A
Abstract of Title
This is a historical review of all the recorded transactions that affect the title to the property. A title insurance company or a legal professional will review an abstract of title to determine if there are any problems affecting the title to the property. All such problems must be cleared before the buyer can be issued a clear and insurable title.
Agreement of Purchase and Sales
The legal contract a purchaser and a seller go into. We recommend that you have your offer prepared by a professional realtor that has the knowledge and experience to satisfactorily protect you with the most suitable clauses and conditions.
Amortization Period
The number of years it takes to repay the entire amount of the financing based on a set of fixed payments.
APR – Annual Percentage Rate
This is the effective rate of interest for a mortgage per year. This rate is normally higher than the offered rate because it takes into account compounding costs and/or other closing costs. This is one way to compare mortgages offered by different lenders. Note; the APR is sometimes computed differently by different lenders and can be misleading so review carefully.
Appraisal
The process of determining the market value of a property at a specific point in time.
Assets
What you own or can leverage that is marketable, often used in determining net worth in the process of securing financing.
Assumable Mortgage
A mortgage loan which allows a home buyer to take over the obligation of another party’s loan payments with no change in the terms of the loan. Assumable loans do not have a due-on-sale clause. The lender has to be notified and agree to the assumption. The lender will require the buyer to qualify for the loan and may charge a fee. The seller should obtain a written release from the lender stating clearly that he/she is no longer liable to make mortgage payments.
Assumption Agreement
A legal document signed by a buyer that requires the buyer assume responsibility for the obligations of an existing mortgage. If someone assumes your mortgage, make sure that you get a release from the mortgage company to ensure that you are no longer liable for the debt.
B
Bankruptcy
Bankruptcy in Canada is the assignment of all your assets you own to a bankruptcy trustee in exchange for the elimination of your debts. Bankruptcy stays on your credit report for 6 years from the date of discharge.
Blanket Mortgage
A mortgage covering more than one piece of property.
Blended Payments
Equal payments consisting of both an interest and a principal component. Typically, while the payment amount does not change, the principal portion increases, while the interest portion decreases.
Bridge Loan
Typically a very short-term loan used when the buyers existing house closes later than the take-possession date of the new home. The bridge loan is made on the buyers current residence to finance the buyers new residence. The loan is paid off when the buyers current residence is sold.
C
Canada Mortgage and Housing Corporation (CMHC)
CMHC is a federal Crown corporation that administers the National Housing Act (NHA). Among other services, they also insure mortgages for lenders that are greater than 80% of the purchase price or value of the home. The cost of that insurance is paid for by the borrower and is generally added to the mortgage amount. These mortgages are often referred to as “Hi-Ratio” mortgages.
Certificate of Title
An opinion rendered by an attorney as to the status of title to a property, according to the public records. This certificate does not perform the same level of protection as title insurance.
Closed Mortgage
A mortgage that cannot be prepaid or renegotiated for a set period of time without penalties.
Closing Date
The date on which the new owner takes possession of the property and the sale becomes final.
Collateral
An asset, such as term deposit, Canada Savings Bond, or automobile, that you offer as security for a loan.
Construction or building loan
A staged loan to pay for the construction of a building/home. These loans typically provide periodic disbursements to the builder as each stage of the building is completed. When phases are completed to the lenders satisfaction they will issue further funding for the following stage of the building to process to occur.
Conventional Mortgage
A mortgage up to 80% of the purchase price or the value of the property. A mortgage exceeding 80% is referred to as a “Hi-Ratio” mortgage and the lender will require insurance for that mortgage.
Credit Report
A report that provides a score on your credit history. It is a system that assesses a borrower on a number of items, assigning points that are used to determine the borrower’s credit worthiness.
D
Demand Loan
A loan where the balance must be repaid upon request.
Default
The failure to meet legal obligations in a contract such as the failure to make the monthly mortgage payment.
Deposit
A sum of money deposited in trust by the purchaser on making an offer to purchase. When the offer is accepted by the vendor (seller), the deposit is held in trust by the listing real estate broker, lawyer, or notary until the closing of the sale, at which point it is given to the vendor. If a house does not close because of the purchaser’s failure to comply with the terms set out in the offer, the purchaser forgoes the deposit, and it is given to the vendor as compensation for the breaking of the contract (the offer).
Downpayment
The amount paid up front but generally not the sum total for the purchase of a property to secure it in preparation for taking possession at a later date.
Example: Debbie buys a house for $200,000 and obtains a loan for $180,000. Her downpayment is $20,000.
E
Encumbrance
A legal right or interest in land that affects a good or clear title, and often diminishes the value of the land. It can have numerous forms; such as zoning ordinances, easement rights, claims, mortgages, liens, charges, a pending legal action, unpaid taxes, or restrictive covenants. A title search is all that is usually done to reveal the existence of such encumbrances, and it is up to the buyer to determine whether he wants to purchase with the encumbrance, or what can be done to remove it.
Equity
The difference between the market value of the property and any outstanding mortgages registered against the property. This difference belongs to the owner of that property.
Escrow
A third party that handles all funds in a real estate transaction. The buyer puts his deposit into escrow, the lender funds the loan into escrow. Escrow pays the real estate brokers commission, pays off any loans/liens against the property, pays real estate taxes and any other fees associated with the transaction and sends the balance of the money to the seller.
F
Fee Simple (mortgage free)
Absolute ownership of real property; owner is entitled to the entire property unconditional and free to use for their own private and personal enjoyment including ownership transfer upon death.
First Mortgage
A debt registered against a property that has first call on that property.
Fixed-Rate Mortgage
A mortgage for which the interest is set for the term of the mortgage.
G
Gross Debt Service Ratio (GDS)
It is one of the mathematical calculations used by lenders to determine a borrower’s capacity to repay a mortgage. It takes into account the mortgage payments, property taxes, approximate heating costs, and 50% of any maintenance fees, and this sum is then divided by the gross income of the applicants. Ratios up to 32% are acceptable.
Guarantor
A person with an established credit rating and sufficient earnings who guarantees to repay the loan for the borrower if the borrower does not.
H
High-Ratio Mortgage
A mortgage that exceeds 80% of the purchase price or appraised value of the property. This type of mortgage must be insured. To avoid the cost of the insurance, a 1′st mortgage up to 80% is arranged and a 2′nd mortgage for the balance (up to 90% of the purchase price).
Home Equity Line of Credit
A personal line of credit secured against the borrower’s property. Generally, up to 75% of the purchase price or appraised value of the property is allowed to be borrowed with this product.
I
Interest Adjustment Date (IAD)
The date on which the mortgage term will begin. IAD is the interest charged to the borrowers at closing to pay for the cost of borrowing for a balance of the month. For example, if a loan closes on the 19th of the month and the first payment is due on the 1st of the following month, the lender will charge 12 days of interest.
Interest-Only Mortgage
A mortgage on which only the monthly interest cost is paid each month. The full principal remains outstanding. The payment is lower than an amortized mortgage since once is not paying any principal
J
Joint Tenancy
This is the ownership of a property by 2 or more people, each of whom has an undivided interest in the property with the right of survivorship.
For example; Jack and Jill own a house in joint tenancy. Each owns half of the entire (undivided) property. If John dies, Mary will own the entire property outright and vice versa.
L
Loan Application
A document required by a lender prior to loan approval. The application includes detailed information about the borrower and the property. It must be signed by all applicants.
Loan to Value Ratio (LTV)
The value of the mortgage divided by the value of the property.
M
Mortgage
A mortgage is a loan that uses a piece of real estate as a security. Once that loan is paid-off, the lender provides a discharge for that mortgage.
Mortgagee
The financial institution or person (lender) who is lending the money using a mortgage.
Mortgagor
The person who borrows the money using a mortgage.
O
Open Mortgage
A mortgage that can be repaid at any time during the term without any penalty. For this convenience, the interest rate is between 0.75-1.00% higher than a closed mortgage. A good option if you are planning to sell your property or pay-off the mortgage entirely.
P
Power of Sale
The legal process that a lender has taken to assume ownership of the property due to the lack of timely mortgage payments by the borrower.
P.I.T.
Principal, interest, and property tax due on a mortgage. If your down payment is greater than 25% of the purchase price or appraised value, the lender will allow you to make your own property tax payments.
Portable Mortgage
An existing mortgage that can be transferred to a new property. One would want to port their mortgage in order to avoid any penalties, or if the interest rate is much lower than the current rates.
Prepayment Penalty
A fee charged a borrower by the lender when the borrower prepays all or part of a mortgage over and above the amount agreed upon. Although there is no law as to how a lender can charge you the penalty, a usual charge is the greater of the Interest Rate Differential (IRD) or 3 months interest.
Prime
The lowest rate a financial institution charges its best customers.
Principal
The original amount of a loan, before interest.
R
Rate Commitment
The number of days the lender will guarantee the mortgage rate on a mortgage approval. This can vary from lender to lender anywhere from 30 to 120 days.
Refinancing
Repaying an existing loan from the proceeds of a new loan on the same property. Usually the borrower does this to reduce their monthly costs which can be done by extending the amortization period and/or procuring a lower interest rate on the mortgage.
Renewal
When the mortgage term has concluded, your mortgage is up for renewal. It is open at this time for prepayment in part or in full, then renew with same lender or transfer to another lender at no cost (we can arrange).
S
Second Mortgage
A debt registered against a property that is secured by a second charge on the property. It is subordinate to the first mortgage and it is only payable upon liquidation of the property and the first is paid in full.
Switch
To transfer an existing mortgage from one financial institution to another.
Subordination
A loan in a lower priority, for example a second mortgage is subordinate to a first.
T
Term
The length of time the financing agreement covers. The terms available are: 6 months, 1,2,3,4,5,6,7, and 10 year terms, and the interest rates will be fixed for whatever term a borrower chooses.
Title
Proof/Evidence that the owner of the property is in lawful possession. Evidence of ownership.
Total Debt Service (TDS) Ratio
It is the other mathematical calculations used by lenders to determine a borrower’s capacity to repay a mortgage. It takes into account the mortgage payments, property taxes, approximate heating costs, and 50% of any maintenance fees, and any other monthly obligations (i.e. personal loans, car payments, lines of credit, credit card debts, other mortgages, etc.), and this sum is then divided by the gross income of the applicants. Ratios up to 40% are acceptable.
U
Underwriting
The lending institutions decision to make a loan to a potential home buyer based on credit, income, employment history, assets and general marketability of the property determined by a qualified appraiser.
V
Variable Rate Mortgage(VRM)
A mortgage for which the interest rate fluctuates based on changes in prime.
Vendor Take Back (VTB) Mortgage
A mortgage provided by the vendor (seller) to the buyer.
W
Waiver
The voluntary renunciation, abandonment, or surrender of some claim, right, or privilege.
And this isn’t all…
Keep a lookout when comparing different mortgages.
It’s even more important when sizing up deep discounted mortgages because the lower the rate, the greater the likelihood that a mortgage will be somehow restricted.
