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Glossary of Terms

Glossary of Mortgage And Real Estate Terms

 

Adjustable rate mortgage (ARM)

A variable or flexible rate mortgage with an interest rate that varies according to the financial index it is based upon. To limit the borrower’s risk, the ARM may have a payment or rate cap. See also: cap.

 

Amortization

The liquidation of a debt by regular, usually monthly, installments of principal and interest. An amortization schedule is a table showing the payment amount, interest, principal and unpaid balance for the entire term of the loan.

 

Annual percentage rate (APR)

The actual interest rate, taking into other finance charges, for the projected life of a mortgage. Disclosure of APR is required by the law and allows borrowers to compare the actual costs of different mortgage loans.

 

Appraisal

An estimate of a property’s value and economic life determined by a qualified professional appraiser. The value may be based on replacement cost, the sales of comparable properties, or the property’s income-producing ability.

 

Appreciation

Property’s increase in value due to market conditions.

 

Assessment of property

Charges levied against a property for tax purposes or to pay for municipal or association improvements such as curbs, sewers, or grounds maintenance.

 

Assignment

The transfer of a contract or a right to buy property at given rates and terms from a mortgagee to another person.

 

Assumption

An agreement between a buyer and a seller, requiring lender approval, where the buyer takes over the payments for a mortgage and accepts the liability.

 

Basis point (BPS)

Basis point is a unit that is equal to 1/100th of 1% . This is used by the financial industry when discussing interest rates. Each point equals 1% of the loan amount; for example, two points on a $100,000 mortgage equals $2,000. Discount points are used to buy down the interest rate.

 

Bi-weekly mortgage

A loan requiring payments of principal and interest at two-week intervals. This type of loan amortizes much faster than monthly payment loans.

 

Bridge loan

A loan to “bridge” the gap between the termination of one mortgage and the beginning of another, such as when a borrower purchases a new home before receiving cash proceeds from the sale of a prior home.

 

Broker

An intermediary between the borrower and the lender. The broker may represent several lending sources and charges a fee or commission for services.

 

Buy-down

A type of mortgage which requires the buyer to pay additional discount points or make a substantial down payment in return for a below-market interest rate.

 

Closing costs

Costs payable by both seller and buyer at the time of settlement, when the purchase of a property is finalized.

  • Fees Paid to the Lender  Fees Paid in Advance Other Charges
  • Appraisal fee
  • Assumption fee if loan is assumed
  • Interest from the closing date to the beginning of the 1st payment
  • Fire/ earth quake  insurance premium
  • Mortgage insurance premium
  • Title search and title insurance
  • Sales commissions
  • Legal and recording fees
  • Inspection and survey fees
  • Property taxes and other adjustments
  • Processing and document preparation fees

 

CMHC

Canada Mortgage Housing Insurance, one of the providers of high-ratio mortgage insurance to protect the lender from default by the borrower with a less than 20% down payment.

 

Collateral

Something of value pledged as security for a loan. In mortgage lending the property itself serves as collateral for a mortgage loan.

 

Collateral charge mortgage

Generally, a HELOC or secured line of credit is registered as a collateral charge. Some lenders have adopted this type of registration for all their mortgages. This allows the lender to register 100% of the value of the property.

 

Co-mortgagor

One who is individually and jointly obligated to repay a mortgage loan and shares ownership of the property with one or more borrowers. See also: co-signer.

 

Condominium

An individually owned unit within a multi-unit building where others or the Condominium Owners Association share ownership of common areas such as grounds, parking facilities and tennis courts.

 

Construction loan

A short-term loan financing improvements to real estate, such as the building of a new home. The lender advances funds to the borrower as needed while construction progresses. Upon completion of construction ,the borrower must obtain permanent financing or repay the construction loan in full.

 

Conventional loan

A mortgage loan that is not insured, guaranteed or funded by the an insurer like Canada Mortgage Housing  Insurance.

 

Convertible mortgage

An adjustable rate mortgage (ARM) that allows a borrower to switch to a fixed-rate mortgage at a specified point in the loan term.

 

Co-signer

A person who is obligated to repay a mortgage loan should the borrower default but who does not share ownership in the property.

 

Covenants

Rules and restrictions governing the use of property.

 

Curtailments

The borrower’s privilege to make payments on a loan’s principal before they are due. Paying off a mortgage before it is due may incur a penalty if specified in the mortgage’s prepayment clause.

 

Debt

Money owed to repay someone.

 

Debt-to-income ratio

The ratio between a borrower’s monthly payment obligations divided by his or her net effective income (insured ) or gross monthly income (conventional loans).

 

Default

When you do not pay the loan/ mortgage obligation as agreed upon by the contract.

 

Deposit money

A deposit in the form of cash or certified cheque given to your agent as good faith assurance that the buyer intends to go through with the purchase of a property. The deposit is generally kept in trust at the buyer’s real estate office.

 

Down payment

The difference between the purchase price and mortgage amount. The down payment becomes the property equity. Typically it comes from cash savings or RRSP , but it can also be a gift that is not to be repaid to an immediate  family member.

 

Duplex

A dwelling divided into two units.

 

Easement

The right one party has in regard to the property of another, such as the right of a public utility company to lay lines.

 

Equity

The value of a property beyond any liens against it. Also referred to as owner’s interest.

 

Fair market value

The price a property can realistically sell for based upon comparable selling prices of other properties in the same area or an appraisal evaluation.

 

Fee simple

The maximum form of ownership with the right to occupy a property and sell it to a buyer at any time. Upon the death of the owner, the property goes to the owner’s designated heirs. Also known as fee absolute.

 

First mortgage

The registered mortgage that is  the first lien on your property. The only time a first mortgage changes positions is when there is a government lien.

 

Fixed-rate mortgage

The mortgage is set to the term for a fixed period; payments may not change.

 

Gift

A sum of money, including amounts from a relative, that does not have to be repaid.

 

Gross monthly income

Income that is earned per month including taxes and other deductions.

 

Home equity loan

A mortgage on the borrower’s principal residence, usually for the purpose of making home improvements or debt consolidation.

 

Home inspection

A thorough review of the physical aspects and condition of a home by a professional home inspector. This inspection should be completed prior to closing so that any repairs or changes can be finished  before the transfer of the home takes place.

 

Homeowner’s insurance

A form of insurance that protects the owner of the insured property against loss from theft, liability and most common disasters.

 

Income approach to value

A method used by real estate appraisers to predict a property’s anticipated future income. Income property includes shopping centers, hotels, motels, restaurants, apartment buildings, office space, etc.

 

Interest rate

The simple interest rate, stated as a percentage, charged by a lender on the principal amount of borrowed money. See also: Annual Percentage Rate.

 

Lien

A claim against a property for the payment of a debt. A mortgage is a lien; other types of liens a property might have include a tax lien for overdue taxes or a mechanic’s lien for unpaid debt to a subcontractor.

 

Liquidity

The ease with which an asset can be converted into cash.

 

Loan-to-value ratio (LTV)

The relationship, expressed as a percentage, between the amount of the proposed loan and a property’s appraised value. For example, a $50,000 loan on a property appraised at $100,000 is a 50 % loan-to-value ratio.

 

Lock-in / Fixed closed term

The guaranty of a specific interest rate and payment  for a specific period.

 

Maintenance costs/Fee

The cost of the upkeep of the house, or the monthly charge based on the size of your strata unit for upkeep on the building. Also referred as a condo fee.

 

Market value

The price a property can realistically sell for, based upon comparable selling prices of other properties in the same geographical area.

 

Modification

A change in the terms of the mortgage note, such as a reduction in the interest rate or a change in maturity date.

 

Mortgage

A legal instrument in which property serves as security for the repayment of a loan bound by its terms and conditions.

 

Mortgage banker

A lender that originates, closes, services and sells mortgage loans to the secondary market.

 

Mortgage broker

An intermediary between a borrower and a lender. A mortgage broker’s expertise lies in helping borrowers find financing that they might not otherwise find themselves.

 

Mortgage insurance

Money paid to insure the lender against loss due to foreclosure or loan default. Mortgage insurance is required on conventional loans with less than a 20% down payment. CMHC mortgage insurance requires a payment of 5% of the loan amount to be paid at closing, There is a set, one-time premium that can be added to  the mortgage.

 

Mortgage amortization

The length of time that a mortgage is scheduled to exist. Example: a 25-year mortgage term is for 25 years.

 

Mortgagee

The lender.

 

Mortgagor

The borrower.

 

P&I

Abbreviation for principal and interest.

 

PITI

Abbreviation for principal, interest, taxes and insurance.

 

PITH

Abbreviation for principal, interest, taxes, insurance and heating costs.

 

Penalty

Two forms of penalty are applicable: interest rate differential and 3 months’ interest penalty.  Penalties occur when you pay more than allowed on your  mortgage agreement.

 

Pre-qualification / Pre-approval

Tentative establishment of a borrower’s qualification for a mortgage loan amount of a specific range, based on the borrower’s assets, debts, income, employment status and credit history. This is usually only for rate holds as lender does not require verification of supporting documents.

 

Prime rate

Interest rate used by banks.

 

Principal

The amount of the entire mortgage loan, not counting interest.  Also, as a part of PITI, the amount of the monthly mortgage payment that does not include the interest, insurance and taxes.

 

Pre-payment

The lender allows the borrower the ability to pay an additional amount , monthly and annually, on top of the regular payments. Sometimes called anniversary payments.

 

Property tax

The amount which the federal and/or municipality assesses a tax on a piece of property.

 

Prorate

To proportionally divide amounts owed by the buyer and the seller at closing.

 

Qualification

As determined by a lender, the ability of the borrower to repay a mortgage loan based on the borrower’s credit history, employment status, assets, debts and income.

 

Right of rescission

The right to back out of a transaction, given automatically by law to the borrower in a real estate purchase transaction. When a borrower’s principal dwelling is going to secure a loan, the borrower has three business days following signing of the loan documents to rescind or cancel the transaction.

 

Second mortgage

A loan that is junior to a primary or first mortgage and often has a higher interest rate and a shorter term.

 

Survey

A physical measurement of property done by a registered professional showing the dimensions and location of any buildings as well as easements, rights of way, roads, etc.

 

Tax sale

A written document conveying title to property repossessed by the government due to default on tax payments.

 

Taxes

As a part of PITI, the amount of the monthly mortgage payment which does not include the principal, interest, and insurance.

 

Tenancy

Joint Tenancy – equal ownership of property by two or more parties, each with the right of survivorship.

Tenancy In Common – equal ownership of property by two or more parties without the right of survivorship.

 

Title

A formal document establishing ownership of property.

 

Title search

Is usually done  by the real estate agent and lawyer to insure  legal owner ship and any encumbrances on the property.

 

Title insurance

A policy issued by a title insurance company insuring the purchaser against any losses resulting from errors in the title search. The cost of title insurance may be paid by the buyer.

 

Underwriter

A professional who approves or denies a loan to a potential homebuyer based on the homebuyer’s credit history, employment status, assets, debts and other factors, such as loan guidelines.

 

Utility/Heating costs

Periodic housing costs for water, electricity, natural gas, heating oil, etc.

 

Variable rate mortgage (VRM)

Is a floating rate mortgage, based on prime plus or minus. When prime goes up your mortgage payments will go up as well.

 

Walk-through

An inspection of a property by the prospective buyer prior to closing on a mortgage.

 

Yield

The rate of earnings from an investment.

 

Zoning

The ability of local governments to specify the use of private property to control development within designated areas of land. For example, some areas of a neighborhood may be designated only for residential use and others for commercial use such as stores, gas stations, etc.

 


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