Debt Service Ratio (GDS)
The
percentage of the borrower’s gross monthly income that will be used for
monthly payments of principal, interest, taxes, heating costs and half of any
condominium maintenance fees.
High-ratio
Mortgage
A
mortgage loan in excess of 75% of the lending value of the property. This type
of mortgage must be insured — for example, by CMHC — against payment
default.
Holdback
An
amount of money withheld by the lender during the progress of construction of a
house to ensure that construction is satisfactory at every stage. A standard
holdback amount is 10% of the total cost of the building project.
Interest
The cost
of borrowing money. Interest is usually paid to the lender in installments along
with repayment of the principal loan amount.
Interest
Adjustment Date (IAD)
A date
from which interest on the mortgage advanced is calculated for your regular
payments. This date is usually one payment period before regular mortgage
payments begin. Interest due from the date your mortgage is advanced to the IAD
is due on closing.
Lending
Value
The
purchase price or market value of a property, whichever is less.
Lien
(Mechanic’s)
A claim against a property for money owing. A lien may be filed by a supplier or
a subcontractor who has provided labour or materials but has not been paid. A
lien must be properly filed by a claimant. It has a limited life, prescribed by
statute that varies from province to province. If the lienholder takes action
within the prescribed time, the homeowner may be obliged to pay the amount
claimed by the lien-holder. Alternatively, the lienholder may force a sale of
the property to pay off the debt.
Loan-to-value
Ratio
The
ratio of the loan to the lending value of a property expressed as a percentage.
For example, the loan-to- value ratio of a loan for $90,000 on a home which
costs $100,000 is 90%.
Maturity
Date
The last day of the term of the mortgage agreement. On this day the mortgage
loan must be either paid in full or the agreement renewed.
Mortgage
A
mortgage is security for a loan on the property that you own. It is your
personal guarantee to repay the loan as well as a pledge of the property as
security for the loan.
Mortgage
Loan Insurance
If you
have a high-ratio mortgage (more than 75% of the purchase price), your lender
will require mortgage loan insurance — available from CMHC or a private
insurer. The insurance premium will cost between 0.5% and 3.75% of the amount of
the mortgage (additional charges may apply).
Mortgage
Life Insurance
This
insurance guarantees that if you die your mortgage will be paid in full. This
insurance can be conveniently purchased through your lender and the premium
added to your mortgage payments. However, you may want to compare rates for
equivalent products from an insurance broker.
Mortgage
Payment
A
regularly scheduled payment that is blended to include both principal and
interest.
Mortgagee
The
lender who provides the mortgage loan.
Mortgagor
The
borrower who pledges the property as security for the loan.
Net
Worth
Your
total financial worth, calculated by subtracting your total liabilities from
your total assets.
Offer To
Purchase
A
written contract setting out the terms under which the buyer agrees to buy. If
accepted by the seller, it forms a legally binding contract subject to the terms
and conditions stated in the document.
Option
Agreement
A document stipulating that, in exchange for a deposit, a specified individual
is to be given the first chance of buying a property at or within a specified
period of time. An option holder who does not buy at or within the specified
period loses the deposit and the agreement is cancelled.
P.I.T.
Principal,
interest and taxes - payments due on a regular basis under the terms of the
mortgage agreement. Generally, payments are made monthly and include one-twelfth
of the estimated annual municipal and school taxes. Since these taxes change
from year to year, this section of the mortgage will change accordingly.
P.I.T.H.
Principal, interest, taxes and heating - costs used to calculate the Gross Debt
Service ratio (GDS).
Principal
The amount of money actually borrowed.
Realtor
A real
estate representative who is a member of an organization of persons engaged in
the business of buying and selling real estate, such as the Canadian Real Estate
Association.
Refinance
To pay
off a mortgage or other registered encumbrance and arrange for a new mortgage,
sometimes with a different lender.
Second
Mortgage
An
additional mortgage on a property that already has a mortgage.
Term
The
length of time during which a mortgagor pays a specific interest rate on the
mortgage loan. The entire mortgage principal is usually not paid off at the end
of the term because the amortization period is normally longer than the term.
Title
A freehold title gives the holder full and exclusive ownership of land and
buildings for an indefinite period of time. In condominium ownership, land and
common elements of buildings are owned collectively by all unit owners, while
the residential units belong exclusively to the individual owners. A leasehold
title gives the holder a right to use and occupy land and buildings for a
defined period of time.
Total
Debt Service Ratio (TDS)
The
percentage of gross monthly income required to cover all monthly payments for
housing and all other debts, such as car payments.
Vendor
Take Back Mortgage
Mortgage financing arranged between the seller of the property and the buyer.
The title is trans-ferred to the buyer. Often this type of loan is a second
mortgage which the seller is willing to arrange at below market rates to ensure
the buyer can purchase the house. Most of these arrangements are not renewable
or transferable to the next owner of the house.
Zoning
Bylaws
Municipal
or regional laws that specify or restrict land use. Easement
