Glossary

Amortization

The period required to reduce a debt to zero when payments are made regularly.

Appraisal

A written justification of the price paid for a property. This process is primarily based on an analysis of comparable sales of similar homes nearby. It can help the purchaser or the mortgage lender determine the value of the property. 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 and take over the responsibility for the obligations of a mortgage by the original owner.

Assessment

The placing of a value on property for the purpose of taxation.

Building Permit

A certificate that must be obtained from the municipality before a building can be erected or repaired. It must be posted in a conspicuous place until the job is completed.

Certificate of deposit

A time deposit held in a bank which pays a certain amount of interest to the depositor.

Closing Costs

Costs that are payable on the closing date. These costs in addition to the purchase price of the home include costs such as legal fees, transfer fees and disbursements. 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.

Conditional Offer/ Conditions of Sale

An Offer to Purchase that is subject to detailed conditions, for example, the arranging of a mortgage. There is usually a time limit within which the specified conditions must be met.

Collateral

In a home loan, the property is the collateral. The borrower risks losing the property if the loan is not repaid according to the terms of the mortgage or deed of trust.

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.

Commission

Monies earned by sales people for the work that they do. Sales professionals involved in each transaction may include realtors, loan officers, title representatives, attorneys, escrow representative, and representatives for pest companies, home warranty companies, home inspection companies, insurance agents, and more.

Common areas

Those portions of a building, land, and amenities that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas may include swimming pools and other recreational facilities, common corridors of buildings, recreation rooms, parking areas, etc.

Commitment Letter / Mortgage Approval

Written notification from the mortgage lender to the borrower that approves 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

A failure to make mortgage payments or abide by the terms of a mortgage. This 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 can be held by a lawyer until the sale is closed, and then paid to the vendor.

Down Payment

The portion of the house price the buyer must pay from personal resources, before securing a mortgage. It generally ranges from 5%-25% of the purchase price.

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.

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 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 against payment default.

Holdback

An amount of money withheld by the lender during the progress of construction of a house to ensure satisfactory construction 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 lesser of purchase price or market value of a property.

Lien

A claim against a property for money owing. A lien may be filed by a subcontractor who 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 lien-holder takes action within the prescribed time, the homeowner may be obliged to pay the amount claimed by the lien-holder. The lien-holder can force a sale of the property to pay off the debt.

Maturity Date

The last day of the term of the mortgage agreement. On this day the mortgage can be 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.

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.

Mortgage Payment

A regularly scheduled payment. This payment includes 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 documented 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.

Principal

The amount of money actually borrowed.

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.

Vendor Take Back Mortgage

Mortgage financing arranged between the seller of the property and the buyer. The title is transferred 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.