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Glossary
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THESE SIMPLE JARGON - FREE definitions AND examples
WILL help YOU ON YOUR WAY HOME
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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.
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